[EdTalks] SC School Funding 101 Part 1: The Big Picture

Why is South Carolina school funding more complicated than in almost any other state? This system, full of legislative quirks and unintended consequences, directly impacts your local schools' ability to hire great teachers, fund programs, and even keep the lights on. In part one of our deep-dive series, we unravel the central question: how did we get here, and who is really paying the price for public education?

Join Catherine Schumacher of Public Education Partners and guest Derek Lewis, Executive Director of Greenville First Steps and a former Greenville County Schools trustee, as they break down the labyrinth of education finance. This episode tackles the core issues, from confusing tax bills to the state-level decisions that create massive budget holes for local districts. Discover the surprising history behind why your home's property taxes don't fund school operations and learn about the complicated realities of the Greenville County Schools budget.

In this detailed discussion, we explore the three main funding streams for education—federal, state, and local—and expose why the balance in South Carolina is so unique. The conversation centers on the monumental impact of Act 388 South Carolina, a 2006 law that swapped owner-occupied property taxes for a one-cent sales tax to fund schools. While it sounded simple, this change, combined with the 2007 Great Recession, created a persistent funding gap that the state has struggled to fill ever since. We explain how this shortfall forces districts to rely on millage increases, which disproportionately affect small businesses, rental properties, and vehicles—not the homeowners the law was designed to protect.

We also investigate how SC schools are funded through a patchwork of complex and often contradictory mechanisms. The episode sheds light on how economic development incentives like FILOTs (Fee In Lieu of Tax agreements) South Carolina exempt large corporations from paying their full share, placing an even heavier burden on a shrinking tax base. Furthermore, we unpack how "unfunded mandates" and last-minute budget "provisos" from the General Assembly force districts like Greenville County Schools to cover millions in unexpected costs, such as rising contributions to the state retirement system, without providing the necessary funds. This overview is essential for any citizen trying to understand the financial pressures on our public schools and the difficult decisions local school boards face every year.

Episode Resources:

• Greenville County Budget Basics

• Guide to SC School Tax Abatements

• Learn more about Greenville First Steps

• Learn more about Public Education Partners

Introduction

Catherine Schumacher: This episode of Simple Civics Greenville County is brought to you by Dolly Parton's Imagination Library, providing free books to children zero to five throughout Greenville County. To sign up, visit greenvillefirststeps.org/freebooks. That's greenvillefirststeps.org/freebooks.

Catherine Schumacher: School funding in South Carolina is more complicated than just about any state in the country. How do we as a community make sure that our local public schools have the resources that they need to hire great teachers, provide the most effective academic programs, and keep our children safe? I'm Catherine Schumacher of Public Education Partners, and today on Simple Civics EdTalks, we are going to start a three-part deep dive into public education funding in our state, and especially how it impacts Greenville County schools.

Catherine Schumacher: Today, we'll start with an overview of different sources of school funding with a particular focus on state and local revenues. I'm joined by Derek Lewis, Executive Director of Greenville First Steps and a former Greenville County Schools trustee. Well, hi, everybody, and welcome to this week's episode of Simple Civics EdTalks. This is going to be the first of a three-part series about school funding in South Carolina with a particular focus on how that impacts Greenville and the work that we do here with Greenville County Schools. So happy to be here with my colleague and former Greenville County Schools trustee, Derek Lewis.

Derek Lewis: Thanks for having me.

Why is South Carolina School Funding So Complicated?

Catherine Schumacher: Of course. We know how important this is. It's really critical. We're going to be getting into budget season really soon. And so we thought it's a complicated topic and we wanted to spend some time. So what do you think, Derek?

Derek Lewis: It is such a big topic. And the budget drives all the things that the district does. And unfortunately, there's just some misinformation or candidates using information for their own benefit, that I think it's just good to just put some objective information out there and let people understand it and better understand the processes that go on.

Catherine Schumacher: So this first episode, just so you guys know what's coming. Today we're going to do an overview, big picture, and then we're going to have some follow-up episodes that look in particular at a few special factors that have an outsized impact on what we do here in South Carolina, which is weird. We may title these podcasts Why School Funding is Weird in South Carolina, but particularly here in Greenville.

Catherine Schumacher: So we're going to talk about Act 388, which if you've ever paid attention to the tax conversation here, you've heard that term. So we're going to unpack that. And then we're going to talk about tax abatement programs like fee in lieu of tax agreements or FILOTs, which is another term that you have certainly heard and seen in the news. Those FILOTs are part of incentive packages for local economic development or redevelopment. And they're really important, but they're really complicated and they do have an impact on our schools.

Catherine Schumacher: So we're going to take all of these topics and kind of break them down and try and make it simple. And then we're going to point you in the direction of other resources that can help you if you want more information. So that is also something that we want to do. Derek, let's get started.

Derek Lewis: Maybe we'll just start with some big picture things, because I think one of the things that really shocked me as a board member that I had to remind myself over and over is really important, is that one out of every 10 kids in South Carolina goes to Greenville County Schools. And so, yes, it's a $1 billion organization, but it's a tenth of the entire state's education budget because this district is just so big compared to other districts. We're the 43rd largest district in the country. And so the numbers are huge because the number of kids that we serve are huge.

Catherine Schumacher: And that's not a bad thing. It allows in Greenville, it allows us to do a lot of really special things. It's important for everybody to remember that, that all of this funding makes good things possible for kids.

Derek Lewis: You think about things like the Fine Arts Center or the Roper Mountain Science Center. There's just stuff happening in this district that we would never be able to do in a district a fifth of our size.

Catherine Schumacher: Right.

The Three Main Funding Streams: Federal, State, and Local

Derek Lewis: So, in South Carolina, there's really three sources of funding. There's the federal money that usually comes through the state and gets passed on to us. It has a whole bunch of strings to it. A good example of that is how our school lunch programs are funded. And then there is this state money that comes from the state to the school district. And then there are local dollars that are raised usually through millage increases or through property taxes.

Catherine Schumacher: And so the state is usually about 70, 75 percent and the local is 30, 25, 30 percent. That's how it's supposed to go out. What's unusual about how we do things in South Carolina is that we fund operations for local schools differently. And so especially for listeners who are new to South Carolina, we do things differently here.

The Game-Changer: How Act 388 Reshaped School Funding

Catherine Schumacher: Most states in the country fund their school districts through local property taxes on your house that you live in. But here in South Carolina, that changed significantly back in 2006 with a law called Act 388. And so we're the only state or one of the very few states in the country, and Derek is more of an expert on this than I am, but really, we're one of the only states in the country that does not use your house, the owner-occupied home property taxes, to pay for education. So, as I said, we're going to do a deep dive on Act 388 on a future podcast, but we really can't have a conversation about school funding in South Carolina without starting there.

Derek Lewis: So the one thing that I think is amazing is, 2006... Just 20 years ago.

Catherine Schumacher: Yeah.

Derek Lewis: But we talk about it like this thing was written to the Constitution with our, with our forefathers.

Catherine Schumacher: Well, it becomes a third rail. And it's because it's complicated.

Derek Lewis: And it is amazing to me, as you talk to elected officials, there are people who wrote Act 388 who say, I don't really love it. I didn't really do what I thought it was going to do.

Catherine Schumacher: It was passed really quickly and put together. When you look at the timeline of it, it moved really fast. So talk a little bit about what that means, sort of break that down a little bit.

Derek Lewis: If you go back way back in time to 2006.

Catherine Schumacher: Back in the dark days.

Derek Lewis: I think one of the things that happened was there was a real big push from the beach areas of the state to remove property taxes from those homes. And so a lot of those chambers of commerce and really the realtor associations who represented Hilton Head, Myrtle Beach, Charleston said, we've got to transfer these costs in a different way because our houses are too expensive.

Derek Lewis: And so they pushed Act 388 really through the General Assembly with the promise that we will help eliminate property taxes for owner-occupied homes. And in exchange, we would just have the state cover it through sales tax. And so on paper, it was a pretty even swap. We're just going to do this instead of that.

Catherine Schumacher: Well, in theory, and it passed really quick. It was a six-month, if I read correctly, it was introduced and then passed in quick, quick, quick. And often things that pass quick, quick, quick are not fully thought through. So one of the things I wanted folks to see is when you actually look at your tax bill. So if you have one handy, we encourage you to pull it out and take a look at it. So why don't you explain what people see on their tax bill here in Greenville County?

Derek Lewis: This is the tricky thing because the tax bill tells you one thing and then if you look at another section, it tells you something different. So if you look at your property tax bill, there's actually a section that says allocation of tax money, and under it, it says Greenville County Schools and it's usually 65% of your taxes are going to Greenville County Schools. But if you look in the lower section, it'll say under Amount Due, School Tax Credit Savings or sometimes it'll say Homestead Exemption. And basically what it's saying to you is, well, yeah, you owe that, but we're gonna forgive it.

Derek Lewis: And so if you only look at the top part of your bill, you would think you're paying 65% of your taxes to your school district, but the state is actually exempting you from that, giving you a credit and then charging you in sales tax to offset that.

Catherine Schumacher: So the idea was there was going to be the one cent sales tax, penny tax. And then the idea was that that was going to add to the general fund and then the money was going to go back to school districts. But then here's the catch. If there wasn't enough money created by the sales tax, the general fund was going to make up the difference. And that was a really important part of the bill. And that is the part that got almost immediately messy because immediately we had the Great Recession of 2007.

Derek Lewis: That's the amazing thing is you think about this past 06 and 24 months later, we're telling school districts we don't have enough money to pay your bills. And not just school districts, but every state agency was being told.

Catherine Schumacher: Understandably. It was a big it was a big economic crisis.

Derek Lewis: And the thing I remember way back those days is that most state agencies could scale back their workforce by just delivering fewer services, but those kids still showed up for second grade, whether or not we were in a recession or not. And so school districts in particular, because so much of the school district budget is in teacher salaries, didn't really have the ability to furlough teachers. Those people had to still show up every day. And so it put a huge hole in how we fund education in 08. And really, we're still trying to come out of that hole.

Catherine Schumacher: And I think that's another thing we can talk about as we transition to how we've tried to address that over the last decades. How do you do the math to send money back? And what does that look like? And how can a local government manage that difference? So how is the math done to move money back from the state to the local districts? And how did that gap start to grow?

Derek Lewis: Well, so generally what happens, if you go back to the education finance act, the idea was we're going to fund what it costs to run a school and then we're going to pass that money on to a school district. And generally that number is it costs a million dollars. We're going to give you a million dollars and everybody is going to be happy. But then they realized that the General Assembly, if sales tax collections were low, which is how we're going to fund schools, then that also means that the available general fund balance is also low. So when they don't have the money in sales tax, they also probably don't have the money in fund balance that they can assign to schools. And so it was a double no. I can't do the thing I've told you I would do, and I can't do the backup thing either.

The Added Complexity of Budget Provisos and Unfunded Mandates

Catherine Schumacher: So bottom line is there's been a gap that has been growing and growing, and the districts are supposed to have the freedom and opportunity to make up that gap. And again, that's the sort of thing we can talk, we'll talk more about how they've sort of struggled to meet that gap. But they've then changed the formula again a couple of years ago. And I think it's important for listeners to understand, too, these changes, particularly the last round of changes to how schools are funded, weren't done through legislation. They were done through provisos.

Catherine Schumacher: And provisos are one-year add-ons to the budget that have the weight of law, but actually don't go through that whole sausage-making process where people get to provide feedback and their committee hearings and all of that. So it's kind of thrown in at the last minute. And because this is such a complicated topic, it’s been easier for the legislator to get stuff through and change things on that proviso level.

Catherine Schumacher: I want to give some credit. I really do want to give credit to the legislature and Governor McMaster. They have really made an effort to try and increase teacher salaries in the last several years in particular. It's a real priority. They talk about it a lot. But the challenge is that all of that growth and the money that they are sending back, even to Greenville, it is not enough to cover the growth, the kind of salary increases we want to do, the increasing cost of benefits, that's where that tension lies. So I think that's one of the things that's really, really challenging.

Derek Lewis: I think you're totally right. And you have definitely seen the state say we need to increase teacher pay, for example, in ways that we were not talking about 10 years ago. And so it is really exciting to be in a time where the General Assembly is trying to do those things. The challenge is just we are also trying to do things that we're not fully funding, assuming that particularly our larger school districts are going to pick up the difference through a millage increase, but we exempted homes from millage increases.

Catherine Schumacher: Right. So that means that that millage increase is really landing on rental properties and small business owners.

Derek Lewis: Yep. And your vehicles.

Catherine Schumacher: And vehicles. Yes.

Derek Lewis: So those are really going to be the three things. And so imagine if we looked at Greenville County and a map of Greenville County and you blacked out every owner occupied home and all that was left was businesses and your cars and rental properties.

Catherine Schumacher: Except some of the biggest businesses are also exempted because of FILOTs and some of those other incentive packages.

Derek Lewis: And so a flower shop ends up paying the cost of an entire neighborhood's school fees that weren't covered by the General Assembly.

Catherine Schumacher: So we talked about, you've heard about FILOTs. There was a lot of debate in the spring. County Council was exploring different ways to use the money generated by FILOTs, fee in lieu of taxes. Those are special incentives that are an important part of economic development in our community. That is another area of debate. It's another area where the district gets some resources. And it's another piece of the very complicated funding puzzle. We're going to do a whole FILOT episode, but we're going to be starting to talk about the county council budget soon and we're going to be talking about the school district budget soon.

The Local Challenge: Balancing the Greenville County Schools Budget

Catherine Schumacher: So it lands on the local school board trustees to figure out how to make the math, math. What does that look like? What is the process by which the local school district, school board of trustees, which has taxing authority? How do you balance all of that?

Derek Lewis: That's the tricky thing with Act 388 is what it said. I think what it said more than anything that affects Greenville is this is how much the General Assembly is supposed to give you to do the things the General Assembly says you have to do.

Catherine Schumacher: The mandates.

Derek Lewis: And then there's a difference. And the only way you can cover that difference is by going to your local millage. And then they said, and so to do that, here is local millage that you can and should raise in order to cover the difference.

Catherine Schumacher: Which is way higher than anything that is politically feasible, particularly here in Greenville.

Derek Lewis: Yeah. And so, that's been one of the things that I was really impressed with at the district level is particularly when we went through the budgeting process. Most times of the eight years I was on the board, every time the superintendent came to us, he actually presented us a balanced budget that said in February, this is what I need to do. This is how much it's going to cost. This is the services I can deliver for the amount of money I'm going to have available.

Derek Lewis: Then the General Assembly would say, well, but we also want you to make these changes and we're not fully funding that. And then he would have to come back to us in April and say, well, never mind. Those things I said we're going to do now, we have to do these things with less money. And now we have to raise the millage.

Catherine Schumacher: Or if we want to give teachers a raise. So we hear a lot. Again, great news for teachers in South Carolina. There's a lot of talk about raising the starting salary for teachers and adding money to each part of the teacher salary schedule. But in Greenville, again, because of our size, because we're growing so quickly, because we're having to add teachers, and we're already kind of ahead of the curve on salaries. So in order to do a lot of often teacher raises, adding staff positions last year, adding special ed teachers was a real priority, adding school counselors has been a priority.

Catherine Schumacher: So, the available, so to speak, millage might be 12, 15, 20 mils. It could be 20 mils. But instead, our district is like, well, let's figure out how much we can do for the best investment we can get. And so last year, there was no millage increase. The year before it was one of nine, I think. So it really varies and it almost never hits that number that the General Assembly would say or that they would say this is the number you have available.

Derek Lewis: One example I would give of kind of an unfunded mandate that affects that is one year the General Assembly needed to shore up the state retirement system. And so they said, we are giving out more money in retirement benefits than we're collecting in retirement fees, which is a problem with pensions all over the country. And so to fix it, they increased what they called the employer contribution.

Catherine Schumacher: And the employer is Greenville County Schools.

Derek Lewis: Yeah, we are, again, we're a tenth of the state's education workforce. So to turn to the employer and say, we need you to increase, I think we had to increase our employer contribution by $5 million.

Catherine Schumacher: Millions of dollars.

Derek Lewis: So a $5 million increase in the employer contribution to the state retirement system that was unfunded is a 5 mil increase on your taxes.

Catherine Schumacher: Dr. Royster often says we're in the people business in Greenville County Schools. And that's how you take care of your people. But it's a real balancing act. And I think generally speaking, the administration and the trustees do a good job of that. And obviously, it's something people talk about a lot.

How to Stay Informed on the School Budget Process

Catherine Schumacher: So I want to wrap up on this on this part of the conversation, this kind of overview piece. The budget process is already getting started for next fiscal year. So next fiscal year will start July 1, 2026. The district is starting to collect information from principals about what they need. The legislature will start having their conversations this fall. County council is already starting to have their conversations, which could impact what's going on with the school district.

Catherine Schumacher: So part of the reason what's so great about Simple Civics Greenville County and Simple Civics EdTalks is we really want to help you all pay attention to the process. So I really encourage you to keep an eye on resources on the PEP website. We're going to be providing some information about all of this in addition to linking to these podcasts and some other resources. The League of Women Voters is getting ready to push out some really great new information modules. And they're going to have a little video that covers a lot of these same topics. So if you're a visual learner, you'll be able to enjoy that. But we really just want to try and break this down a little bit.

Catherine Schumacher: So that's it for this first deep dive into school funding here in South Carolina and how it impacts Greenville County schools. Please share this information, especially when you see stuff in the press, when you see stuff in the media. And don't forget, reach out their places to share your questions in the show notes and things like that. So thanks, Derek. Always fun to be a public education nerd with you.

Derek Lewis: Thanks.

Catherine Schumacher: Simple Civics EdTalks is a joint project of Greater Good Greenville, Greenville First Steps, and Public Education Partners Greenville County.