CLEMSON — When South Carolina lawmakers in 2006 passed Act 388, they swapped a portion of school property taxes for a 1-cent state sales tax, redistributing funding for education. The deal helped homeowners, particularly those with rapidly rising property values, but it did not benefit many of the state’s poorer school districts, according to a new study from the Jim Self Center on the Future at Clemson University’s Strom Thurmond Institute.

The report, Act 388 and the Minimum Guarantee, uses data from the S.C. Department of Revenue and Department of Education to spotlight one part of the law: the impact of the $2.5 million minimum amount of property tax relief guaranteed to the school districts in each county. The report includes county and district data showing the impact of the minimum guarantee.

“While the intent might well have been to provide additional revenue to poor districts, the impact was very uneven and many poor districts received little or no benefit from these supplementary funds,” wrote economics professor emeritus Holley Ulbrich, a Thurmond institute senior fellow, and coauthor Ellen Saltzman, an institute senior research associate.

The authors offer options to make the minimum guarantee fairer, particularly in counties with multiple school districts, by distributing funds at the district level and making the guarantee on a per-pupil basis.

The law’s flaws arise in some cases from a lack of basic clarity. The researchers, for instance, had to set economic descriptors of a poor school district.

“The language in Act 388 did not establish any specific criteria for defining poor districts, such as income, poverty or tax base levels,” according to the study. “The legislation only stated that school districts in counties receiving less than $2.5 million in Act 388 tax replacement funds would also receive supplemental funds to make up the difference. This provision covered some poor districts, to be sure, but not all.”

In 2011-12, poor school districts and 16 non-poor districts shared $20.4 million in Act 388 supplemental tax relief. But eight additional poor districts (all in multi-district counties) received none of this funding.

The law’s arbitrary figure of $2.5 million per county as a minimum guarantee for tax relief also distributes very large amounts of supplementary tax relief per pupil to some districts with low student enrollment. McCormick County schools received $1,740 per pupil and Allendale County schools received $1,472 per pupil in Act 388 supplemental tax relief  in 2011-12. The average supplemental funding was $308 per pupil in all 28 districts receiving this aid.

Ulbrich and Saltzman urge that the report serve as a cautionary lesson for policymakers and legislators: “Any targeted aid that is based on some relevant criteria needs to be designed in ways that: 1) balance the need to contain cost by controlling the amount of the per-person guarantee, and 2) balance the need to provide adequate funds to accomplish the purpose of the aid.”

Overall, the net effect of Act 388 was to redistribute the costs and benefits of providing public schools for the state’s children, state the authors.

Designed to provide property tax relief for homeowners, the law also:

  • Altered the distribution of the property tax burden in the state by eliminating taxes for school operations on owner-occupied residential property. Now all other property bears the full burden of the remaining school operating taxes.
  • Altered the distribution of state funds to school districts in ways that (with some exceptions) favor property-rich districts over property-poor districts.
  • Distributed the increased state sales tax burden somewhat more evenly across school districts and taxpayers, including homeowners, renters, business and industry, and visitors.
  • Favored some poor districts over others through a minimum guarantee of $2.5 million in residential tax relief payments per county.

Ulbrich and Saltzman have examined the first three factors in previous reports, which are available in the publications library at