The Beaufort Housing Authority has told the city it wants to build a single-family house on the lot, city staff said.
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City Council members on Tuesday voted to keep the city's tax rate steady as part of a proposed $15.8 million budget for the upcoming fiscal year, which begins July 1. A second reading is still needed.
The proposed budget looks very similar to the current fiscal year's approximately $15.5 million spending plan, city manager Scott Dadson said.
"This is, except for some rises in expenses, essentially the same budget," he told council members Tuesday. Stormwater and garbage collection fees also will remain the same, Dadson said.
Higher health care costs accounted for much of the expense increase, Dadson said.
Beaufort recently changed health insurance providers after learning earlier this year that the board of the S.C. Local Government Assurance Group had voted to recommend the organization's dissolution.
The city switched to BlueCross BlueShield of South Carolina and saw its health insurance costs rise 7 percent, Dadson said.
The biggest decision council will have to make is how to plan and budget for upcoming capital expenditures, he said.
Dadson estimated the city will need to replace a fire truck and about a dozen police vehicles in the coming year.
The city could fund the purchases through long- or short-term debt or pay as it goes, Dadson said.
An impending reassessment of property values in Beaufort County -- scheduled for December 2012 -- makes the decision tougher, Dadson said.
Property values are expected to decline, but it's unclear whether tax rates can be increased to raise the same amount of revenue as they did before the reassessment.
South Carolina law provides a formula for reducing tax rates when property values rise, but doesn't say whether they can be increased when property values fall.
The county has asked the state's attorney general to clarify the question.
"To carry on debt into the future years, without an assigned revenue source, will be a tough question," Dadson said.
The city will hold two workshops to discuss the budget before a final reading in June, staff said.