Enacting a Tax Expenditure Limitation in Georgia: The Local Government Impact

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Enacting a Tax Expenditure Limitation in Georgia
The Local Government Impact

• A Joint Presentation by ACCG and GMA

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TEL at the State Level
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Potential Pitfalls for State Government

• As costs increase for some state budget items at
  a greater rate, other items would have to be cut
• Potential for federal mandates (Congress,
  Regulatory, Judicial) to result in reducing
  funding for other state programs
• Potential loss of matching grants
• Removes legislative flexibility

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How will enacting a TEL on the State affect local
governments?

• The state will be under greater pressure to shift
  service responsibilities to the local level (e.g.
  tags and titles, environmental regulations, and
  housing state prisoners)
• The state may reduce its share of jointly funded
  services (e.g. public health, MHDDAD, indigent
  defense, district attorneys office)
• State agencies will be under even greater
  pressure to locate their facilities in the local
  jurisdiction that can afford to provide the most
  subsidization (e.g. State Patrol Post, GBI
  Facility, or Drivers License Office)

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The state will be less likely to offer state
financial assistance and support services to the
local levelsuch as

• LARP
• State Aid
• Public Health Funding
• Tax Assessor Training
• Peace Officer Training
• Indigent Defense
• GEFA

• Governors Homestead Relief Grant Credits
• Solid Waste Trust Fund
• Hazardous Waste Trust Fund
• Crime Lab Assistance

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What if the TEL is applied at the local level?
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What if the TEL is applied at the local level?

• Services shifted down from the state will have to
  be funded
• Local governments will have a difficult time
  complying with federal environmental mandates
• Local governments will have to find revenues to
  comply with environmental requirements mandated
  by state agencies
• Without the flexibility to increase local
  revenues and expenditures the level of services
  that the local community requires may have to be
  dramatically cut

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• Local governments will have a difficult time
  complying with court ordered mandates such as
• Mandatory facility construction
• New staff to relieve jail overcrowding
• Providing indigent defense
• Environmental mandates
• More pressure on local governments to slow down
  development that burdens local government
  services and infrastructure

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• It may be harder for local governments to
  maintain a high bond rating
• The need for local governments to issue debt will
  increase creating a greater liability for future
  generations
• Local governments will be more likely to defer
  maintenance on infrastructure which will lead to
  more costly repairs needed in the future
• Local officials may not be able to effectively
  manage an immediate crisis in that not all local
  governments have reserves

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Local Government Services

• City Services
• Police
• Fire
• Roads
• Parks Recreation
• Sanitation
• Water Sewer

• County Services
• Law Enforcement
• Courts
• Public Utilities
• Emergency Services
• Public Works
• Parks Recreation

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What type of budget cuts will local governments
make to comply with TEL requirements?

• Defer maintenance of infrastructure
• Reduce or eliminate services that are desired but
  not mandatory, such as parks and recreation and
  libraries
• Lower service levels for law enforcement, fire,
  healthcare, education, transportation, and others
• Less funds available to promote economic
  development
• Less funds available for capitol improvement
  projects including new roads, repair of existing
  roads, repair and maintenance of water and sewer
  systems

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Government CPI is Much Higher than Private Sector
CPI

• Governments cannot sustain the existing level of
  services over time and comply with TEL
  restrictions
• Local governments are a part of the service-based
  economy that is only partially accounted for in
  inflationary indexes such as the Consumer Price
  Index (CPI)
• The service sector of our economy has grown much
  faster than the economy in general, due in part
  to demographic shifts, which are also
  disproportionately increasing the demand for
  local government services

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Changing Demographics

• Over the next 40 years, the elderly population
  will grow at twice the rate of general population
  growth
• The need for increased healthcare, emergency
  medical services, hospitals, public health,
  transportation and social services will grow and
  will not be accounted for by TEL formulas

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Government Expenses

• The largest expense for local governments is
  personnel
• The largest increases in personnel costs are
  health care costs which are rising much faster
  than CPI
• Public sector personnel cost is very different
  from private sector cost
• Imposing a TEL on local governments could result
  in the inability to attract a competent, local
  government workforce

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Avoiding a Fiscal Crisis

• Citizens benefit from local governments applying
  annual increases to cover costs in lieu of large
  intermittent increases to fund services such as
• Water and sewer treatment plant upgrades and
  pipeline maintenance and repair
• Storm water utilities
• Public safety equipment
• Road maintenance and expansion
• Airport improvements
• Employment benefits

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• Other expenses growing at a rate greater than CPI
  and population include
• Liability insurance
• Workers Comp
• Road paving
• Road construction
• Construction generally

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Increased Cost of Services for Tifton2006-2007

• Workers Compensation
• Police 18
• Fire 60
• Public Works 3
• Liability Insurance
• Police 11
• Fire 86

• Public Safety
• Police Salaries 13
• Firemen Salaries 5
• 911 Costs 25
• Jails 135
• EMA 69
• Code Enforcement 56

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Unintended Consequences of Imposing a Local
Government TEL

• Inability to React to Emergencies
• Dougherty County had to spend 1.4 million of
  their reserve funds to pay for the damage caused
  by the flood of 1994
• Helen was hit by a massive tornado in 2005,
  prior to their biggest tourism event of the year.
  The initial cost for repair and a new land
  application system cost the city 980,000, which
  is roughly half of their annual budget

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• Unexpected Shift in the Local Economy
• A large industry in Twiggs County relocated,
  causing the county to sell undeveloped land and
  surplus property, reducing the number of work
  days for county employees, and reducing services
  and improvements for the court system due to the
  inability to replace the lost revenue

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• Unexpected Delay in Projects
• Vienna was awarded a 400,000 TEA grant in 2005
  for a downtown streetscape project.  The city had
  to match that with 100,000 of local funds.  Due
  to delays from an engineering firm the project
  was delayed a year, and due to increased costs
  for construction materials and asphalt, the
  project was cut in half.  To continue the full
  project, Vienna will have to come up with
  500,000
• Coweta County planned to build a library, which
  was delayed for five years. The initial cost was
  estimated to be 6 million, which would pay for
  the building, books and all interior fixtures.
  Now, the cost for the construction of the library
  alone is estimated to be 6 million

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Other Factors to Consider in Adopting a TEL on
Local Governments

• Restricted Revenue
• Local governments cannot control the increases in
  restricted revenues, such as SPLOST, the Hotel
  Motel Tax, building permits and 911 fees, which
  are statutorily required to fund specific
  projects and programs
• For example, if the revenue for a SPLOST grows
  faster than the cap in any given year, a greater
  roll back will have to be applied to the property
  tax to offset the increase. This rollback could
  result in less operating revenues for local
  governments for that year than in the previous
  year which could result in a drastic cut in basic
  services

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• Constitutional Officers
• County commissioners have limited control over
  the budgets of the county constitutional officers
• Their budgets comprise the largest expenditures
  in the county budget
• Many constitutional officers regularly exceed
  their budget or sue the county if they do not
  feel their budget allows them to adequately
  perform their constitutional duties
• A TEL on local revenues would force the county to
  make dramatic cuts in services to ensure the
  constitutional officers have what they need

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Local Revenue Adjustments

• Local governments adopt a millage rate each year
• The millage rate is required to be set back to
  the rollback rate
• Cannot increase without a series of public
  hearings
• Local governments must advertise a 5-year history
  which
• Local governments review on an annual basis their
  total budget and change in levy to control
  revenue and expenditure growth

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Local Accountability

• Local officials responsible and responsive to
  local electorate
• Turn over in office if increase revenue and
  expenditures beyond interests of community
• Local revenue point of discussion in local
  elections

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• Questions?