Suwanee Doing Taxation Right

Written by Bob Griggs

The score that the bond rating firms assign to government entities are based, in part, on the government's cash reserves. The more money in the bank, the raters reason, the better able that the city or county will be to weather a crisis.  When it assigned a AA rating to the city of Suwanee in 2009, Fitch Ratings' report read, in part:

"The city continues to generate positive net income within the general fund, improving upon an already strong balance sheet since the last Fitch rating. The unreserved fund balance at the close of fiscal 2008 totaled $7.5 million or a very strong 73% of total spending, up from $4.8 million or 59% in fiscal 2006."

At the time, I wrote that the city had generated most of its bankroll during years of overtaxation. In 2005, for example, my study of the tax rates of Gwinnett taxing authorities revealed that Suwanee's arbitrarily-established rate was approximately 72% higher than necessary. My article made no comment about the city's current practices but, because it was published last year just before council and mayoral elections, it was used by the challengers to illustrate why the incumbents should be replaced.

This was unfortunate for two reasons. First, the 2005 finance staffer had provided incorrect information; the millage rate was calculated incorrectly but it was nowhere near 72% higher than it should have been. Second, the city's budgeting process for both last year and for FY2011 is detailed, comprehensive and dead-on, and the tax rates justified.

I had the privilege of meeting with city officials last year and again this week to discuss how the city arrived at its tax rates for FY2010 and FY2011. The finance professionals have done a great job, despite the number of tax appeals (which affects the tax digest) and the uncertain economy. I have no concerns at all regarding how they arrived at the millage rate.

While the fact remains that Suwanee amassed a considerable reserve, equal to seven months' operating expenses when the recommended amount is closer to three or four months, much of it can be attributed in recent years to "good living" and fortuitous circumstances, and not the arbitrary overtaxation that characterized the boom years prior to 2005.

For example, in 2006 Hewlett-Packard announced that it would consolidate some operations into a massive datacenter within the city's limits. The move resulted first in an unexpected $1 million building permit, then in increased franchise fees on the center's exceptionally large electricity bill.

The City Council votes tonight to adopt the property tax rate for FY2011. Last year's rate was 5.77 mills ($5.77 of tax on every $1,000 of taxable value). The city's conservative numbers indicate that this year's rate could be 5.67, and that's the rate that I hope they approve although you won't find me among the critics if they approve 5.77 mills.

There will be citizens tonight who will criticize the Council for inflated tax rates and financial mismanagement, but they will be wrong.