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Sunday, December 28, 2008

Recession Gives New Cities Rough Start

Some locked in low taxes, now face pinch

By DOUG NURSE /
The Atlanta Journal-Constitution

Sunday, December 28, 2008

It was going to be so perfect. Fed up with perceived inefficiency and neglect from Fulton County, the newly incorporated cities of Milton, Johns Creek and Sandy Springs were going to provide the same or more services at the same tax rate.

Their founders were so sure of that when they formed the cities, they capped the property tax rates at the relatively low millage rate of 4.731, the same level the county had taxed residents in these north Fulton communities.

Chattahoochee Hills in south Fulton did not limit property tax millage when it incorporated and has almost doubled the rate.

Timing, as they say, is everything. Now, revenues from sales taxes, permits and fees are flat or falling and cities all over Georgia are struggling along with the national economy. And the new cities are finding they don’t have the traditional options available to governments wanting to keep the same services: raising taxes and going to the bond market to borrow money.

The new cities’ leaders are concerned, having cut revenue projections already. Some are saying the situation might get worse, and they are expecting even more declines in revenue.
“There could be some real problems in terms of our ability to meet basic service demands in two or three years,” Johns Creek City Manager John Kachmar said. “We haven’t seen a drastic decline in revenue because there’s a lag, but we’re gaming out what could happen. We’re worried about what’s down the road. It’s very hard at this time to predict what any fall-off will be.”

It’s a rough time to be starting out. Chattahoochee Hills, a south Fulton city, was launched Dec. 1, 2007 — the month the recession started. Sandy Springs was launched Dec. 1, 2005; Johns Creek and Milton on Dec. 1, 2006; Dunwoody incorporated Dec. 1.

Sandy Springs is probably in the best shape, partly because it has a larger commercial tax base. Assistant City Manager Steve Rapson said officials saw early on that they needed to drastically reduce some of their revenue projections.

Chattahoochee Hills may be in the worst shape. It has a small population – 2,500 people — is mostly rural, with only 1 percent of its property developed commercially, and patrolling and maintaining its 57 square miles of roads is expensive. The city nearly doubled its property tax rate — it has no cap — the mayor and City Council members are working for no pay, and they are even taking turns mowing the lawn at City Hall.

The millage cap

Perhaps the biggest financial impediment facing north Fulton’s new cities is the cap on the property tax rate.

Proponents pushed cityhood promising better services, local control — and low taxes. Their legislative sponsors imposed a legal cap on their millage at 4.731, the same rate Fulton County charged at the time. And they set the bar high to raise property taxes, requiring a voter referendum before increasing taxes above the cap.

The low-tax, small-government message resonated among many north Fulton residents.
State Rep. Wendell Willard (R-Sandy Springs), who sponsored the legislation founding his city, said organizers thought it was important to make sure taxes did not exceed the cap without the people’s consent. “I think it’s a pretty good safeguard,” Willard said.

Other north Fulton cities adopted the same language in their own charters.
The low millage was fine as long as commercial and retail business thrived and the area grew. But now, it’s potentially a problem.

“Other cities have the ability to raise taxes to offset declining revenues,” said Milton Finance Manager Stacey Inglis. “We have to be more creative in trying to find more revenue. We may start charging for services, such as false alarm calls, where other cities just eat that charge.”

Christopher Bloor, a Milton resident, said he wouldn’t be surprised if the city cut services to the essentials, such as public safety and roads. “Things in Milton have always been tight,” Bloor said. “Other than Police and Fire departments, what services has the city offered? But we haven’t seen a lot of quality of life services offered [by Fulton County] anyway.”

Johns Creek resident David Kornbluh said he never was a fan of the millage cap. “I always thought it wasn’t the wisest thing to do,” he said, “but it was required to sell [the idea of cityhood to voters]. The numbers were not analyzed as thoroughly as they could have been.”

In south Fulton, Chattahoochee Hills has no cap on property taxes. Officials found the $2.3 million revenue projected in a pre-incorporation viability study to be off – by about $1 million. As a result, the City Council voted in September to increase the property tax rate from 5.6 mills to 10.9 mills.

Phillip West, a 20-year resident, said in an interview after the vote that the city did the only thing it could do, given the circumstances. “Yes, this is a hard pill to swallow,” West said. “But nobody knew the economy would turn down the way it did.”

Carol Wolfe, director of administration for Chattahoochee Hills, said the viability study relied on 2005 and 2006 economic data. “I don’t think we could have made it if we’d had a cap on the millage,” she said.

Obstacles to borrowing

When facing big-ticket construction projects, cities traditionally borrow money through the bond market, said Monte Vavra, Johns Creek’s finance director. That may not be an option for the new cities.

Wolfe, the Chattahoochee Hills official, said general obligation bonds require a city to commit taxes to pay the debt. That’s why they’re attractive to investors, who are guaranteed a return. So cities ask voters to cover the debt.

Issuing general obligation bonds requires a referendum. What are the odds of success?
When asked, Inglis, the Milton official, shook her head. “Zilch.”

In a survey last year, Milton residents were asked whether they would be willing to tax themselves extra to improve parks, build senior centers and make traffic improvements. The No. 1 response from a list was: “Don’t spend any more than what is generated from current tax base.”

Johns Creek Mayor Mike Bodker said he believes people would tax themselves if a convincing business case were made. “There’s no question it handicaps the city, but it forces the City Council to prove any millage above 4.731 is needed,” Bodker said. “I don’t believe people would say, ‘I don’t believe in taxes and I’m voting it down.’ “

The cities are studying the possibility of going to the bond market by 2010, assuming money is available. With the credit crunch, it could be tough going: The New York and New Jersey Port Authority, rated at the highest credit level, went to the bond market to borrow $300 million recently and got no takers.

With property tax rates limited, new cities are more dependent on sales tax revenues than older cities. In Johns Creek, sales tax proceeds make up about a third of its general fund revenue. Sales tax income is currently flat because of a slowdown in consumer spending, and the future looks uncertain.

“Everything you read, it sounds bleak,” Vavra said. “I projected a 9 percent decrease in sales tax revenues in 2009. That’s a lot.”

Property valuations are no cure

The millage cap’s impact wouldn’t hit so hard if property values were expected to keep rising like they were a few years ago. Even with the same tax rate, the rising value of property would put more money in city coffers. But with values flat or on the decline, there’s little prospect of more revenue.

“There are pockets in north Fulton where we’ll see a downturn of 4 to 5 percent,” said Burt Manning, chief property assessor for Fulton County. “We do expect to see a general flattening in the commercial values in north Fulton.”

Adding to the anxiety is a proposal the 2009 General Assembly is expected to consider that would cap property assessment increases at 3 percent. It’s meant as relief for taxpayers, but Kachmar said Johns Creek might have a hard time surviving if the bill passes.

“With millage and assessment caps in place, your ability to generate any new revenue is extremely limited,” Kachmar said. “There would be no money to pay for salary increases; parks improvements come to a screeching halt. You’d have to do triage. If the cost of gas goes up, you don’t buy as much gas. What do you do then? You say, ‘We’ll only patrol a little bit?’ It would have a very deleterious effect.”

Other revenue also iffy

Cities also draw income from licenses, permits, fees, investment income, and assorted odds and ends. There’s unlikely to be good news there, either.

Income from permits is down because people aren’t building, companies are going bankrupt or not seeking business licenses. Rapson said he slashed Sandy Springs’ projected revenue from permits and fees by 21 percent.

In Johns Creek, revenue from building permits has fallen off 50 percent from what was expected — since August.

With the nation in recession, federal and state governments are cutting back on grants. And even if grants are available, cities have to weigh whether they can afford the 20 percent local match that’s typically required and whether they can afford to operate the program the grant might establish. These days, the answer is often no.

“We’ve given money back to the federal government,” Rapson said. “There were too many strings attached.”

19 comments:

Christopher said...

This is not exactly what I said. He made it sound as if I was slamming the City. Which is far from what I said!

While I can't recall my exact words, in essence, they were that the City's growth plan was always a few year outlook. That no one expected huge changes overnight. I indicated that if they needed to cut, that most residents would be ok with it because Fulton had never offered us much more than police and fire anyway.

I guess this will teach me to talk to reporters.

Anonymous said...

You really expected Doug Nurse to quote you correctly?...

I'm just delighted to hear that Carol Wolfe is way down in Chattahoochee Hill Country...they can keep her...she's the real person behind Milton losing out on the $800K...not Aaron Bovos!

Anonymous said...

I wish you all well. South Fulton resident.

Anonymous said...

Christopher, Did you forget Fulton did a good job with roads and still provide good water service. Fire and Police with City and County is a wash.

What is the City providing that was not provided by the County?

Tell us what you think will be cut and why you think most residents will be o.k. with it.

Anonymous said...

Hopefully the council will wake up and take back the $200K that they are giving to the Bike / Pedestrian Path.

Is there a larger waste of money besides that?

Anonymous said...

"Fire and police with City and County is a wash". Are you kidding me? Did you ever try to get the police to your house in an emergency? More than likely our one cruiser was diverted to Sandy Springs. It's so much better now!

Anonymous said...

I only had one occasion to call Fulton Police, and they responded in a timely manner. Never had to call Milton Police and hope I never have to. I'm sure they would respond just as Fulton did.

Tell me how many times did you call Fulton Police and your experience each time. Now tell me how many times you've called Milton Police and your experience each time.

Only want your first hand knowledge, not what someone has told you.

Anonymous said...

Mr Bloor. You need not apologize or further explain your comments in AJC article. Doesn't sound to me like your slamming the City, to the contrary, just telling it like it is. There is nothing wrong in hitting the nail on the head.

Anonymous said...

At least Julie has saved us and the city from certain doom!

Anonymous said...

Betcha the same person wrote the post about our police cruiser being diverted to Sandy Springs and the one about Julie saving us and the city from doom. Appears the poster is negative and has no idea as to what is happening.

Anonymous said...

No, Julie is just saving us be stopping that awful growth that pays taxes.

Anonymous said...

Seems like we had a lady who called police when horses were pooping on her dirt road. Did she call Fulton Police, when we were unincorporated, about this same problem?

If so, Fulton may have diverted the cruiser to Sandy Springs because this doesn't constitute an emergency, plus they could avoid the odor while in Sandy Springs.

Anonymous said...

Here's an idea to generate some money for the city - maybe the mayor can move his office up here from Alpharetta?

Anonymous said...

And maybe the Love Shack could move here.

Anonymous said...

Great idea to the poster about the Mayor moving his office to Milton.

Let's see, first he would have to find a location and request to move there. Next he would have to excuse himself from the vote. Then one of the "3 stooges" would spend 30 minutes yacking about why there should not be anyone moving into Milton, then she would make a motion that her puppies would vote on just because she said so, and the others would also vote either for or against just so she would shut up and no one in the audience would commit suicide. then her #1 minion would say that he didn't want to see moving trucks go past "his" neighborhood.

Afterward either the vote passed and the city would read off a 3 page list of items that he had to follow, or it would be a 3 to 3 vote, and the Mayor would leave wondering why he even considered moving?

Then a citizen looks at the Mayor and says "welcome to Milton"!

Anonymous said...

The author of above post will be, from this point forward, referred to as "THE BRILLIANT ONE"!

Anonymous said...

Especially by anyone who has ever attended a city council meeting!

Anonymous said...

Does anyone yet realize Milton would function more efficiently with no council at all, only staff?

Anonymous said...

You got a point there.