What’s wrong with Richland County’s Penny Tax promise?

Three weeks ago I attended Richland County’s educational meeting on the “Penny Sales Tax,” and I just this week heard the pitch again at the Blythewood Chamber of Commerce breakfast. I hope that some time before the election the Chamber will have a speaker share the opposing view.

For those who have not attended one of these educational meetings, let me give you the short version of what is going on.

For the last three years, Richland County has told residents that even though some counties with lower tax rates have the funds to successfully operate a bus systems, our local bus system is not able to operate due to a lack of resources.

Over this time frame, our County has taken some steps to try to streamline the routes and services. While Richland County may have other options under the current budget, let’s assume the current system is our only option. If this is true, then we have a very limited bus system that still appears to be in crisis.

Two years ago Richland County and the Columbia Chamber of Commerce aggressively lobbied county voters to pass a penny sales tax that would be added to the current county sales tax for up to 25 years at 1 percent to generate $1 billion. With this tax revenue, Richland County would fix the bus system and initiate a variety of other transportation related projects. In a narrow margin, voters defeated this proposal along with an attached vote for a $200 million bond so the County could start spending the money before it was collected.

Richland County residents voted against this tax. Now, County Council has put it back on the ballot with a few changes. On the second (currently proposed) version, the additional penny tax would be collected for 22 years or until the County raises $1.07 billion, whichever comes first. In addition, the County is now asking for a bigger bond (loan) of $450 million!

But here’s the zinger. Less than $301 million of this tax revenue is actually going to the buses! The balance will go to a variety of other non-bus projects – roads, sidewalks, bike paths, etc. Those etc.’s include $32 million for administrative costs, which have nothing whatsoever to do with the bus system.

At the recent Richland County Penny Tax meeting, a member of the audience asked for a breakdown of how the bus revenue would be spent. The presenters told us that they had not done a study on this nor did they have that kind of breakdown. Let’s recognize the County’s spin on this tax. The reason that the tax increase is called the Penny Tax instead of a 1 percent sales tax increase is that tax proponents do not want us to think about how large of an increase this really is. On most items the sales tax is going up from 7 to 8 percent which represents a 14 percent increase on the sales tax of most items.  The increase on groceries, currently 1%, would be a 100% sales tax increase!

What’s more, the county’s list of non-bus projects is non-binding (meaning it could be changed by a simple vote of County Council.)

Because this is a referendum item, it should be virtually impossible for the County to spend any of this money outside of transportation costs. But since this list is non-binding, specifics in the project list are worthless. We are being asked to trust the County for 22 years to spend the revenue on the projects listed and not switch to other projects later. The County Council does not have that kind of staying power.

Finally, consider the $450 million bond that we are to think of as a loan. One presenter said that the bond, which has more than doubled since the 2010 bond proposal, “pays for itself!” That sounded great!

“But how does the math work on this?” I asked, but got no response from the presenters.

I then figured it out on my own. The proponents of the penny tax are projecting that inflation will go up at a faster rate than the interest rate on the bond. I presented this idea at a recent Blythewood Chamber meeting, discussing how the current federal monetary policy could be an inflation trigger. But could that, by itself, account for the interest on $450 million?

Then it hit me.

We would encumber additional local inflation because, with the penny tax increase, the input cost of everything we buy would rise. So not only would the County get the 1 percent increase in sales tax, but everything we buy would increase in price and the 1 percent Penny Tax increase would be applied to these new higher prices.

Doing this calculation, I agree with the County that the  interest on $450 million bond could, in fact, pay for itself.

But is it worth it to us for all prices to increase more than the 1 percent sales tax increase just to make a $450 million bond (loan) seem like a good deal?

No.

Here’s how the Penny Tax works…

Let’s say you need to transport a relative to the doctor’s office once each week. You price out this service to a number of vendors. One charges $100 a week for this service. Another vendor charges $300 a week for this service…but that higher price includes repaving your driveway and sidewalk one time. But the vendor will not sign anything binding him to the specifics of the additional (driveway/sidewalk) service. He leaves open his option to provide another service instead. He asks you to ‘trust’ him on that one. You, on the other hand, are bound by a 22-year contract for not only the transportation service you asked for, but for the additional paving service or whatever service the vendor might opt for instead of the paving service.

Would you agree to (vote for) a deal like that?

If not, then don’t vote for the penny tax increase OR the additional $450 million bond (loan) in November.

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