Two years ago, Georgia legislators passed a major tax reform bill that promised to create jobs, attract investment and, according to Gov. Nathan Deal, make Georgia “an even better place to raise a family.”
But the revenue cuts, particularly the elimination of the annual car sales tax and another exemption for agricultural supplies, hurt rural counties more than urban or suburban ones. These two cuts combined would cost Georgia counties nearly $170 million, a state estimate projected.
But the Georgia Municipal Association (GMA) and county officials say the revenue pain is worse than expected. Here in Decatur County, for example, total sales tax receipts dropped $1.8 million between 2012 and 2013, due largely to the tax cuts and, less so, the still-slow economy.
This Southwest Georgia town, surrounded by cotton and peanut fields irrigated by the Flint River, raised property taxes last month to make up for its losses. Valdosta raised property taxes in June — the first time in 22 years. Tifton and Moultrie, nearby farming communities, also raised taxes on homeowners to make up for the sales tax shortfall.
Wealthier urban counties like Fulton and Cobb haven’t suffered much, but the revenue disparity threatens to further Georgia’s contentious urban-rural divide. Rural Georgians increasingly move to metro Atlanta in search of work, taxing the region’s already stressed police, schools, roads and social-service networks.
And taxpayers in the relatively well-off urban counties may have to pick up a larger share of the state’s education tab if their less-fortunate neighbors struggle to cover books and buses.
A busload of Decatur County school children in south Georgia, for example, took a sweltering ride home one recent, 100-degree day because the revenue-strapped school system couldn’t afford a new air-conditioned bus. A sixty-year old elementary school in Bainbridge won’t be replaced anytime soon. And students can forget about new computers this year.
“When we have less money to spend, a laundry list of things happen: your class sizes get bigger; your buildings get older without replacements; and you’re not able to put iPads in the hands of students,” said Fred Rayfield, superintendent of Decatur County schools. “The bottom line is, when we lose revenue, the kids suffer.”
It has been more than two years since the legislature overwhelmingly approved and Gov. Deal signed the tax cuts, enough time to begin gauging their impact. Critics say the total projected revenue losses — $63 million for the state, $200 million for the counties — are woefully low. (An up-to-date analysis hasn’t been completed, but the GMA crunched recent sales tax receipts.)
And some contend that the revenue shortfalls prove that the General Assembly’s over-arching philosophy of tax cuts hurts more than helps the economy.
“Research has not shown that taxes have a major impact on job growth,” said Alan Essig, executive director of the Georgia Budget and Policy Institute think tank. “Georgia is already one of the lowest tax states in the country. So if the level of taxation had a direct relationship with economic growth then Georgia should be by far leading the nation in job growth and the economy and we’re not.”
Legislators tightened up the agricultural exemptions earlier this year and say they’re willing to revisit all the tax cuts next year if warranted. Most, though, stand by the sales tax changes passed in 2012. Many still believe that an environment more accommodating to business will lead to increased economic activity and jobs which, ultimately, will make up for any sales tax losses.
“They are absolutely working or you wouldn’t have seen 300,000 new private sector jobs in Georgia (the last four years),” said House Majority Leader Larry O’Neal, R-Bonaire. “And we think the tax reform package had a good bit to do with that.”
Making up for tax losses
Valdosta is a relatively prosperous South Georgia town with a healthy mix of business, military and university jobs. The daytime population rises 50 percent, to 80,000 people. Outsiders fill up gas tanks, eat lunch and buy tractor tires at the Agri Supply, contributing about half of the city’s sales tax revenue.
Georgia’s rural counties, buffeted by dwindling populations and smaller tax bases, raise most of their revenue from sales and property taxes. But they try to avoid dinging property owners. Larry Hanson, Valdosta’s city manager, proudly recalls that the City Council has cut property taxes 11 times the last 18 years.
In June, though, the council voted to raise property taxes for the first time since 1992, a painful exercise that Hanson attributes primarily to dwindling sales tax revenue resulting from the tax cuts made by the General Assembly. The city had already cut 5 percent of its workforce and slashed spending on transportation projects. A million-dollar veterans memorial park was shelved, as were sidewalks encircling Valdosta State University.
Lowndes County, home to Valdosta, lost $2.3 million in sales tax receipts between 2012 and 2013, according to state Department of Revenue records.
“Everyone is well-intentioned, including the legislature, but sometimes decisions are made that have different impacts on different areas of the state because we don’t all have the same economy,” said Hanson during a recent City Hall interview. “The further from Atlanta you go, the more sales taxes are down.”
Georgia’s 7 percent sales tax — four pennies for state coffers, as many as three pennies for the counties — is no longer collected on a variety of products, fuels and materials.
Legislators slashed taxes on jet fuel and construction materials, for instance. They increased exemptions for married couples filing joint tax returns. Most of the sales taxes on energy used in factories, mines and newspaper plants were phased out. The sales tax holiday returned.
The General Assembly also boosted revenues by ending the sales tax exemption for film production, and collecting more taxes on Internet purchases.
Two tax cuts — the annual ad valorem, or “birthday,” tax on vehicles and the sales tax for agricultural supplies — hit South Georgia much harder than North Georgia, aka Atlanta. Replacement of the ad valorem tax with a one-time title tax was projected to add $503 million to state coffers over three years, while costing the counties $138 million, according to an estimate given to legislators.
Rural Georgia was hit harder by the Great Recession than urban Georgia with more jobs lost and residents fleeing to Atlanta and other cities with better employment opportunities. Revenues from car sales and fees dropped.
“People were no longer buying those $50,000 Yukons,” Hanson said. “Instead, they were buying $20,000 Kias which use less fuel.”
The agricultural tax exemption hit rural counties head on while urban, non-farming communities escaped relatively unscathed. State revenues were expected to withstand a manageable $42 million loss of revenue from the sales tax exemption for seed, feed, fertilizer, tractors and other farm equipment. Counties would take an additional $30 million hit.
“It’s very clear that where you have a diverse economy, sales taxes are a little bit down,” said Michael McPherson, a governmental relations associate with the GMA. “But where you have a heavy agricultural economy, it’s a recurring hit and a big-time decline.”
McPherson analyzed the tax bill’s impact on Georgia’s 159 counties. He learned that just a one-cent sales tax loss would cause major hardship for revenue-poor counties. Through April 2014, for example, a one-penny loss in Fulton County accounted for a minimal .5 percent drop in sales tax revenue.
In nearby Mitchell County, another agricultural-dependent community, the penny translated into a 27 percent loss.
McPherson says the state’s auditor’s $200 million estimate of county revenues losses is woefully low.
“It’s going to be dramatically higher,” he said.
Georgia’s cities, counties and school boards, for example, received $190 million less in sales tax revenue in 2013, as the economy was improving, than they did in 2012, according to state revenue records.
Bainbridge, for example, has lopped off about a quarter of its municipal workforce since 2009. Only the police and fire departments get new vehicles. A red-brick walkway along Broughton Street that was supposed to link downtown to the river stops after three blocks.
“For years and years, state politicians railed against property taxes. I did too,” said city manager Chris Hobby. “But we have to operate and provide essential services. They can’t be put off forever. At some point, you have to pay the piper.”
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