Stuck Inside the Box: My Dissent to the Engage Gwinnett Report

Written by Bob Griggs

I have enjoyed my participation on the Engage Gwinnett committee and the new relationships that have developed. I hope that I contributed to the effort in a positive way. I have great respect for the other members and, in particular, the co-chairmen, sub-committee heads and facilitators who devoted an incredible amount of time to ensure that our effort produced value.

The people of Gwinnett County can be confident that the committee members gave their best effort; that all relevant constituencies were represented; and that all had sufficient opportunity to be heard and to contribute to the final product, our recommendation to the County Commission.

No endeavor of this magnitude, however, can be perfect neither in its process nor in its product. My “dissent” is not offered to disparage the committee's effort nor solely to highlight the deficiencies of our final report, but to understand the factors that contributed to the present financial difficulties; to describe some of the opportunities that I believe we missed; and to offer examples of ways that our effort could have been improved.

A New Way to Govern

I consider the current economic woes not travail to be suffered, but an opportunity to be exploited. Even if out of necessity, we have an opportunity to remake our county government into a leaner, more efficient entity.

Our county is evolving; change is inevitable. We must accept that simply “getting by” for the next five years will not be good enough. A new way of thinking is critical to our community's survival, as it will be many years before our local economy returns to any semblance of its former vitality, if at all.

Remaking government will require innovative thinking by our county professionals and bold leadership by our elected officials. More importantly, it will require engagement and action on the part of the citizenry, both in the council chamber and in the voting booth.

We must proceed with this truth in mind-- it will be easier to fail than it will be to succeed.

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Spending

Many potential cost reductions were not discussed in sufficient detail to be included with appropriate emphasis in our recommendation. For example, there was no meaningful group-wide discussion of salary cuts or the revision of pension benefits. A session in which the full committee discussed spending issues that spanned departments like these would have been beneficial.

There was little discussion of the county's accrued liabilities (primarily pension benefits), totaling around $300 million, and the fact that, like local and state governments across the nation, a failure to fund those liabilities could have dire financial consequences. The county has taken action to mitigate this obligation going forward, but a more meaningful discourse on this topic may have prompted a recommendation regarding budgeting for this ongoing expense and the renegotiation of current obligations to reduce the county's unfunded liabilities.  (For more on this topic, see “Breaking Trust” later in this dissent.)

Also, we may have held some spending to be sacrosanct, “off limits,” when all facets of county government should be subject to the same cost-cutting.  There has been hesitation to include the budgets of the constitutional officers in our efforts to establish appropriate service levels.  While the constitutional officers provide very important services to county residents, we must remember that their services are funded by tax dollars just like almost every other public service. Their budgets should receive the same level of scrutiny as the other departments and, when necessary, be subject to appropriate reductions in funding.

Indirect Spending Reductions

The sub-committees spent many hours discussing direct spending cuts and efficiency improvements, but generally failed to examine the benefit of indirect cost-saving measures-- policies that the Commission should adopt to reduce the burden on public services and, thereby, reduce the cost to provide those services.

The committee did not consider, for example, the drain on public resources by illegal immigrants. Gwinnett is reported to have the largest immigrant community in the southeast. It is reasonable to conclude that, given national trends and the number of illegal aliens processed by the Sheriff's Department in recent months, a significant percentage of those individuals and their dependents are here illegally and therefore ineligible to receive most if not all public benefits.

And yet, receive them they do. From taxpayer-funded medical treatment in emergency rooms to taxpayer-funded services provided by the schools, illegal immigrants constitute a significant drain on public resources.

The 287(g) program, by which the Sheriff's Department processes illegal alien arrestees for transfer to federal custody, is a politically popular, yet costly and very inefficient method to reduce the number of illegal immigrants in the county.

First, the program does not come into play until after the illegal alien has already incurred a cost to the taxpayer. We pay the police officer to make the arrest and buy the car in which the arrestee is driven to jail. We pay the jailer to process the illegal immigrant and pay for room and board until the detainee is picked up by federal authorities.

It would be much wiser to implement policies that reduce the number of illegal aliens in the county before they come into contact with the government, especially when such a policy can be implemented with little cost to the government or to the private sector.

Second, 287(g) does nothing to identify and remove the dependents and relatives of illegal aliens, who are usually here illegally themselves.

As an alternative or in conjunction with a scaled-back 287(g) program, the Commission should require all applicants for a business license or renewal to enroll in E-Verify (a free federal program) for the verification of the employment eligibility of its new hires. Failure to maintain enrollment in E-Verify would result in the suspension or revocation of the license.

By requiring employers to verify the employment eligibility of their new hires, the Commission can virtually eliminate the primary attraction for illegal immigrants-- jobs.

The Commission should also require entities receiving any public monies (hospital, non-profit organizations, economic development partners, etc.) to enroll in E-Verify as well.

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Revenue

The funds to pay for government can come from several sources– licenses, fees, fines and penalties, user fees and service charges, as well as interest on reserves and investments, borrowing or the sale of bonds. The shortfall, if any, must be covered by property taxes and/or sales taxes. The more non-tax revenue that is collected, the fewer tax dollars that must be collected from you and me.

Our lengthy discussions of acceptable service levels and operational efficiencies left little time for a proper examination of public revenue and its sources. I take issue with the final paragraph of our report's “Executive Summary” which makes it appear that our deliberations regarding revenues resulted in two primary conclusions: that the county must encourage commercial development and that we need a Local Option Sales Tax.

While I support the concept of a sales tax, a survey of committee members found that we considered a sales tax only slightly better than a millage increase to address a hypothetical shortfall in revenue. There was certainly no consensus on a sales tax that warranted its emphasis in our final report.

Further, while there was information presented that showed an unhealthy ratio of residential to commercial value in the tax digest and, while I agree that an unbalanced tax digest is a problem, I recall no meeting in which a majority concluded that a solution to the county's economic problems would include promoting commercial development.

The final paragraph of the Executive Summary seems more like the report drafters' wishful thinking or a predetermined result than a fair description of our conclusions regarding revenue.

Finally, the last sentence insinuates that we gave meaningful consideration to the many ways to diversify revenue sources and “spread the cost of government around.” In my opinion, we did not. In addition to spending restraints, diversification of revenue sources is key to our economic recovery; we should have discussed ways to achieve it in greater detail.

Impact Fees: Growth Paying for Itself

Had we given the topic of revenue more consideration, we may have discovered ways to increase revenue without adding to the taxpayers' burden. One proven source of non-tax revenue are impact fees on new development. Impact fees are charged to pay for the new public facilities required to serve new growth. With impact fees, a portion of the cost of new infrastructure is paid by the residents who created the need for the infrastructure and who will be the most likely to use the new facilities. Look at impact fees as a “user fee on growth.”

Gwinnett County does not have an impact fee program. Actually, the county did adopt impact fees in the early 1990's, but most of the program was rescinded by Wayne Hill and a more “development-friendly” Commission within months of his taking office.

That decision cost the county tens of millions in revenue. Had Gwinnett County charged an average impact fee of $1,600 on every new single-family housing unit permitted in 2001, $13.5 million would have been generated for public facilities; in 2002, another $13.1 million.

With an impact fee program, growth could have helped to pay for itself in emerging eastern Gwinnett, freeing Special Purpose Local Option Sales Tax (SPLOST) dollars to build and renovate public infrastructure in established areas of the county where the population was increasing but significant new construction was unlikely.

Just like the citizen committee of the early 1990's, an impact fee advisory committee on which I served in 2007 recommended that the County Commission promptly adopt an impact fee program. To date, the Commission Chairman has failed to act on our recommendations. In fact, Chairman Bannister has stated, erroneously, that the 2007 committee recommended against the fees, probably because we were never allowed to formally present our report and Bannister has probably never read it.

Despite the economic downturn, an impact fee program remains a viable method for paying for public infrastructure. The Bannister Commission’s refusal to implement an impact fee has already cost the county tens of millions. Our Commission Chairman must drag his feet on impact fees no longer.

LOST or LOST-2 ?

Another key element in the diversification of revenue sources is the Local Option Sales Tax, also known as the “LOST.” Adopted by the State Legislature in 1975, the revenue from the penny sales tax is used to reduce the property tax rate “dollar for dollar.” Gwinnett is one of only three among the state's 159 counties that has not enacted a LOST for the benefit of its property owners.

Although our report mentions a sales tax generally as part of an overall solution, we failed to fully analyze and emphasize the value of this potential revenue source. We also failed to explain what is a LOST and why it would be part of our recommendations.

There was apparently no imperative to discuss the LOST in detail because the tax as currently configured is not a source of additional revenue for the government. I believe that it was short-sighted on our part not to give the Local Option Sales Tax a more prominent place in our report.

The Benefits of LOST

The primary purpose of the Local Option Sales Tax is property tax relief. While a LOST does not produce additional direct revenue, it has great indirect benefit for both government and taxpayer.

A LOST shifts a portion of the cost of government away from the property owner and to those who use government services but do not pay for them-- out-of-county residents, renters (to an extent) and boarders, both legal and illegal, to name a few.

A sales tax, of all taxation, is considered least harmful to growth, an important component of our economic recovery. A sales tax also serves to diversify the local revenue base, thereby minimizing the adverse effects of relying heavily on any one tax and making the tax structure more flexible and responsive to changing local economic circumstances, legal challenges, or political actions. A sales tax does not, as some critics argue, make the government dependent on a more volatile revenue source as the fallback in times of low sales tax collections is the always reliable property tax.

Finally, a sales tax can provide property tax relief by totally preempting a tax hike. When it does not, the sales tax can make a property tax increase more palatable (or even eliminate its dollar cost to taxpayers) when the tax digest decreases, or the cost of government necessarily increases and all non-tax revenue alternatives have been maximized.

“LOST-2”

An attempt by Chairman Charles Bannister to modify the current law was presented in the State Legislature in 2009 by Rep. Clay Cox. “LOST-2” gained no traction and took its last breath earlier this year when it failed to receive the support of a House committee.

Under Bannister's proposal, only half of the sales tax collection in any year would go to reduce the millage rate. The other half would be “free money” to be spent by the county (and, I suppose, by the cities under the required sharing agreement) for general operations.

A LOST-2 would be a tax increase on property owners; plain and simple. Think about it-- the “free money” must come from somewhere... it cannot be created out of thin air. It is estimated that approximately 60% of the sales tax would be paid by Gwinnett residents, many of whom would be property tax payers. Over half of the additional revenue would therefore not be fully offset by the reduced millage decrease and would come out of the property owners' pockets.

A LOST of any flavor must be approved by the voters. Given the appeal of the current LOST law, voters would be crazy to approve LOST-2 and the politicians were, in my opinion, foolish to suggest it.

Had the county had a LOST in place last year, the tax increase may not have been necessary. Had Bannister pursued a “LOST-1” in 2009, it could have been approved last November; collections could have begun this year and property owners could have received a substantial tax cut in 2011 and subsequent years. As it is, Bannister's push for a modified LOST has put us at least two more years away from meaningful tax relief.

A sales tax is not without its shortcomings. The tax is believed to be “regressive,” meaning that lower income individuals pay a higher percentage of their income in tax on necessities. Likewise, higher income earners are more likely than lower wage earners to spend their money on goods and services that are not currently taxed. A modification of the current LOST law could make the tax less regressive by exempting groceries and other essentials from taxation.

Studies have also shown that a sales tax, in addition to tax relief, can actually fuel an increase in spending. A LOST (and, especially, a LOST-2) partially relieves the politicians of the responsibility to keep government spending in check. As always, however, it is the responsibility of the populace to monitor the cost of its government, regardless of from where and how much revenue is derived. (Incidentally, a LOST-2 would guarantee more government spending.)

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No Tax Increase

I strongly disagree with one aspect of our “Major revenue recommendations...”, that being a property tax increase. Even if the Commission followed our “declining digest” recommendations in total, it will have failed to exhaust all cost-cutting and revenue-producing options available to it. In other words, there is much more that can be done before a property tax increase becomes inevitable. A tax hike in the near future would, in my opinion, be evidence of the County Commission's failure to lead.

Our report should acknowledge that another tax increase is a possibility, but it is inappropriate to include an increase as an option. This committee should not recommend a property tax increase under any circumstance.

Who Is to Blame?

Our final report accurately describes the general circumstances that brought us to the point at which we are today. It appropriately asks the question, “How could a County government that had gradually reduced its millage rate for so many years suddenly have to raise its millage rate in late 2009?”

Our report fails to answer the question truthfully, however. The Executive Summary opines that the tax increase was a consequence of the recession and the natural slowing of growth. By omission, however, it absolves the elected officials of responsibility for lapses in judgment and willful acts that, today, limit our options. By failing to fully identify the causes of the present discomfort, we have missed an opportunity to provide a firm foundation for our future recovery.

There is plenty of blame to go around for Gwinnett’s financial crisis. You can begin with a pro-growth Commission that, upon taking office in the early ’90s, placed no meaningful constraints on the pace and quality of development. That same Commission rescinded the county’s newly-enacted impact fee ordinance, thereby denying the county hundreds of millions in non-tax revenue.

Ten years ago, the County Commission was warned about the consequences of unmanaged growth. A 1999 study of multi-family housing (apartments, condominiums, townhouses) found that higher-density development places “great demands on water and sewer facilities, schools, transportation networks, police and fire protection,” and that “too many units in one area can have adverse impacts, particularly on the… school system.” The study recommended limiting the number of multi-family dwelling units to a ratio of one for every four single-family homes.

The 1999 Commission refused to adopt the ratio. As a result, by 2002 the areas around Norcross and Berkeley Lake had reached a 1-to-1 ratio with the Lilburn and southwest Lawrenceville areas soon to follow. The glut of multi-family housing not only created a greater demand on many public services, but the transient nature of apartment dwellers produced turnover rates as high as 65% in some schools.

You can fault Gwinnett’s state legislators for approving tax digest-depressing measures like the Value Offset Exemption, never understanding how the politically-popular tax breaks would ultimately result in higher tax rates for everyone.

You can assign additional fault to the current Commission for failing to capture non-tax revenue sources like impact fees; for failing to aggressively respond to the ever-increasing drain on public services by ineligible recipients; and for initiating the practice of adopting deficient tax rates despite the resultant depletion of the county’s financial resources.

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Under-Taxation?

“Deficient tax rates”? Am I saying that Gwinnett property owners have been under-taxed?

Finance professionals reportedly warned the Commissioners as early as 2000 that growth was slowing; that the cost to maintain facilities and services was increasing; and that, absent aggressive action to reduce costs or increase revenue, the county would face a financial crisis.

The previous administration did little in response. Even worse, the Bannister Commission has, since 2005, hidden and even exacerbated the financial crisis by adopting property tax rates that failed to fully fund the budget.

In 2005, the finance staff recommended an increase in the Maintenance & Operations (M&O) millage from 10.14, the previous year’s rate, to 11.322, which was the mathematically correct rate. The Commission instead adopted 10.14 mills. Although the county had budgeted for $25.9 million in property tax revenue, the millage rate approved by the Commission reportedly generated only about $23.2 million-- 89% of and $2.7 million less than the amount required.

Most likely, the Commission avoided a draw on reserves that year and possibly 2006 when it dissolved the special tax district for fire services and combined the M&O rate and the Fire District rate into one. By merging the Fire Fund into the general budget, the Commission gained access to tens of millions in surplus funds.

The Bannister Commission continued to adopt deficit rates every year until 2009. In 2007, the Commission drew $19.6 million out of reserves to compensate for the deficit tax rate. In 2008, the draw was $36.3 million. Making matters worse, the Commission actually lowered the total tax rate in 2007 (to 11.08 from 11.30) and 2008 (from 11.08 to 10.97) even as they depleted the county’s reserve fund.

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 manage 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.

An artificially low rate, on the other hand, has a additional hidden cost. Because the deficit must be covered by cash reserves, the interest on those reserves– cherished non-tax revenue– is lost for future years. The loss of any non-tax revenue forces unimaginative politicians to rely more heavily on the property tax. Further, spending down the reserve fund not only jeopardizes the county’s bond rating (which influences the cost of borrowed funds) but also limits our ability to respond to actual emergencies like the recent floods.

The Commission adopted deficit rates for no sound financial reason, but solely to avoid the political consequences of “raising taxes.”  It is a deception for the Commission to adopt the previous year’s rate or even a lower one when an increase is appropriate. 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.

The adoption of the mathematically-correct rate in 2005 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 was hidden from you.

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

Last year, the Commission was forced to face the music for its failure... but you were forced to pay the bill.

But a Tax Increase?

Is raising the millage rate to a mathematically-correct level a “tax increase”? It isn't if the Commission can justify every expense and has maximized the generation of non-tax revenue– in that case, the tax rate represents the true cost of our county government in relation to the value of all taxable property within the county.

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How This Happened

The logical question is... how can a County Commission set a tax rate that has no mathematical connection to the budget?

A flaw in state law allows a taxing authority (city, county or school board) to adopt any tax rate that it can get away with. Unconstrained by law, the Commission could adopt a tax rate that satisfied a political purpose (reelection) rather than the appropriate financial one. Under current state law, the Bannister Commission could drive its county toward financial ruin, all the while covering its deception with decreasing tax rates. [Source: MillageRate.com]

Our final report does not include a recommendation that the State Legislature be asked to enact legislation requiring taxing authorities to “do the math,” but it should. Until the law is corrected, Gwinnett taxpayers should demand that the Commission enact a policy requiring a mathematically-correct tax rate that takes no more-- and no less-- than is required to fully fund a conservative budget.

“Breaking Trust”

Our report includes a recommendation that, in the event of a declining digest, one-half of the $51 million in revenue from the 2009 tax increase (being collected now) be used to fund any revenue shortfall with the other half being held in reserve for any future emergency.

You might ask, “Isn't the tax increase being used to fund 58 police officers, the opening of three fire stations and to pay the light bill at the ballparks among other stuff, like we were told in November?”

In a word, no. Even before last year's public hearings on the millage increase, at which the county finance staff claimed that the increase would restore cuts made earlier in the year, plans were already in the works to pay the money toward reducing the county's $300-plus million accrued liabilities. We were not told that the items used as justification for the tax increase-- the fire stations, police officers and such-- had already been moved into the 2010 budget!

The Engage Gwinnett committee had also been told that the tax increase would restore service cuts.  At the first meeting after the tax increase was approved, however, we were informed of the new plan to spend the money.

My initial question was, “If the revenue from the tax hike can so easily be diverted to a different purpose, was the increase necessary at all?”

While acknowledging that the county's growing future liabilities is an issue to be addressed, several committee members have insisted that the tax increase revenue be used for the purpose by which it was sold to the public-- maintenance and operations (M&O). We reasoned that, to paraphrase a Biblical phrase, the ox was in the ditch this year. It would be inappropriate, we thought, to stick the taxpayers with the service cuts for which they thought the tax increase had been assessed to avoid, just to begin paying on a future obligation. 2010 just isn't the year to pay down accrued liabilities.

Moreover, the taxpayer had accepted the tax increase on the promise that it would be used to restore needed services. To do anything else would be to violate the public's trust.

I oppose the use of revenue from the 2009 tax increase for any purpose other than that promised, declining tax digest or not. If county leadership wants to address unfunded liabilities issue, it should do so via inclusion in a published and approved budget.

Secondarily, I oppose using only half of the tax increase revenue for M&O and saving the rest in an “emergency fund.” The county already has a reserve fund; a second fund would only invite irresponsible, “off the budget” spending.

Final Thoughts

The Engage Gwinnett committee undertook a monumental task, the members making personal sacrifices of time and resources to produce a report that should have significant value for the ongoing economic downturn.

I must emphasize-- any deficiencies in our findings are not the result of any failure or inadequacy of individual members. The Engage Gwinnett effort marshaled the abilities of the most intelligent, involved and interested members of the community, from all walks of life.

In my opinion, we did not fully explore the options available to county government in response to the financial crisis. Probably as a result of the necessary format of our sessions, our recommendations do not venture “outside the box”... outside of the realm of conventional thinking. Some of our proposals to address a further decline in the tax digest are severe, but severity doesn't make them innovative.

We shouldn't plan to just “make it through” the next five to ten years. For many reasons, our way of life has changed permanently. The change was inevitable, a result of the normal maturation of our community. The growth bubble has ended; the party is over. Our government must change with the times as well.

We can choose to be average or we can choose to be better. We have the opportunity and the impetus to remake government to be more effective and efficient in this next stage of the lifecycle. Granted, the committee's charge was to only to establish acceptable service levels through 2014, but such an effort was destined to be insufficient given the challenges facing the county.

The proposals detailed in this dissent are certainly not the only options, but merely examples of the kind of solutions that we may have proposed had we thought “outside the box.”

Finally, I recognize that our effort will only have meaning if the elected officials have the will to act. Frankly, as I have described in various parts of this dissent, the politicians' track record is less than stellar. In the end, the responsibility for ensuring that our proposals, or those suggested herein, are implemented falls to you, the governed. It is your job to make sure that our elected officials lead with boldness and innovation... or elect others who will.

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(Bob Griggs is the Publisher of TalkGwinnett.com and TalkGwinnett.net. He is also a co-owner of Verify I-9 LLC, a Designated Agent of the federal E-Verify program. Except for several typos corrected, the above represents the dissent that Bob submitted for Engage Gwinnett's final report. Bob can be reached at This e-mail address is being protected from spambots. You need JavaScript enabled to view it . )