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

1. Enacting a Tax Expenditure Limitation in Georgia: The Local Government Impact A Joint Presentation by ACCG and GMA

2. TEL at the State Level

3. 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

4. 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 attorney’s 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 Driver’s License Office)

5. LARP State Aid Public Health Funding Tax Assessor Training Peace Officer Training Indigent Defense GEFA Governor’s Homestead Relief Grant Credits Solid Waste Trust Fund Hazardous Waste Trust Fund Crime Lab Assistance The state will be less likely to offer state financial assistance and support services to the local levelsuch as

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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

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

17. Public Safety Police Salaries: 13% Firemen Salaries: 5% 911 Costs: 25% Jails: 135% EMA: 69% Code Enforcement: 56% Workers Compensation Police: 18% Fire: 60% Public Works: 3% Liability Insurance Police: 11% Fire: 86% Increased Cost of Services for Tifton2006-2007

18. 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

19. 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

20. 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

21. 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

22. 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

23. 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

24. 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

25. Questions?