Gwinnett`s Financial Woes Many Years in the Making
Gwinnett County is in a tight spot. A “perfect storm” of national economic woes, a maturing local economy and a lack of meaningful leadership has begun to write a sad chapter in our county’s otherwise stellar history. We face not one but several years of having to strike a balance between raising property taxes on already cash-strapped households and cutting essential government services.
We can weather the storm, but only with bold action and not a small amount of sacrifice.
To understand how to dig out of this hole, we have to understand how we got here. I am no financial expert, and neither are our County Commissioners. But the facts were obvious and undeniable; the experts sounding the warning for years. But our elected officials failed to act.
Through the 1990′s, Gwinnett benefited from a healthy 50-50 split of commercial and residential development. Commercial is cheaper to service; it costs 80 cents in government services (police, fire, etc.) for every dollar of tax revenue generated by commercial development. Conversely, it costs the county $1.12 to serve residences for every dollar of residential property tax revenue. A strong commercial tax base subsidizes, therefore, the cost of serving Gwinnett homes.
Through that same time period, there were essentially no controls on the pace of growth, particularly on the residential side. In 2000, the balance began to change for the worse to the point that, today, the split is 59% residential to 41% commercial. Such a significant imbalance was bound to affect the bottom line and likely will for years to come.
From 1999 to 2005, Gwinnett issued between 7,300 and 8,400 single family building permits each year. Each one of those homes increased demand for other county services like fire protection, water and sewer, and roads.
Ten years ago, the County Commission was warned about the consequences of unmanaged growth. A 1999 study of multi-family housing (apartments, condominiums, townhouses) found that higher-density development places “great demands on water and sewer facilities, schools, transportation networks, police and fire protection,” and that “too many units in one area can have adverse impacts, particularly on the… school system.” The study recommended limiting the number of multi-family dwelling units to one for every four single-family homes.
The 1999 Commission refused to adopt the ratio. As a result, by 2002 the areas around Norcross and Berkeley Lake had reached a 1-to-1 ratio with the Lilburn and southwest Lawrenceville areas soon to follow. Multi-family housing not only creates a greater demand on many public services, but the transient nature of apartment dwellers has produced turnover rates as high as 65% in some schools.
The actual demand on services across the county has increased dramatically. For example, in 2008 police responded to 778,900 calls for service. That is approximately one service call for every man, woman and child living in Gwinnett. The demand for government services will continue to climb as the population increases (est. 833K in 2010).
Throughout the years, managed growth advocates pushed for adherence to the Land Use Plan, reductions in the numbers of rezonings and adoption of a policy of “concurrency,” which requires that public infrastructure be sufficient before development is allowed in a particular area.
The calls for growth management fell on the deaf ears of Chairman Wayne Hill and now, Charles Bannister.
Both men also rejected opportunities to make growth pay for itself, relieving the taxpayer of much of the burden. By 1992, the Lillian Webb Commission had adopted a comprehensive impact fee program. An impact fee is a charge on new development, the proceeds of which are used to fund the cost of infrastructure in the area of the new growth.
When Wayne Hill took office in 1993, his Commission rescinded all but the impact fee for water and sewer. Millions of dollars of non-tax revenue for police, fire, libraries and roads have been lost in the ensuing 16 years. Had Gwinnett County charged an impact fee of $1,600 on every new single-family housing unit permitted just in 2005, for example, the county could have realized over $13 million in non-tax revenue.
Bannister had his opportunity to relieve some of the pressure on the county budget, but failed. In mid-April– 2007– a citizen advisory committee completed a study of impact fees. After a year of study, the group recommended that the county charge the fees to offset the cost of infrastructure in several categories. To date, the committee has not even been asked to formally present its report to the Commission; much less has the Commission acted on any of the committee’s recommendations.
The county has lost over a billion dollars in revenue since 1993 as a result of Hill’s decision and Bannister’s failure to lead.
Property Tax Deception
Property taxes (real, personal and motor vehicle) make up 67% of the General Fund revenue. In other words, a majority percentage of the cost of government is paid by your tax dollars. Yet, even with incredible growth in the size of government, the millage (tax) rate has not increased. The 2008 total tax rate of 10.97 was 1.02 mills lower than in 2000. The rate has only increased from year to year once since 2000 and has steadily dropped since 2005.
Our county officials have been able to maintain a steady tax rate for two reasons– Gwinnett’s explosive growth… and some artful manipulation of the numbers.
There are two components of the process that creates the millage rate and, ultimately, your tax bill. The first is the cost of government (at least, the 67% of the budget to be funded by property tax dollars) and the second is the Net Tax Digest, which is the total value of all taxable property within the county.
As the county grew, so did the cost of the government required to service that growth. The county was able, however, to maintain a steady or even decreasing tax rate because, even as the cost of government increased, the taxable value (the Net Tax Digest) over which that cost could be spread also increased. You still paid more– your actual tax bill increased as the county’s growth drove up the taxable value of your home, even though the amount that you paid per thousand dollars of taxable value remained steady or even decreased.
Around 2005, however, the annual increases in the cost of government began to outpace the growth in the Net Tax Digest. In 2005, Gwinnett issued 8,337 single-family building permits. In 2006, the number dropped to 6,616; in 2007, to 3,526. In 2008, only 1,054 single-family homes were started; this year is on a pace to hit approximately 900 permits. The commercial side of the Tax Digest was similarly impacted.
While most of the decline in growth can be attributed in recent years to the economic crisis, the county’s tax base had already begun to “mature” as the inventory of developable land decreased. This maturation was anticipated by the county’s financial forecasters, but ignored by Chairman Bannister.
In 2005, the Commission under Bannister embarked on a flawed, politically-driven financial strategy that would hamstring the county’s efforts to respond to the looming crisis.
Citing a stagnating tax base and increases in the cost of government, the finance staff recommended an increase in the Maintenance & Operations (M&O) millage from 10.14, the previous year’s rate, to 11.322, which was the mathematically correct rate. Instead, the Commission adopted a deficient tax rate… the previous year’s 10.14 mills.
The deficit was staggering. The budget called for $258,823,173 in property tax dollars, but the millage rate approved by the County Commission generated approximately 231,806,146– 89% of and $27,017,026 short of the amount necessary.
The Bannister Commission has continued this dangerous practice in every year since 2005. In 2007, the Commission drew $19.6 million out of reserves to compensate for the deficit tax rate. In 2008, that amount was $36.3 million. Throw in a minor league stadium rushed to completion with the associated cost overruns and you’ve got one empty “rainy day fund.” And it’s raining hard.
There is no reason for a politician to adopt a deficient tax rate except to protect his own political rear end. It is a deception for the Commission to adopt the previous year’s rate or even a lower one when an increase is appropriate. It causes the constituency to conclude that all is well when the opposite is true. Adopting a mathematically false rate deprives the people of the information that they need to evaluate their elected officials’ ability to control the cost of government.
Even worse, the Commission lowered the tax rate in 2007 (to 11.08 from 11.30) and 2008 (from 11.08 to 10.97) even as they depleted the county’s reserve fund, which is its protection against a costly emergency.
Like the recent floods, which have created an incredible additional drain on county reserves. The reserve fund was supposed to be used for a day like this; instead, the county is proposing to cut desperately needed services just to pay the bills.
In my opinion, the adoption by Bannister and the Commission of deficit tax rates is an abdication of their fiduciary duty to the people of Gwinnett. In essence, they lied to their employers, the taxpayers.
(A flaw in state law allows cities, counties and school boards to adopt millage rates that have no mathematical connection to budgetary requirements. Most taxing authorities overtax, but a few like the Gwinnett Commission have undertaxed in recent years. More about this issue)
Tax Base Disaster
The local housing market has been hit hard by the economic crisis. For 2009, advertisement of foreclosures are running at an average of 3,054 per month. Even non-distressed sales are being completed at a much lower price point. A reassessment of residential values resulted in a $1.25 billion decrease in the Net Tax Digest, the basis for property taxation. The reduction adds greater pressure to raise the tax rate or cut essential services.
The 2009 Tax Increase Debacle
Possibly the greatest PR disaster in the history of Gwinnett– Chairman Bannister’s proposal to raise the tax rate by 25%, coupled with his plan to tax city residents at an even higher rate purportedly to fund county-wide police services; followed by a complete about-face, draconian cuts to essential services and an apparent unwillingness to consider other options; capped off by Kevin Kenerly’s most recent proposal to increase the tax rate by two mills. Oh yeah… don’t forget the Commission’s failure to adopt a temporary tax rate, even when instructed by a judge to do so.
Bannister’s bewildering conduct this summer has left many scratching their heads and others calling for his.
GJAC insiders say that the disgraceful tale being written this year is a direct result of Bannister’s childish behavior and failure to lead. Having placed the county’s financial back against the wall, Bannister finally succumbed to the staff’s insistence that a millage increase be imposed. After years of deficit rates and in the face of a greatly depressed tax base, the increase would be significant but would reportedly preserve essential services for the year.
When the public revolted at his proposal, Bannister overreacted. Rather than consider a combination of moderate, temporary additional cuts to non-essential services and a much smaller tax rate increase, Bannister instructed staff to take a broad blade to the budget. Department heads and constitutional officers are now revolting against his proposed nine percent, across-the-board cuts.
I am convinced that Kenerly’s direction to staff to figure out how many cuts could be restored with a two-mill increase represents efforts by staff and some Commissioners to step into the vacuum created by Bannister’s failure to lead.
Time to Engage, Gwinnett
I am also convinced that the newly-impaneled Engage Gwinnett committee represents our best opportunity to wrest control of the budget process away from Bannister and begin to right this sinking ship. In my next article (for this one has gone on for way too long), I intend to convince you to get behind this citizen effort to restore financial order.
- “County in Dire Financial Straits” (November 2007)
- “Averting Financial Disaster Requires Bold Leadership” (November 2007)