ncreasingly the decisions that most significantly impact the quality of life of our citizens are made at the local government level.  The majority of governmental services that affect the day-to-day lives of citizens are provided by local government; e.g., fire and police protection, emergency medical services, infrastructure (water, sewer, drainage, streets, sidewalks, etc.) education, parks and recreation, and cultural activities.  Local governments are becoming the focal point of the intergovernmental system. As noted by Holley Ulbrich and Ellen Saltzman in the Summer 1997 issue of The South Carolina Policy Forum, “ As the federal government has shifted programs and responsibilities to the states, the state in turn has shifted responsibilities and granted new authority to local governments.  While this process has not been as dramatic in South Carolina as in other states, local governments in this state are offering a greater variety of services and tapping a more diverse array of revenue sources in the 1990s than they did in the earlier decades.”  As we enter the 21^st century it seems quite likely that local governments will continue to be looked upon to respond to a broad array of needs and to deliver services to address them.

Local government in South Carolina consists of general purpose governments as well as special purpose governments.  The 46 counties and 269 municipalities comprise the general purpose governments. These local governments are political subdivisions of the state as they find the basis of their authority and governance structure in the State Constitution and in the Code of Laws of South Carolina.  The most notable piece of legislation defining their structure and authority is the Home Rule Act of 1975.

Both counties and cities in South Carolina have been granted the authority to exercise broad  “police powers.” Municipalities have had this authority for some time and counties were given a clear grant of general police powers in 1989 with passage of Act 139 of 1989 (Section 4-9-25).  These powers allow them to legislate for the purpose of regulating public health, safety, welfare, morals and abatements of nuisances, so long as such regulations do not contradict constitutional and statutory rights of citizens and general state law. These general purpose local governments deliver a broad array of services to address the needs and demands of their citizens. As was noted earlier, the majority of governmental services that affect the day-to-day lives of South Carolina’s citizens are provided by these general purpose local governments.  The notable exception is public education and that too is provided at the local government level by the school districts.

Although cities and counties have great latitude when it comes to the services they provide, when it comes to the ability to raise the revenue to pay for these services and the revenue sources, there is considerable debate about the authority of general purpose local governments. Much of this debate has centered around the issue of what is a tax and what is a fee. The State Supreme Court has ruled that local governments clearly have significant latitude to raise the revenue necessary to fund these services, particularly through uniform service charges and fees (see Williams v. Town of Hilton Head Island and Brown v. Horry County).   The question of the ability to assess taxes not specifically authorized in statute is much less clear.  The General Assembly has not extended fiscal home rule to counties and municipalities.  This means that counties and municipalities cannot impose taxes that they are not specifically authorized to levy by general state law.  This was most recently affirmed by the passage in 1997 of the Fiscal Authority Act (Act No. 138 of 1997) in which the General Assembly stated that a “local governing body may not impose a new tax after December 31, 1996, unless specifically authorized by the General Assembly.”  The General Assembly also defined the sources of revenue available to counties and municipalities and grappled with the issue of what is a tax and what is a fee (Pierce and Thomas, March 2000).

The 86 school districts in South Carolina have the responsibility for providing K-12 public education for the state’s children.  Nationally and in South Carolina, responsibility for education funding for public schools is shared primarily between state and local governments, with the local share coming almost exclusively from property taxes.  Finding the funding to meet increasing state and federal mandates and to educate a growing student population is a significant challenge for the state’s public schools. Unlike cities and counties, schools have no significant other source besides the property tax.  Also, as compared to cities and counties, school districts, which are frequently the local governmental unit most affected by residential development, are not allowed to impose impact fees. Further complicating the funding issue is the fact that the state’s 86 school districts have widely varying degrees of control over their budgets and their millage rates.  This ranges from no autonomy (approval by legislative delegation, county council, or county board of education) to total autonomy.

The funding of local government (counties, municipalities, and school districts) in South Carolina, and across the nation, has emerged as a key issue at both the local and state levels.  The private sector has also taken a keen interest in this issue.  The existing local government funding system in South Carolina has evolved over time in a somewhat ad hoc manner. With dramatic population growth in recent years local government fiscal demands are increasing, as are demands for services. There is a growing consensus that the existing local government funding system no longer serves the interests of local governments, the state as a whole, the business community, or the citizenry at large.  There is also concern that it is not reflective of the rapidly changing economy; an economy that is currently in the midst of a fundamental transition away “from manufacturing and towards service and trade industries” (Schunk and Woodward, 2000).

THE PROJECT

To many individuals, it has been apparent for sometime that a major overhaul of the local government funding system is needed.  Further, many believe that this overhaul must result in a new local government system that allows local government to address the legitimate needs of its citizens in the 21^st century while being fully accountable to its key stakeholders.  

Recognizing and responding to this need, the General Assembly of South Carolina in 1999 enacted legislation calling for “the development of a local government funding system reform plan that addresses the needs of local government for a stable and diverse funding system that is accountable to the taxpayers and ensures equitable sharing of the tax burden.”  Further, the legislation created the Local Government Funding System Steering Committee and charged it with the development of such a plan (Section 1 (1.1), Part III, Act 100 of 1999).  Originally the Steering Committee was to issue its report to the General Assembly by April 1, 2000.  After beginning its work, the Committee soon realized that such an ambitious undertaking could not be completed in the time provided for in the enabling legislation.  The Steering Committee requested an extension until December 31, 2000.  The General Assembly passed a joint resolution granting the extension (Bill 1053 of 2000, a Joint Resolution).

This paper provides an overview of the Local Government Funding System Project; an 18-month effort designed to meet the mandate of the General Assembly.  Specifically, the project's organization, processes, products and reports will be discussed. 

PROJECT ORGANIZATION

A number of groups and individuals were involved in undertaking this very ambitious effort.  This included the Local Government Funding System Steering Committee; the Office of the Comptroller General; the Center for Governance (now the Center for Governmental Services) of USC’s Institute of Public Affairs (now the Institute for Public Service and Policy Research); and the Technical Work Group.  The role each of these groups played is discussed in turn. (It should be noted that as of October 1, 2001, by authorization of the Board of Trustees of the University of South Carolina, the Institute's name was changed to the Institute for Public Service and Policy Research. Since the project was undertaken and completed as the "Institute of Public Affairs," this designation will be used for purposes of this paper.)

The Local Government Funding System Steering Committee. As was noted earlier, the Local Government Funding Steering Committee was charged with development of "a local government system reform plan." Further, it was charged with making an interim report on January 1, 2000, a second interim report by April 1, 2000, and a final report by December 31, 2000 to the General Assembly of SouthCarolina (Section 1 (1.1), Part III, Act 100 of 1999 and Bill 1053 of 2000, a Joint Resolution). The membership of the Steering Committee, as specified in the enabling legislation, included legislators, gubernatorial appointees, the Comptroller General, the State Treasurer, and the director of the Department of Revenue (Section 1 (1.1), Part III, Act 100 of 1999).  The membership of the Steering Committee was as follows:

Chairman: James Lander, Comptroller General

Members:

Grady Patterson, State Treasurer

John Drummond, Chairman, Senate Finance Committee

Brad C. Hutto, Senate (Appointed by Senate Finance Chairman)

Daniel T. Cooper, House of Representatives (Appointed by Ways & Means Chairman)*

Alfred B. Robinson, Jr., House of Representatives (Appointed by Ways & Means Chairman)

Timothy C. Wilkes, House of Representatives (Appointed by Governor)

Polly C. Jackson, Lancaster County Council (Appointed by Governor)

Elizabeth Carpentier, Director, Department of Revenue

*Appointed by Chairman Robert Harrell to fill a position previously held by Lewis Vaughn.

The Comptroller General and the Office of the Comptroller General.  The Office of the Comptroller General served as the administrative location and focus of this project.  In this regard it managed and distributed the project funds and handled the logistics of the Steering Committee.  The Comptroller General served as a member of the Steering Committee and was elected by the members to chair the Committee.

The USC Center for Governance.  The legislation creating this effort charged the Center for Governance of USC’s Institute of Public Affairs with providing technical staffing for the project. The Center developed the project work plan and commissioned and coordinated a series of study reports. Additionally, the Center created, staffed and coordinated the work of the Technical Work Group. The Center’s faculty and staff served as lead authors for many of the study reports and also took the lead in drafting the reports from the Technical Work Group and the Local Government Funding System Steering Committee.¹

The Technical Work Group.  To supplement the staff of the Center for Governance and to involve critical stakeholders in the process the Center assembled a 33 member Technical Work Group. Representatives from the business community, councils of governments, counties, local government managers, municipalities, schools, the state’s universities, state executive agencies, and legislative staff served on the Technical Work Group.  The diversity of interests represented on this group made for some very interesting discussions but resulted in a much better and more balanced set of recommendations to the Steering Committee. The mission of the Technical Work Group, as approved by the Local Government Funding System Steering Committee was as follows:

To assist the Local Government Funding System Steering Committee in the development of a local funding reform plan that addresses the needs of local government for a stable and diverse funding system that is accountable to the taxpayers and ensures equitable sharing of the tax burden.  The Technical Work Group will accomplish this mission by collecting and analyzing data, gathering input from various stakeholders, and by making recommendations to the Steering Committee that are technically-sound and objective.² Under the direction of the Center for Governance, the Technical Work Group undertook a number of studies designed to provide information and analysis that served as the basis for the Technical Work Group’s report to the Local Government Funding System Steering Committee. Each of these studies was subjected to review by a subcommittee of the Technical Work Group and then by the full Technical Work Group. The findings contained in these studies became the basis for the recommendations contained in its report entitled, The South Carolina Local Government Funding System: Findings and Recommendations, A Report to the Local Government Funding System Steering Committee.  (The report is available on the web at http://www.iopa.sc.edu/localgov/).

THE PROCESS

The Steering Committee approved a highly structured project process presented to it by the Center for Governance.  This process was put in place to ensure that the recommendations of both the Technical Work Group and, ultimately, the Local Government Funding System Steering Committee were technically-sound and objective. Further, it was designed to provide for involvement from the major stakeholder groups. The major steps in the process are enumerated below.

1. Under the provisions of the legislation the Office of the Comptroller enters into a contract with the Center for Governance to staff the project.

2. The Local Government Funding System Steering Committee approves the work plan and time line submitted by Center for Governance.

3. The Local Government Funding System Steering Committee establishes “criteria” to guide the development of a new local government funding system and to judge recommendations to be proposed by the Technical Work Group.

4. The Technical Work Group is assembled by the Center for Governance.

5. The focus of the study reports are identified by the Center for Governance and adopted by the Technical Work Group.

6. Lead authors of study reports are selected and the reports are commissioned.

7. Draft study reports are completed and submitted to relevant Review Subcommittees of the Technical Work Group.

8. Draft study reports are revised per Review Subcommittee input.

9. Study reports are submitted to the full Technical Work Group.

10. Study reports (with input from the Technical Work Group) are finalized.

11. Study reports are presented to the Local Government Funding System Steering Committee.

12. The Recommendations Subcommittee of the Technical Work Group is established.

13. The Recommendations Subcommittee identifies six major topical areas within which recommendations will be developed.

14. Draft recommendations for the major topical areas are developed by the Center for Governance faculty and staff.

15. Draft recommendations are reviewed and discussed by the Recommendations Subcommittee.

16. Draft recommendations are revised per Recommendations Subcommittee input.

17. Recommendations are adopted by the Recommendations Subcommittee.

18. Recommendations are presented to the full Technical Work Group.

19. Recommendations are revised by the Center for Governance faculty and staff per Technical Work Group input.

20. The Technical Work Group submits the report entitled The South Carolina Local Government Funding System: Findings and Recommendations to the Local Government Funding System Steering Committee.

21. The Local Government Funding System Steering Committee meets to review the Technical Work Group report. 

22. A draft report from the Local Government Funding System Steering Committee to the General Assembly is written by the Center for Governance faculty and staff.

23. The draft report is accepted by the Local Government Funding System Steering Committee.

24. The South Carolina Local Government Funding System: Findings and Recommendations, A Report to the General Assembly of South Carolina is submitted on December 28, 2000 to the General Assembly.

PROJECT PRODUCTS

The project resulted in a number of products.  These were primarily in the form of study reports, recommendations and findings developed by the Technical Work Group, interim reports to the General Assembly, and the Steering Committee’s final report to the General Assembly.  The written products produced are listed below. (All of the reports are available on the web at http://www.iopa.sc.edu/localgov/).

1. Local Government Funding in South Carolina: Trends and Challenges, by Holley Ulbrich, Senior Fellow, Center for Governance, Institute of Public Affairs and Senior Fellow, Strom Thurmond Institute, Clemson University.
2. A Profile of the Diversified South Carolina Economy, by Don Schunk, Assistant Professor, and Doug Woodward, Associate Professor, Division of Research, Darla Moore School of Business, University of South Carolina.
3. A Report on Local Government Funding: An Overview of National Issues and Trends, by Richard Young, Senior Research Associate, Center for Governance, Institute of Public Affairs, University of South Carolina and Gordon Shuford, Department of Revenue and currently a Research Assistant with the House Ways and Means Committee.
4. General Purpose Local Government in South Carolina, by Jon Pierce, Associate Director and Edwin C. Thomas, Director, Center for Governance, University of South Carolina.
5. The South Carolina Local Government Funding System: Findings and Recommendations, October 2000, (found on the web as Findings and Recommendations, by the Technical Work Group).
6. Interim Report to the General Assembly of South Carolina, January 1, 2000. Interim Report to the General Assembly of South Carolina, April 1, 2000. The South Carolina Local Government Funding System: Findings and Recommendations, A Report to the General Assembly of South Carolina, December 28, 2000.

CONCLUSION

The Local Government Funding System Project was designed and conducted in a manner aimed at gaining the participation, input, and agreement from many of the key stakeholders.  The effort was organized and undertaken in such a way as to result in findings and recommendations that were technically-sound, based in fact, and objective. In fact, an informal (but clear and oft repeated) charge from the Local Government Funding System Steering Committee to the Center for Governance and the Technical Work Group was to proposed what should be done “without concern for the politics.”  To a very large degree, this was accomplished. 

Part 2 of this discussion of the Local Government Funding System Project will be published in the next edition of South Carolina Public Policy and Practice. Part 2 will focus on the criteria used to develop and analyze recommendations and the findings and recommendations contained in the Steering Committees final report to the General Assembly.  It will also highlight several of the most significant and, potentially, controversial recommendations.

REFERENCES

1. Local Government Funding System Steering Committee. (December 28, 2000). The South Carolina local government funding system: findings and recommendations, a report to the General Assembly of South Carolina, Columbia, SC: Center for Governance.
2. Pierce, Jon B. and Thomas, Edwin C.  (March 2000). General purpose local government in South Carolina, Columbia, SC: Center for Governance.
3. Schunk, Donald and Doug Woodward. (February 2000). A profile of the diversified South Carolina economy, Columbia, SC: Center for Governance.

NOTES

1. For a list of Center staff and faculty involved in this project see Appendix A of  The South Carolina Local Government Funding System: Findings and Recommendations, A Report to the General Assembly of South Carolina available on the web at http//www.iopa.sc.edu/localgov/.

2. For a list of Technical Work Group members see Appendix B of The South Carolina Local Government Funding System: Findings and Recommendations, A Report to the General Assembly of South Carolina available of the web at www.iopa.sc.edu/local/gov/.

ABOUT THE AUTHOR

 Jon B. Pierce, Ph.D., is Associate Director of the Center for Governmental Services and served as Project Director for the Local Government Funding System Project and as co-lead author of the study paper entitled “General Purpose Local Government in South Carolina.”  You may contact Dr. Pierce at pierce@iopa.sc.edu.