Monday, September 27, 2010

Legislative and Judicial Aspects of Georgia's SPLOST Law (the SPLOST Trilogy Part 1)

As either side gears up for the Unified Government’s SPLOST 2011 ballot resolution, two web sites have sprung up devoted to the issue.  The first is Rebuild SPLOST by local progressive Michael Smith and the other is Georgia SPLOST by local conservative John Marsh – and no, they are not necessarily on opposing sides.  Being the ever helpful sort that I am, I penned this bit for John concerning laws here in the Peach State; it appears on his site under the heading “Current SPLOST Laws & Practices:


In addition to the 4% sales tax collected by the State of Georgia, three other sales taxes may be collected at the county level.  The first of these is the Local Option Sales Tax (LOST) dating from 1978, the revenue from which is allocated between a county and the municipalities located therein.  This was followed in 1985 by the Special Purpose Local Option Sales Tax (SPLOST), designed to assist counties in fulfilling their obligations as legal extensions of the State.  Finally, the Educational Local Option Sales Tax (ELOST), operating as a variation of SPLOST, extended this method of funding to county and independent school districts in 1997, though control of the levy resides with the county government.


SPLOST levies are authorized under the “special districts” provision of the Constitution of the State of Georgia (see Article IX, Section II, Paragraph VI).  The SPLOST legislation itself is found in the Official Code of Georgia Annotated (see Title 48, Chapter 8, Article 3, Part 1, commonly referred to as section 48-8-110 et seq.).  As indicated above, Georgia’s original SPLOST law dates from 1985.  Over the last quarter of a century, though, that legislation has been amended any number of times.  Rather than take readers through the myriad changes and additions that have been made to the law, the pertinent aspects of the legislation are summarized below.


At first, the SPLOST law pertained only to projects undertaken by county governments in their capacities as legal extensions of the State, such as the construction of courthouses and jails.  “Qualified” municipalities followed, becoming eligible to receive funding through SPLOST levies in 2004.  A municipality is considered to be qualified if it offers any three of the twelve services specified in the law, such as fire protection and solid waste management, either directly or by contract.  It is important to note that SPLOST levies are enacted countywide by county governments; they cannot be levied by school districts, which lack the authority to levy taxes, or municipalities.  Unlike Local Option Sales Tax (LOST) levies, SPLOST levies are not joint county-municipal levies.  Insofar as a SPLOST is concerned, it is only counties that can constitute “special districts” in a legal sense.  Also, contrary to the state sales tax, SPLOST levies are applicable to food and beverage purchases.


In order to implement a SPLOST levy, state law requires approval of a resolution establishing the levy via a countywide referendum.  The levy can only be for specified capital improvement projects and must include a defined end date.  By law, maintenance and operations expenses cannot be paid through SPLOST funding, nor can any other county or municipal facilities or services.  The resolution must include a list of the county and municipal projects for which the levy is to be used, the estimated cost of each project, and (normally) the time period of the levy stated in either calendar years or calendar quarters.  If the resolution calls for the issuance of general obligation debt in the form of bonds, it must also include the principal amount of the debt, the purpose for which the debt is being issued, the identity of the local government issuing the debt, the maximum interest rate or rates applicable to the debt, and the amount of principal to be paid during each year over the life of the debt.


Counties and qualified municipalities may use SPLOST revenues to retire existing general obligation debt.  They may also issue general obligation debt in conjunction with SPLOST levies if that debt is used for the purposes of those capital projects specified in the SPLOST resolution.  However, if general obligation debt is issued in this manner, a separate ballot resolution permitting such debt must also be approved via a countywide referendum.


The duration of a specific SPLOST levy can vary according to a number of factors.  The original iteration of the law, applicable to county governments only, limited collection of SPLOST taxes to a period of four years.  Later, that duration was extended to five years.

When municipal governments became eligible for SPLOST funding, two other possibilities emerged.  The duration of the levy would be five years under the three conditions that the county and its qualified municipalities did not enter into an intergovernmental agreement (IGA) concerning the allocation of the revenue generated by the levy, a “Level One” project was included, defined as a project intended to benefit the county acting in its capacity as a legal extension of the State of Georgia, and the estimated costs of all Level One projects was less than 24 months of anticipated revenues; the duration of the levy would be six years if the estimated costs of all Level One projects was equal or more than 24 months of anticipated revenues.

Consolidated city-county governments form yet another special case.  If general obligation debt is to be issued in conjunction with the imposition of the tax, consolidated city-county governments need only to specify the maximum dollar amount to be raised by the SPLOST levy.  No maximum duration for the levy, either in terms of calendar years or calendar quarters, need be specified.


Just as is the case with state sales tax levies, the Georgia Department of Revenue collects SPLOST levies.  The Department of Revenue retains 1% of the revenue collected to defray its expenses.  The remainder of the revenue collected is allocated among a county and its qualified municipalities according to either of two methods; by an intergovernmental agreement reached by the county and those municipalities or, absent such an intergovernmental agreement, by a population-based formula.


The Georgia Attorney General’s office issued an unofficial opinion in 1990 (U90-18) that said the list of projects that appears on a SPLOST resolution need not give the voters a high level of specificity, as the statue governing SPLOST resolution does not require it .  According to the unofficial opinion, “There is no necessity that the description of the purpose or purposes for the tax be in exacting detail.  Rather . . . the description and the purposes must be only so specific as to place the electorate on fair notice of the projects to which the tax will be devoted.”  Merely noting the types of projects to be funded, assuming that they are in accord with the types of projects specified by state Code, is sufficient.

In September 1992, the Georgia Supreme Court decided the landmark case Dickey et al v. Storey et al.  The Court ruled that the Floyd County Board of Commissioners erred by deviating from the specific list of projects included in the SPLOST resolution and by abandoning projects before their completions.  According to the official opinion, “Construing these Code sections, we hold that the Board is not authorized to use proceeds from the SPLOST tax for a purpose entirely different from that contained in the SPLOST budget and account reports.  We further hold that the Board is bound by the SPLOST budget and account reports to complete all projects listed therein unless circumstances arise which dictate that projects which initially seemed feasible are no longer so.  In this regard the governing authority has discretion to make adjustments in the plans for these projects, but may not abandon the projects altogether.”  The definition of “feasible” is conspicuous by its absence in the state law governing SPLOST and therefore remains open to interpretation.  Even so, the Court’s decision clearly requires some condition outside the control of the county or municipality to render a project infeasible.

The Georgia Attorney General’s office issued an official opinion in March 1997 (97-7) concerning the ELOST variation of SPLOST.  At issue was the definition of “capital outlay projects for educational purposes.”  The Attorney General opined that expenditures for things such as school buses and equipment that have an extended useful life, and not just school buildings, did indeed qualify for ELSOT funding.  According to the official opinion, “Therefore the term ‘capital outlay projects’ as used in the educational sales tax purpose amendment should be read as well to refer to major, permanent, or long-lived improvements or betterments, such as would be properly chargeable to a capital asset account and as distinguished from current expenditures and ordinary maintenance expenses.”  Even so, such expenditures could only be paid through ELOST revenues directly and not through the issuance of general obligation debt.

Later that same year, in October 1997, the Attorney General’s office issued another official opinion (97-30) concerning ELOST.  According to the official opinion, “. . . a referendum is required before a school board may borrow money for a term longer than twelve calendar months even if the borrowing is to be repaid from expected STEP collections.  It is also my opinion, however, that a school may, without such referendum, engage in certain short-term borrowing for less than twelve calendar months, against the expectation of receipt of STEP collections, subject to certain constitutional and statutory constraints.”  It appears that STEP is an acronym for “special purpose local option sales tax for educational purposes,” a precursor to the current ELOST terminology.

In May 2001, the Attorney General’s office issued a third official opinion dealing with ELOST and by extension SPLOST (2001-3).  According to the official opinion, “Under the ‘interest follows principal’ rule, interest earned on public funds is an incident of principal and becomes a part of the account fund. . . Consequently, interest earned on educational taxes and on special county taxes becomes part of the tax proceeds in the account fund, which fund is required to be used exclusively for the purposes or purposes specified in the resolution or ordinance calling for the imposition of the respective tax.”  Thus, any interest earned on ELOST or SPLOS tax revenues is considered to be the same as the revenue generated by the tax itself and may not be used for other, unrelated purposes.

Finally, the Attorney General’s office issued another official opinion (2007-5) in October 2007 concerning the interest earned on SPLOST revenue.  According to the official opinion, “I have previously opined that the statuary restrictions . . . require that all accrued interest on the separately maintained SPLOST account also be used exclusively for the approved projects and likewise kept in the separate account maintained for SPLOST revenues. . . The plain language of the statute as well as prior construction of statutory language regarding the use of SPLOST funds requires that the SPLOST funds be kept in an account separate from other count funds and withdrawn only for the payment of expenses incurred with regard to the projects approved in the resolution or ordinance calling for the imposition for the tax.

In addition to the Dickey v. Storey decision noted above, other Georgia Supreme Court case law has bearing on the implementation of ELOST and SPLOST.  For example, see Haugen v. Henry County (2004), a decision that says an “excess” of SPLOST funds cannot be declared until all projects identified in the SPLOST resolution have been completed, and Johnston v. Thompson (2006), a decision that that says counties cannot use SPLOST levies intended to fund school system-wide technology to fund the purchase of laptop computers for students.

Though care has been taken to be accurate, the information provided above is neither comprehensive nor exhaustive.  Those readers desiring further information concerning the various qualifications, requirements, and technicalities of SPLOST levies are referred to publications from the Association County Commissioners of Georgia (2008) and the Georgia Municipal Association (2004).

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Anonymous said...

Very fine work on this James! Lots of good information! Like this blog very much and thanks for your hard work!

James said...

My pleasure. I actually find this sort of stuff interesting - but then I always something of a nerd.