In a 3-2 decision, the court ruled that payments made through a lease-purchase plan fall under school operating expenses, which are covered by state sales taxes, not county property taxes.
The ruling directly affects six school districts that filed suit against the Department of Revenue. Pickens County was not one of them, but some officials think the ruling may apply to it as well, since the district also used this type of funding for its $365 million building project.
However, a local senator said the ruling incorrectly interprets the Legislature’s intent and that he intends to work to clarify the law.
Sen. Larry Martin, R-Pickens, said that if the ruling is upheld, the state will have to reimburse about $20 million to those six districts, and that number could climb as high as $100 million if other districts, like Pickens and Greenville, have to be included too.
Officials with the Department of Revenue have petition the court for a rehearing and do not plan to make payments to the school districts until it knows if that request has been granted, according to Adrienne Fairwell, a spokesperson for the department.
Those districts include Spartanburg 1 and 5, Lexington 1 and 4, and Orangeburg 5.
Justice Donald Beatty, who wrote the majority opinion for the court, said that in 2006, when the Legislature swapped property taxes with an extra 1-cent sales tax to finance school operations, they exempted “general obligation debt” from expenses covered by the sales tax.
But he said the law didn’t mention installment purchase payments.
“Thus by expressly excluding only general bond indebtedness from the exemption, the General Assembly by implication, included the lease/installment-purchase payments within the definition of ‘school operating purposes,’” he wrote in the opinion.
But Justice John Kittredge, who wrote the minority opinion, and Chief Justice Jean Toal, disagreed.
Kittridge argued that state law gives school districts the authority to levy property taxes for school construction purposes and that funding for such projects has never been considered operating expenses.
“In my judgment, the Legislature has given no indication of an intent to broaden ‘school operating purposes’ to include expenditures for capital construction under lease/installment purchase agreements,” he wrote. “I believe the Legislature intends the very opposite.”
“In my mind, it was pretty clear,” he said. “We never intended to reimburse school districts for those payments. In Act 388, we put installment-purchase plans under the debt service cap.”
Martin said he hopes the court will re-hear the case and that the Department of Revenue will be able to sway at least one justice to change his or her opinion.
Otherwise, he said having to reimburse the school districts would be devastating to the state’s budget, which is “already 4 percent down based on projections, and we haven’t even completed one month of the fiscal year.”
Martin said the money would have to come from the state’s general fund, which means the state would have to take it directly from funds that go directly into the classroom.
“Teacher jobs would be cut to pay for this lawsuit, he said. “These districts are cutting their own throats, and other state agencies will also suffer.”
He said the Legislature may have to go back into session to deal with the issue.
Meanwhile, school board chairman Jim Shelton said he is looking into the situation.
“Once we’ve gathered the facts, we’ll let folks know what’s going on,” he said.
School board trustee Alex Saitta said that if the Pickens school district is reimbursed, the money should be returned to taxpayers.
“The problem is that some in the school district aren’t going to want to reimburse the money to the taxpayers,” he said. “Some will just want to add it in to the building plan.”
“These school boards circumvented the constitution, and now because of this ruling, they are being rewarded, and that’s wrong,” he said.
But Martin said that he think the school district would have to issue a rebate to taxpayers.
Saitta criticized the Legislature for its handling of the lease-purchase issue, saying it did a “poor job” of managing it.
“Now it’s come back to bite them,” he said. “Because they didn’t clarify, they’re on the hook for it now.”