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Aug 03, 2016

Will the Courts Get Involved in Act 388 in SC?

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Declaration of Independence

Tyranny is a strong word. Or it was. You hear it nowadays mostly in hyperbole as some kind of personal accusation so as to mean: you are being an unreasonable, stubborn, so and so… a tyrant I say, a tyrant! Tyranny is also something we say when talking about the American Revolution, or something we hear said of a country far away. These things are tyranny in a media-driven world.

But the definition of tyranny is when a law is harmful to those it governs while in the interest of those who protect it.  When a group of people can block a specific change based on self-interest or district-interest, while the harms to a segment of the governed are visible, openly discussed, and mathematically certain… when this is happening, this is tyranny. It’s what’s happening in York County with Act 388. Sure, it’s business-like, cordial tyranny, but a tyranny all the same.

Act 388 is a law in SC that lowers personal property taxes and increases industrial/commercial property taxes. Seems boring, right? Just a complexity of tax code? Well, this little complexity has actually created a disproportionately large problem. It’s actually at the heart of a visible and mathematically predictable financial failure in York County. Here’s how it plays out.

People from all over the world and all over the nation move to Charlotte for a whole host of reasons. They move their business here. They move their families here. The city continues to grow. When they look around Charlotte for where to live or where to put their business they learn about something very interesting. South Carolina has the lowest residential property tax in the nation. OH, so I should live in South Carolina. Great. They also learn that South Carolina has the highest Industrial tax in the nation. So, I will definitely NOT put my business in South Carolina. Right? I’d be a fool to pay hundreds of thousands of dollars more to have a facility in South Carolina when I can have it right up the road. I don’t care what state it’s in. Why pay more? So, I have a plan. I’ll live in Lake Wylie or Fort Mill, and I’ll work in Charlotte or Matthews or Gastonia. These are jobs going elsewhere. They’re not the knowledge economy jobs we hear so much about. The county’s doing well with those with the efforts of Knowledge Park in Rock Hill. These are the jobs for the folks in the county. These jobs are going to North Carolina. But the executives of the businesses are living in our communities.

So, who cares? Let’s admit that the eastern part of the county is a bedroom community to Charlotte and move on? That’s what it is from a national perspective anyway. So, what’s the big deal? Well… it’s not the changing makeup of the community that is the injustice that arises from the law at hand. The injustice comes into play with the following formula:

For every $1.00 we collect from a resident, it takes $1.45 to serve that resident. This is because of the residential tax decrease created by Act 388. Yes, you heard right. We are literally upside down 45 cents for every dollar in property taxes we collect from a resident. We’re owing money for every service we provide. Could you imagine if you ran a business this way? It would quickly run into the ground.

So, to make up for it. The taxes have been increased on the commercial side. For every $1.00 we collect on the industrial side, we spend $.35 to service. That’s how we make up the loss on residential.

So, as long as there is enough industrial/commercial, then we can get by.  BUT… here’s the kicker: the exact effect of the lowering of residential taxes and increasing of industrial taxes creates market forces that pull in residential and push away industrial.

And remember, this is not just some financial complexity. This is literally us watching ourselves get upside down dollar by dollar. In 2000, our county’s property tax revenue was 39% residential. In 2014, residential had climbed to 56%. And we’re losing money hand-over-fist in residential.

It’s like watching your business run out of money and fail. Not because you chose a bad location, but because of a specific rule that YOU created and refuse to change. A rule that has you charging half your costs on your steaks and quadruple your margins on your fish. And you stand and wonder why you’ve become a steakhouse, and you wonder why you’re starting to have cash flow problems.

Everybody in South Carolina is losing money on every dollar we collect on the residential side, and we’re trying to make it up from the commercial side. But, this equation stays more in balance in other parts of the state. Due to being on the state border and in the Charlotte market, York County is drowning in this calamity. Residential continues to grow; the proportion of commercial continues to shrink. The imbalance grows, and eventually the whole thing topples over. It’s visible and mathematically predictable.

This is why residential expansion is so rampant in Fort Mill that the community is considering things like moratoriums and mandatory freezes of market activity – demonstrating that the private sector incentives are set up as diametrically opposed to the health of the community.

When this happens, you have to stop and look at what policies are artificially incentivizing the market forces at play. You can try to introduce thin, local policy to attempt to barricade the flood of market forces, but it won’t work out well. Not only is it weak, but it fuels the fire to a pitting of public versus private that is not where we need to be as a community. As long as you have these two forces pulling in opposite directions, you will have an exacerbating problem. Where capitalism is used well is when these forces are aligned: what’s good for an individual and what’s good for a community. It’s all working in the same direction… that’s where success comes from.

So, you’ve heard the story… let’s just remove Act 388 and be done. Right? It’s the revenue switch that created this whole problem and is obviously harmful to its citizens here in York County. Simple enough, right?

Yet, when we as a community say, obviously the law is causing harm, please just remove it from applying to us, we are told, “Well, you know, politics are tough…” or “Well, Columbia’s not an easy place to get something like that done…” or that a particular person or group will never let that happen. And then a chuckle about the the good ol’ boy strongholds in South Carolina politics. Haha. Well… it’s not funny. This stuff is silly and a sideshow. I don’t know any of these people and can’t speak to their character; I assume it is good. But unfortunately it sounds like, at best, the apathy of men is at play. We can’t let this stop us from making a pragmatic decision to stop a visibly harmful law from being applied. Yes, it is true that any such men will gray and fade, and inevitably the change will happen anyway. But, we can’t afford to wait on this one. The clock is ticking, and York County’s pending financial failure is the bomb. We have neither the luxury nor the right to wait. For if a law is creating obvious, visible harm to a population, it is the population’s duty to throw off such a law as unjust. And whereas this same law is in the interest of those who protect it, it is tyranny by its very definition.

Yet, we have clamoured so for a decade or more from here in York County, and no change has come from our government in Columbia that imposed and controls this law. So, I wonder, out of frustration admittedly, but more of a lack of knowing what else to do, I wonder what if a collaboration of entities (like the schools, the chamber, the municipalities, the county, etc.) used the courts to address Act 388?

I mean, it’s staggering to me that the ills of Act 388 is a commonplace topic in the meetings and forums and other citizen engagement and education events. It’s presented over and over as obviously harmful, and our #1 local issue. It’s just accepted as normal that it’s killing us locally, but we can’t do anything about it because of Columbia. “OK, so this next slide is our pending financial doom. Good. Ok, now who wants to break for cookies?”

The chamber and public/private business and civic leadership groups have pressed our elected officials to create change – to reverse 388, to do comprehensive tax reform. And then stuff like this happens in Columbia. (Yes, this literally happened.) The House formed a group to study comprehensive tax reform. Then the protectors of 388 got involved and said, “Great, design a whole new tax code for the state. Good job, we support you. Oh, but wait, we’re making a rule that you can’t touch Act 388. It’s off the table. So, you know just comprehensively overhaul our tax system, sure, but literally you can’t change Act 388 at all. It has to remain as is. But, sure, reform your little hearts out otherwise.” It’s shocking to me. As obviously ridiculous as that is, that seriously happened. And people went along with it.

It’s not in question that the property tax imbalance created by Act 388 creates a visible and mathematically predictable financial doom for York County. Therefore, the law is harmful to the people it governs (the citizens of York County), yet it is protected by a group of people who have interest in doing so. Surely it’s unfair to call any of these men tyrants, but it is tyranny at play all the same – masked in complexities, bureaucracy, and politics.

Our representatives will say, “Ask the people. Do they want to pay higher taxes on their homes? Because their property taxes will go up.” Well, of course not. Nobody wants to pay higher taxes on anything. That’s a ridiculous question. It’s intentionally misleading and is exactly how the current inaction is maintained. You can easily flip this over and ask, “Do you want all of our jobs going to North Carolina?” Or, “Do you want Columbia to be able to dictate to us that we have to follow a law that will bankrupt our county?” And you’d get a resounding NO from all the same people who said no to higher taxes (which is everybody of course). Questions like these are manipulatively set up on opposite sides of a rhetorical game being played by people with other motives. It’s not helping, and it’s a waste of everyone’s time, plus it’s an insult to our citizens. It’s like stuff the bad guys do in every 80s movie.

You can see, though, why “Do you want higher taxes?” wins in a political yelling match. It’s a simple powerful question with an obvious answer. It’s something we can all say no to, right? And it’s being used in a manipulative fashion to derail any efforts to address this problem. But we need to get beyond that. We need to say to those who don’t know: The math is simple and predictable. Failure is directly ahead, friends. And the self-interest of the distant is controlling your fate because you are buying a line. And our representatives buy into it too and say, “Nobody wants to run on a platform of raising taxes. That will never win.” To that I say: If our representatives think that the citizens of York County are so self-interested that they will choose to gather and horde water on a sinking ship, then those representatives don’t know the character of the people of this community. It’s instead the representatives responsibility to educate the people and lead them in the direction of what’s best for them and the community.

The point is that lawmakers are supposed to represent the interest of the citizens. All the lawmakers are being shown over and over and over again that Act 388 is causing predictable financial failure for York County. As such, they have the obligation to remove the law.

But, here’s what it goes south. Next, you’ll hear someone who agrees with me say: “No, what we really need to do is to drop all of the tax deductions.” And then you’ll hear someone say, “Well, what we really need is comprehensive tax reform.” And then we all agree, and then nothing happens.

Of course we need comprehensive tax reform, but that’s the job of our lawmakers, and it’s not happening. What I’m talking about here is about focus. It’s about a specific injustice that is obvious and undeniably harmful to it’s citizens.

There is one swift, clean action to take. Repeal Act 388. It’s simple and will immediately remove the specific injustice that is present. It cannot be believably argued that our entire tax system is unconstitutional, but it’s a no brainer for Act 388. It’s our duty to remove it – regardless of where we take our state’s tax code from there.

Our lawmakers have failed to act and include those interested in perpetuating this law for their own and/or their own district’s benefit. So, before we speak the words “revolution against tyranny,” we should see if the courts can help create change. Help us force a stop to an unjust law – defined so because of its visible and unquestioned harm to the community it governs here in York County. A tyranny through politics, bureaucracy, and business-like self-interest.

So, I pose the question: Will the courts get involved in Act 388 in South Carolina, for the sake of the citizens of York County? Or is that a path of impotence as well?

[Originally published on LinkedIn]

Author Details
Jason
Jason Broadwater

Jason is a keynote speaker and project designer for economic development and community collaboration in the New Economy. Jason is also founder of RevenFlo (an internet marketing and application development company).

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