SPLOST: A Case Study

For more than a decade, school systems in Georgia have been able to collect a 1% Special Purpose Local Option Sales Tax, subsequent to the approval of the tax through a countywide referendum (in common terminology SPLOST, though the more correct term is ELOST, denoting a supplemental sales tax for education). This additional sales tax is specified for capital improvements only and cannot be used to fund personnel or operating expenses. Needless to say, school systems have enthusiastically embraced this method of generating revenue and many have implemented a series of such measures over the years.

The Clarke County School District is no exception. Its initial SPLOST ran from July 1997 through June 2002. The District’s subsequent SPLOST 2 began immediately thereafter, in July 2002, and continued through June 2007. The current iteration, SPLOST 3, is slated to run from July 2007 through June 2012.

Proponents of these measures have claimed that by funding capital projects through sales taxes, they could be completed without the payment of interest on long-term bonded indebtedness or necessitating increases in property taxes. Let us put those both of those assertions to the test by considering the District’s most recently completed version of the tax, SPLOST 2.

While it is true that SPLOST 2 avoided the imposition of long-term bonded indebtedness, as advertised, short-term indebtedness proved another matter altogether. In 2002, the Athens-Clarke County Commission approved $30 million in general obligation bonds on behalf of the District, followed by another $3.4 million in 2003, and an additional $4.0 million in 2005. Obviously, this series of bond issues totaled $37.4 million in only four years.

Ostensibly, the strategy employed in issuing short-term bonds is to save money by borrowing, thereby getting funds “in the bank” sooner, rather than construct capital projects as sales tax revenue accumulates,. This approach is diametrically opposed to the traditional concept of a “sinking fund,” in which money would be accumulated prior to construction so as to avoid debt. Supporters of this practice claimed that, by issuing short-term bonds scheduled to mature concurrent with the end of SPLOST 2 sales tax receipts, money would be saved by avoiding the anticipated construction cost increases that may occur over the five-year life span of the tax. Also, proponents pointed out that money generated by the bonds can earn interest in the brief period before it is spent.

It may well be the case that this process saved the taxpayers money, but such savings have not been proven empirically. According to figures obtained from the District, approximately $3.6 million was paid in interest on the various SPLOST 2 bonds as they matured, but it could provide no specifics whatsoever as to how much money the process saved through the avoidance of construction cost increases. Also, it should be remembered that the total amount needed to complete the specified projects would not have been borrowed at the outset of construction, debt would have been incurred as needed, so a linear relationship linking total costs savings to the construction timeframe cannot be assumed. Simply put, the claim that the taxpayers have saved money must be taken as an article of faith.

Conversely, SPLOST 2 proved a demonstrable failure at limiting property tax increases. According to figures from the office of the Athens-Clarke Clarke County Tax Commissioner, the District’s portion of the county’s property tax millage rate steadily progressed during the course of SPLOST 2, from 18.75 mills in 2002 to 19.25 mills in 2003, to 19.50 mills in 2004, and to the constitutional limit of 20.00 mills in 2005. Even so, according to the office of the Athens-Clarke County Tax Assessor the value of the county’s property tax digest has risen by an average of 9-10% annually in recent years, thereby generating substantial property tax revenue increases irrespective of millage rate increases.

This never-ending appetite for tax revenue, generated from whatever source, is a direct result of rising expenditures. According to the school system financial reports issued annually by the Georgia Department of Education, student enrollment increased in Clarke County over the SPLOST 2 period by 494 pupils, from 10,921 in 2002 to 11,415 in 2007, or 4.5%. Per pupil expenditures increased by $2522 over that same period, from $8225 to $10,747, or 30.7%. Thus, per pupil expenditures increased at almost seven times the rate of student enrollment over the five year duration of SPLOST 2.

Finally, consider that the various SPLOST 2 bond resolutions, of which the most recent pertaining to SPLOST 3 will serve as an example (see pages 4-5), specified that property taxes would be levied to repay the bonds if sales tax revenues were insufficient to pay the debt incurred by them. Admittedly, this situation was unlikely to occur. Nonetheless, even the remote possibility that property taxes would have been raised in order to cover any shortfalls in the sales taxes pledged to pay off bond debt service should cause the taxpayers grave concern.

The question remains as to whether the claims of SPLOST supporters correspond to reality. The experience of taxpayers with regard to the most recently completed supplemental sales tax levied on behalf of the Clarke County School District, SPLOST 2, indicates that the answer is mixed at best. The lesson to be learned is that, when it comes to implementing supplemental sales taxes, the optimistic claims of educational administrators, bureaucrats, and school board members should be regarded with a healthy skepticism.

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