Transcript The Local Government Impact of Enacting a Tax Expenditure

Enacting a Tax Expenditure
Limitation in Georgia: The Local
Government Impact
A Joint Presentation by ACCG and
GMA
TEL at the State Level
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
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)
The state will be less likely to offer state financial
assistance and support services to the local level
such as
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LARP
State Aid
Public Health Funding
Tax Assessor Training
Peace Officer Training
Indigent Defense
GEFA
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Governor’s Homestead
Relief Grant Credits
Solid Waste Trust Fund
Hazardous Waste Trust
Fund
Crime Lab Assistance
What if the TEL is applied at the
local level?
What if the TEL is applied at the
local level?
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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
• 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
• 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
Local Government Services
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City Services
Police
Fire
Roads
Parks & Recreation
Sanitation
Water & Sewer
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County Services
Law Enforcement
Courts
Public Utilities
Emergency Services
Public Works
Parks & Recreation
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
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 servicebased 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
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
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
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
• Other expenses growing at a rate greater
than CPI and population include:
– Liability insurance
– Workers Comp
– Road paving
– Road construction
– Construction generally
Increased Cost of Services for
Tifton
2006-2007
• Public Safety
– Police Salaries: 13%
– Firemen Salaries: 5%
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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%
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
• 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
• 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
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
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
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
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
Questions?