Lowndes County School District won a major court victory Friday in its effort to secure more local tax funding for operations.
Chancery Court Judge Rodney Faver issued a ruling siding with the school district in its lawsuit against the county. The ruling concluded LCSD was entitled to claim tax collections from companies with expiring fee-in-lieu agreements as “new property” without it counting against the state-mandated caps for how much local ad valorem taxes a school district can request year-over-year.
On its face, the ruling essentially does two things: It tells the county it was wrong in denying LCSD more than $3 million in requested ad valorem for 2020-21, and it sets up a scenario where LCSD could raise taxes on its patrons by about 20 percent for this fiscal year without a referendum.
“It was a significant judgment for us,” LCSD Superintendent Sam Allison told The Dispatch. “It was what we expected it to be. Now we’ll just have to wait and see what the county board of supervisors will do.”
Each year, school districts request local tax funding from their tax-levying agency, whether it is a county or municipality, to cover operations and debt service. By law, a school district can only request for operations an up to 4 percent increase from the previous year’s collections, plus new property, to avoid a potential referendum. Up to 7 percent triggers a potential reverse referendum, meaning citizens can sign a petition to get the tax hike on the ballot, and 7 percent or more requires a direct referendum.
The lawsuit
In August 2020, LCSD requested $27.4 million in local taxes (including roughly $21.1 million for operations), claiming it was a 4-percent increase in operations from the $16.5 million collected for operations the year before, plus more than $3 million in “new property” collections due from expiring industrial fee-in-lieu agreements.
Industries investing at least $60 million are eligible for fees-in-lieu, which allow the industry to pay one-third of what their taxes would be for up to 10 years. For 2020-21, several of those agreements expired, chiefly a high value phase of Steel Dynamics, and LCSD claimed it was entitled to those full collections as new property since it had never been on the tax rolls.
Otherwise, the district argued, it would never see the full tax benefits from those industries since it could only request a 4-percent increase in operational revenue each year.
Fulfilling the request would have raised the school district’s tax rate by roughly 4 mills for Fiscal Year 2021, which would have increased property owners’ tax bills by about $40 per every $100,000 of assessed property value. Supervisors, however, rejected the request on the basis that the expiring fee-in-lieu was not new property and the district’s request exceeded a 7-percent increase. Instead supervisors approved $24 million for LCSD (about $18 million of which was for operations) and lowered LCSD’s tax rate by 2 mills.
LCSD sued the county in October 2020.
The county’s argument was that “new property” can only be counted if it had never previously been assessed. For example, if a new business or housing development was built in FY 2020, it could be considered new property in 2021. Industrial property on fee-in-lieu, however, had to be assessed in order to determine the one-third fee, which had been paid over 10 years.
Faver’s ruling disagrees with the county, making clear the “fee” was “in lieu” of taxes and declared that property entered the tax rolls for the first time last year, meaning LCSD could count it as new property plus an up to 7 percent increase in operations without a direct referendum.
LCSD declared a shortfall in local revenue in June of this year for the $3 million the county denied in its request. That allows LCSD to issue debt for that loss, which it will pay back over three years, and continue counting it toward its operational base. It plans to request $27.9 million ($21.3 million for operations) in local ad valorem for Fiscal Year 2022.
By LCSD’s own estimates, that will raise the millage from 44.76 to 52.35 this fiscal year. That 7.59-mill increase will add to property owners’ tax bills $75.90 per $100,000 of assessed property value. County authorities have estimated the increase will be closer to 9 mills.
Board of Supervisors President Trip Hairston told The Dispatch the county is weighing its options of whether to appeal the ruling. At minimum, he said, he would like to ask Faver for clarification in his ruling as to what the county should do about the $3 million it denied LCSD last year.
As for what the board will do on Aug. 16, when supervisors are set to vote of LCSD’s $27.9 million ad valorem request for this fiscal year, he wasn’t sure.
“We’re all just trying to process it at this point,” Hairston told The Dispatch Friday. “I’m disappointed in the ruling because any time you raise your request to the taxpayers by more than 7 percent, you should have to have a referendum. Convince the voters you need it.”
Even with the ruling, Hairston said he is imploring the district to adopt incremental increases instead of jumping taxes up all at once.
“Just because you can do something doesn’t mean you should,” Hairston said.
However, Allison said this year’s tax burden increase would look larger than it should because of the supervisors’ actions last year. If they had approved last year’s request, the tax increase would have been incremental, he said.
Also, if LCSD did not claim all fees-in-lieu as new property as they expired, they would never legally have the chance again.
Budget hearing
At a public hearing on the FY 2022 school budget held Thursday, school district officials laid out why they needed the additional revenue.
For years, LCSD’s millage rate was static at 46.71. During those years, the board never asked for new property or a 4-percent increase in operational revenue. Some years, its request was actually lower than the previous year.
LCSD issued bonds to pay for major construction projects across the district in 2017, ballooning over time the 2.55 mills it was issuing for debt to the nearly 12 mills it dedicated to debt service last year. Since the total millage rate wasn’t rising during that time, it drove down operational mills from roughly 44 to 32 over that span.
That drove the district’s once $17 million fund balance down to about $6 million two years ago, Business Manager Sayonia Garvin reported Thursday. It has since grown back to more than $13 million as of June 30.
Each of the last three years, however, LCSD has borrowed millions in tax-anticipation notes to pay bills in December because the fund balance has been depleted. Most of the district’s ad valorem revenue, which makes up nearly 40 percent of its total budget, comes in between January and March each year. The TANs essentially allow the district an advance on those collections, which it pays back, with interest, once collections arrive.
In order to avoid TANs, the district needs at least $15 million in its fund balance as of July 1. Building a stronger fund balance also will help the district addressed long-deferred maintenance to its facilities — some things even as simple as painting classrooms.
“It’s not really about building fund balance,” Allison said. “It’s about having enough money to operate. … From July to December (each year), we don’t spend money we don’t absolutely have to because we’re one major disaster or breakdown away from having to call the bank.”
Hairston attended Thursday’s meeting, in advance of Friday’s court ruling. While he said he understood LCSD’s position, he made similar pleas for an incremental increase rather than taking it all in one fell swoop.
“I’m worried about the taxpayers getting this in the mail,” Hairston said, waving an envelope containing his own property tax bill from the county. “… Your phones are going to be ringing.”
Board members and Allison countered with claims the county had raised millage for itself in years LCSD had not increased, and the supervisors shouldn’t blame the school district for a big tax increase.
“If it’s bothering you that the taxpayer will be paying more, then lower your mills,” Allison told Hairston.
Zack Plair is the managing editor for The Dispatch.
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