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With Halloween only days away, let’s explore a topic that frightens many – municipal budgets.
Though they can be hundreds of pages long and include some unfamiliar terms, municipalities’ annual budgets aren’t actually that scary. In fact, they’re similar to the budget for many other enterprises. They estimate expenses, project revenues and ideally show a net positive figure at the end.
For cities, expenses are primarily the services we rely on daily – police and fire protection, trash collection, recreation and infrastructure. For most municipalities in South Carolina, revenues are dominated by property taxes, business license fees and franchise fees. Local option sales tax, accommodations tax and other fees vary in significance city by city.
Growing municipalities generally enjoy growing revenues because more people means more taxable real estate and more new businesses paying license fees and generating sales tax. Our stable population growth rate region wide (roughly 2.3% annually) means most of our municipal governments have seen steady growth in their annual budgets without significant hikes to their property tax rates.
This straightforward tax philosophy – a growing base with moderate rates to pay for essential government services – is widely touted as the recipe for economic prosperity.
But what if a municipality stopped growing?
If new properties aren’t brought onto the tax rolls and business growth slows, a municipality can expect its tax revenue to flatten. Assuming the cost to provide services and maintain infrastructure increases with inflation, a city will soon face a difficult decision: either increase tax rates or cut services.
In South Carolina, the equation is more complicated. Act 388, passed in 2006, severely limits local government’s ability to raise taxes on owner occupied properties. So the only real option to increase revenue is to increase taxes and fees paid by businesses.
The Charleston Metro Chamber embraces balanced, sustainable growth because it creates more economic opportunity and higher quality of life for more people in our region. But growth is also good for the fiscal health of our municipalities.
The next time you’re in a conversation with someone who’d like to stop all growth, ask whether they’d prefer to see their taxes increase or their public services cut.