Thursday, October 14, 2010

The Truth About SPLOST And Property Taxes

Just to make sure that readers understand the opposition to the SPLOST 2011 ballot resolution is not just based on stereotypical anti-government sentiments, as some would surely have you believe, consider these two articles from the fine folks over at the Carl Vinson Institute of Government (who knew that such a hotbed of conservatism and libertarianism was so discretely closeted on North Milledge Avenue).  Both appeared in the Institute’s Policy Notes publication.

The first article (Vol. 2, No. 3) is entitled Property Tax Relief in Georgia: The Local-Option Sales Tax (LOST) and dates from March, 2001.  Notes this first article:

Whereas an extra dollar of LOST revenue provides about 28 cents in property tax relief, it leads to an increase in total spending of about 48 cents.  In sum, the findings illustrate that LOST has partially achieved the objectives of property tax relief, but on balance it is more an augmentation of than an effective substitute for property taxes in Georgia counties.

In other words, the increase in spending associated with the imposition of LOST far exceeds the value of whatever property tax relief is achieved (but since the latter is the ostensible purpose of LOST, this fact kind of defeats the point of the exercise, doesn’t it?).  Yes, I know that the article deals with LOST.  But, of course, LOST, SPLOST, and ELOST are simply variations on the same theme.  For all of the legalities, see O.C.G.A. Title 48, Chapter 8, Sales and use Taxes.

Besides which, if the version of local-option sales tax expressly devoted to property tax relief is, at best, only marginally effective, why should a variation not devoted to property tax relief achieve that goal any better.  Of course, it does not.

Which brings us to the second article (Vol. 3, No. 7), which is entitled SPLOST Has Little Effect on Borrowing to Finance Capital Improvements but Does Lead to Increases in County Spending and dates from July 2002.*  Notes this second article:

Contrary to what was expected, the study found that SPLOST does not reduce property tax burdens.  Instead, two variables tend to increase; the per capita amount of property tax collected and the amount of property taxes expressed as a percentage of personal income.  Moreover, although the use of SPLOST seems to slightly reduce property tax rates, rate reductions do not necessarily lead to actual reductions on the amount of property tax collected.


In addition to increasing capital spending, SPLOST can trigger more spending on maintenance of capital equipment and facilities, as critics have argued.  An extra dollar of SPLOST revenue results in a 50-cent increase in total spending: 38 cents in capital spending and 12 cents in current operating spending.


With the changes in fiscal federalism over the past two decades and the need for local governments to diversify their revenue bases, SPLOST seems to have emerged as a successful revenue diversification measure in Georgia.  Although it does not appear to be a substitute for long-term borrowing or an instrument for reducing property tax burdens, there is strong evidence that it results in counties spending more on both capital and operations.

SPLOST revenue does not replace property tax revue, it merely adds to it by “diversifying” a county’s tax base.  And remember that, by law, SPLOST funds cannot be used for operations or maintenance.  So, since the single largest source of revenue for county governments is property taxes, that additional spending for operations and maintenance comes disproportionately from (all together now) property taxes.

Of course, these academic observations jibe exactly with our local experience, as the Clarke County School District maxed out its portion of the millage rate years ago and the Unified Government of Athens-Clarke County has increased its portion of the millage rate in each of the last three years – quite apart form the issue of increased assessments – even as both claim that their respective SPLOSTs will obviate the need for property tax increases.

*Thanks to Stephen Alexander for digging this one up.

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