Last month, I described how the foundation for Gwinnett’s current financial woes was laid years ago through a series of bad decisions and flawed financial strategies. One series of actions by the County Commission is, in my opinion, most relevant to the current state of affairs.

For the past four years, the County Commission has not raised your property tax rate. Believe it or not, that was a bad thing.

For a couple of decades, Gwinnett benefited financially from being one of the fastest growing counties in the nation. Gwinnett’s explosive growth built fire stations, libraries, a state-of-the-art water reclamation facility and more. A fairly stable millage rate applied to a growing tax base funneled tax dollars into county coffers.

There is, however, a continuing cost associated with the operation of public facilities– staff, maintenance, utilities and the like. Around 2005, the annual increases in the cost of government began to outpace the growth in the Net Tax Digest. The county’s tax base was “maturing” as the inventory of developable land decreased.

This maturation was anticipated by the county’s financial forecasters, but ignored by the County Commission. That year, the Commission under Chairman Charles Bannister embarked on a flawed, politically-driven financial strategy that would hamstring the county’s efforts to respond to the looming crisis.

Citing the stagnating tax base and increases in the cost of government, the finance professionals recommended an increase in the 2005 Maintenance & Operations (M&O) millage from 10.14 to 11.322. Ignoring the staff recommendation, the Commission adopted a deficient M&O tax rate… the previous year’s 10.14 mills. The deficit created by that decision was staggering. The budget called for $258,823,173 in property tax revenue, but the millage rate approved by the Commission generated approximately $27 million less than the budget required.

The Bannister Commission has continued this dangerous practice every year since 2005.

In 2007, the Commission compounded the problem. Absent significant cuts in spending, a tax rate increase was again required to balance the budget. But the Commission inexplicably reduced the total county rate from 11.30 to 11.08, creating a deficit that required taking $19.6 million from the “rainy day fund” to make up the difference.

The Commission’s irresponsible behavior continued into 2008, despite a stern warning from their advisors. According to an AJC article about the November 2007 Commission planning retreat:

“During the three-day retreat, one consultant and several Gwinnett officials warned that the county could pay a heavy price if it continues to rely on reserve funding to cover shortfalls in its proposed budgets.”

Ignoring the warning, the Bannister Commission rolled back the tax rate again– from 11.08 to 10.97– a decision that required a draw on reserves of $36.3 million.

Today, we are paying the heavy price that was so predictable four years ago.

Tax Cuts Gone Terribly Wrong

“But how could a tax cut ever be bad?” you might ask.

A tax rate reduction is great if it represents the actual cost of government services in a conservative and efficient budget where non-tax revenues are maximized. When politicians control the cost of government services, they can pass the benefit of a growing tax base to their constituents in the form of a lower tax rate.

But an arbitrarily low, deficient tax rate has a terrible hidden cost. Because the deficit must be covered by cash reserves, the interest on those reserves is lost for future years. That loss of non-tax revenue must then be replaced somehow. In a “slow-growth” period like today, the downward spiral of diminishing non-tax revenue continues to the point that only a massive tax increase or draconian cuts in service levels can stop the hemorrhaging.

Further, the recommended practice is to maintain a reserve fund of no less than three months’ operating expenses. Spending down the reserve fund not only jeopardizes the county’s bond rating (which governs the cost of borrowed funds) but also limits our ability to respond to actual emergencies like the recent floods.

Property Tax Deception

Second, artificially lowered tax rates lull the taxpayer into complacency and a false sense of security. As the County Commission lowered the tax rate each year, you probably assumed that all was financially well in your county. You were probably shocked to see the county’s finances go from so good to so bad… so quickly.

A tax increase in 2005 of 1.18 mills (the rejected increase) would have been a wake-up call; an indicator that the county’s financial situation was changing. You would probably have been motivated to demand fiscal accountability from your elected leadership, as you did this summer. Instead, you were deprived of the information that you needed to evaluate your elected officials’ ability to control the cost of government. In essence, the declining state of the county’s financial affairs were hidden from you.

Consider how much better prepared we would have been for this year’s economic downturn had our County Commission reacted four years ago by cutting costs and, if necessary, raising the tax rate.

Flawed Property Tax Law

What Chairman Bannister and the Commission did, although deceptive and highly irresponsible, was not illegal. A flaw in state property tax law allows a County Commission, City Council or School Board to adopt any tax rate that the populace will accept, regardless of the actual cost of government. (Example of an inflated tax rate: Suwanee | The solution)

There is no reason for a politician to adopt a deficient tax rate except to protect his own political rear end. Politicians don’t like tax increases; a rising tax rate can be a reliable indicator of their failure to control spending. For the past four years, Bannister and the County Commission have taken advantage of a flawed tax code to arbitrarily lower the property tax rate to bolster their political resumes… and, in doing so, steered the county into its greatest financial crisis ever.

The decisions of our elected officials have now severely limited our options. A millage rate increase may be the only responsible short-term solution.

When Is a Tax Increase Not a Tax Increase?

So, if we have essentially been “undertaxed” for four years, is raising the millage rate this year truly a “tax increase”?

Maybe not, if the Commission can justify every expense and has maximized opportunities for non-tax revenue– in that case, the higher tax rate can represent the true cost of our county government in relation to the value of all taxable property within the county.

The 2009 budget included $40 million in cost reductions and “revenue enhancements” (primarily, higher fees). Initially, it also included a pay raise for county employees and $19 million in additional spending including funds to open three new fire stations and hire 58 police officers. Much of the additional spending has been eliminated except for the public safety components, library funding and some recreation expenditures.

Sadly, the 2009 budget isn’t the best that we can do… but it is the best that we can do for now.

The Ox Is In the Ditch

Am I advocating a tax increase? No; I advocate a recognition of the fact that our elected county officials have failed to lead. I accept the reality that our short-term options are limited; and that a tax increase may be necessary to maintain the quality of life to which we have grown accustomed and to give us the breathing room that we need to correct the problem.

Coming up…

Despite my general acceptance of the 2009 budget as proposed, I have significant reservations about specific components of the tax increase. The proposed tax hike is about a third too high and, if passed, will severely limit the ability of the Engage Gwinnett citizen committee to help you keep your hard-earned dollars in your pocket.

More on This Topic:

• A Deal to Save Gwinnett
• Pay Lower Property Taxes
• More Budget Shenanigans in Gwinnett
• The Tax Increase: Sufficient For the Day Is the Evil Thereof
• Gwinnett`s Financial Woes Many Years in the Making