County explains findings of LOST studies
Kevin Boozer Staff Writer
WINNSBORO — At Monday night’s specially called meeting of county council, two independent studies revealed that all county funds were accounted for and that local option sales tax (LOST) credits were passed onto tax payers each year since 2006 when the tax went into effect. The study of local option sales tax was not an audit, which by definition includes examination of all of the county finances. Instead, the county relied upon two independent examinations: an assessment of the county’s practices related to LOST by law firm Parker, Poe, Adams and Bernstein, LLP and a review of county accounting records the accounting firm Elliott Davis, LLC. The studies used agreed upon methodology to look at one specific part of the county tax revenue-LOST. Both studies reached the same conclusion: this fiscal year $805,000 will be applied as a credit to taxpayers.
According to Interim County Administrator Milton Pope, the LOST tax credit, per state law, must be applied to taxpayers bills whether the local option sales tax revenue generated by the county and received from the state are in excess of the amount required, or even if the revenue comes up short. According to the firms’ findings, the only years a credit was not rolled forward were years when there was a revenue shortfall (from the state’s donor counties and from the county’s sales tax revenue).
The roll forward credit amount is a tool used to account for estimates that are part of the accounting processes, processes required by state law. Another variable is that Fairfield County receives funds from the state each year since the state generates a larger amount of sales tax revenue than this rural county. This year, for instance, that funding unexpectedly decreased 13 percent but the investigation revealed taxpayers still received full credits on their tax bills.
How? If the remittance, or return of sales tax revenue, from the state caused a shortfall, the county fund balance was used to make up the difference in funding. Under that scenario, the cash held in reserve could affect the amount of funds the county would have available to address emergencies, etc.
“Those years that went over were straight retractions to the reserve fund and not money borrowed that needed to be repaid,” Pope said.
“(Tying up fund balance for tax credits, ideally, is not the way we’d want to do it, but (it was done)….” Pope said. “One of the things you want to do is to be fiscally conservative but not use the fund balance.”
$805,000 tax credit funds will be applied to the approximately 21,000 taxpayer accounts in Fairfield County.
Findings and recommendations:
The Elliott Davis firm examined a random sampling of 100 tax bills to evaluate each fiscal year and compared those finding with records at the State Treasurer’s Office. The millage on each of the 100 bills matched with the county’s annual millage rate and confirmed the millage was reduced the proper amount due to offset from a sales tax credit. Appraised values, assessed values, millage, total tax, sales tax credits and account numbers were verified. When annual sums or “sales tax credit millage” reduction and the total sales tax credits were compared with annual sums from the State Treasurer’s Office, the comparison showed differences ranging from an over-estimate of $286,000 to an under-estimate of $495,000.
•Elliott Davis recommended the county replace the millage rate adjustment and change millage to reflect the general term millage with the sale tax reduction.
• All of the tax credit should then be placed on the tax bill because then the savings to the taxpayer is easier to see and there is one less variable in the calculations. The county’s goal is to make that change before current tax bills go out.
• A more accurate, better documented system of calculating LOST funds conceivably could help reduce the amount of funds being carried over from year to year. That means more government money would be available in the reserve fund to provide goods and services.
•The county should develop a revenue estimate calculation that takes into account how the area performed historically with revenue in previous years. Such calculations should be documented. Elliott Davis said in its report that the county was responsible for internal control measures to ensure proper policies were followed.
•Parker Poe recommended the county show excess LOST contributions from the prior year as a committed fund balance when new budgets are written. Also during the budgeting stage, the county should continue to estimate LOST values.
•Parker Poe also said the county should amend its millage resolution to reflect the change in the local option sales tax credit.
The $5.2 million question
Businesswoman Maggie Holmes foia request of former administrator Phil Hinely left her with a different number related to LOST—$5.2 million. That number, the presenters clarified, related to the gross value of LOST funds, not the net value. Her understanding from the documentation Hinely supplied was that $5.2 million would have been tied up from the fund balance, money she believed should have been used for tax relief for property owners. The gross revenue is the revenue needed to cover expenditures, including facilitating part of the LOST funds that number was $5.2 million but when the total figures were taken into account the firms found the net amount of tax credit totaled $805,000.
Both firms were aware of the $5.2 million figure but representatives from each firm said they set that number aside and did their own independent analyses and conclusions. The findings were good news for the county, since less fund balance will be needed to offset LOST credits.
Councilwoman Carolyn Robinson was relieved to hear the news, noting that the county had stopped spending except for necessities in case funds in the balance were needed for LOST. She, like the other members of council including Chairman David Ferguson, did not see the findings until the meeting. Pope applauded council for being willing to take that risk because it helped promote transparency. Since the council did not learn of the findings until the public did, it removed the possible allegation that the books could have been cooked in order to hide wrongdoing.
What more needs be done?
After the meeting Mary Lynn Kinely openly wondered what more needs to be done to bridge the gap between county council and some of its constituents. She said that former administrator Hinely has never been convicted of a crime and that these studies proved their was no missing money, as some public advocates implied. She also said that in the name of fiscal discipline, the council has cut spending seven percent this year, a fact that she believes has been lost in the shuffle of the recent controversies.
At the end of public comments, several residents voiced appreciation that the session was held to further communications and relay information. However, an informal show of hands revealed many remained confused about the LOST report at the conclusion of the meeting. County Administrator Milton Pope said the handouts supplied to the attendees would be available at www.fairfieldsc.com to help inform the public and encourage transparency.
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