Tuesday, October 13, 2009

And Since I’ve Been Going On About SPLOST

Finally, some finality. Back in 2007, the Clarke County School District’s SPLOST 3 bond resolution included a provision that, should the limited duration sales tax be insufficient to repay said bonds, any shortfall would be added to the CCSD’s portion of the local property tax millage rate. Longtime readers may remember that I had two specific concerns with regard to any such transfer of bonded indebtedness to property taxes.

My first concern dealt with the 20 mills limit imposed by the state Constitution. The CCSD’s portion of the local property tax millage rate has been at the 20 mills limit for years; to exceed that limit would normally require the voters’ approval to do so via a referendum. So how could that line be administratively traversed so as to make up a SPLOST revenue shortfall without a referendum?

After a (very) long and circuitous journey through a variety of local and state government bureaucracies, the Attorney General’s office provided me with the relevant Georgia Supreme Court case law, Seaboard Air-Line Railway Company v. Wright, comptroller-general, et al., from way back in 1927, that exempted bond debt service from any constitutional limit. I do not agree with the reasoning embodied in that decision, as it would seem to render the rationale for the 20 mills limit moot, but the case law is what it is.

Satisfying my second concern has proven somewhat more vexing. The CCSD’s bond resolution cited a provision contained in the Constitution as expressly permitting the transfer of bonded indebtedness from SPLOST sales taxes to property taxes. That resolution read in part (see the second paragraph on page 5 of the PDF):

WHEREAS, Article IX, Section V, Paragraph VI of the Constitution of the State of Georgia requires that prior to the issuance of general obligation bonds, a tax must be levied in amounts sufficient to pay the principal of and the interest on the Bonds as the same become due and payable, to the extent that the revenues from the Sales Tax are not sufficient thereof;

The resolution was littered throughout with similar language. Being a nerdy type reasonably familiar with the verbiage in the Constitution, this immediately struck me as odd. Sure enough, when I went to the document itself, no such provision was anywhere to be found. The actual text of Article IX, Section V, Paragraph VI of the Constitution reads (see page 81 of the PDF):

Levy of taxes to pay bonds; sinking fund required. Any county, municipality, or other political subdivision of this state shall at or before the time of incurring bonded indebtedness provide for the assessment and collection of an annual tax sufficient in amount to pay the principal and interest of said debt within 30 years from the incurring of such bonded indebtedness. The proceeds of this tax, together with any other moneys collected for this purpose, shall be placed in a sinking fund to be used exclusively for paying the principal and interest on such bonded debt. Such moneys shall be held and kept separate and apart from all other revenues collected and may be invested and reinvested as provided by law.

There is no mention whatsoever of transferring bonded indebtedness from a sales tax to property tax, just a general provision that a sinking fund to repay bonds be in place before such bonds are issued. Explicitly contrary to my reading of the CCSD’s resolution, the Constitution is mute on the subject of transferring any shortfall in sales tax collections to property tax “to the extent that revenues from the Sales Tax are not sufficient therefore.”

After an (even) long(er) and (more) circuitous journey through a variety of local and state government bureaucracies – the Attorney General’s office clammed up on me this time – I eventually discovered, after speaking with a bond attorney over in Atlanta, that the answer can be found in O.C.G.A. §48-1-121(c):

No general obligation debt shall be issued in conjunction with the imposition of the tax unless the governing authority of the county or qualified municipalities within special district issuing the debt determines that, and if the debt is to be validated it is demonstrated in the validation proceedings that, during each year in which any payment of principal or interest on the debt comes due the county or qualified municipalities within special district issuing such debt will receive from the tax authorized by this part net proceeds sufficient to fully satisfy such liability. General obligation debt issued under this part shall be payable first from the separate account in which are placed the proceeds received by the county or qualified municipalities within the special district issuing such debt from the tax authorized by this part. Such debt, however, shall constitute a pledge of the full faith, credit, and taxing power of the county or qualified municipalities within the special district issuing such debt; and any liability on said debt which is not satisfied from the proceeds of the tax authorized by this part shall be satisfied from the general funds of the county or qualified municipalities within the special district issuing such debt.

Okay, that answers the question as to on what legal basis a shortfall in SPLOST sales taxes may be transferred to property taxes, though it is not explicitly stated in that manner.

But the question remains: why did not the CCSD’s bond resolution cite this section of state law? Why make language up out of whole cloth and claim that it is in the Constitution, when a few seconds on the Internet reveals that claim to be patently false?

Inquiring minds and all.

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Anonymous said...

You have some interesting and timely points, here. Let me just say -- I do hate children and believe they should be working in the poultry plants and don't deserve an education!


I'd imagine the CCSD is in the same boat with other districts when it comes to bonded indebtedness; and because they spend so much per student, compared to other systems -- they might be sort of unique, here -- and this is the rationale for your comments.

It's clear, too, that the M & C, and U.GA., locally, have all borrowed a lot of money based on, now, past, and perhaps incorrect, assumptions about the ability to re-pay. Already, the state passed a moratorium on raising property valuations; though I realize you don't seem to be a fan of that approach.

To make the long story short, at some point, far down the road, property owners WILL revolt. This will lead to default on the bonds. Admittedly, the BOE, and M & O, have a lot further to go down the spending and taxing road before the mostly liberal Athenian's do something. How much further, and when this will happen, I don't know. What I do know is that it will happen because the leaders lost the confidence of the tax payers and citizens; YOUR comments, are all about, historically, HOW they lost that confidence.

Of course, my warning will not be heeded; on the other hand, when you look at all the investments, nationally, that went sour -- and what this has meant -- it's obvious that continued borrowing is unsound and dangerous.

What folks should do -- liberals, conservatives, etc. -- is think about a future when lenders are much less willing to loan money. The future will be more frugal in education; on the plus side, if your past historical analysis is correct, spending less money, here, should actually increase effectiveness.

Let's all keep the powder dry, do what we can, not say "I told you so," when it happens, and remember that even after a train wreck, things can be better.

Anonymous said...

to nitpick... there is no such thing as a education SPLOST... it is called ELOST

james said...

You are, of course, technically correct. Common usage, though, even on the part of the CCSD, is "SPLOST."