Cobb's Cities Seeing More Tax Revenue, No Rate Hikes

Roger Tutterow
Roger Tutterow

KENNESAW, Ga. (Jun 22, 2015) — The city of Acworth is a prime case of what is occurring across the county and the U.S., according to Roger Tutterow, economist and professor at Kennesaw State University’s Coles College of Business. Within the past few fiscal years, property tax revenue for local governments is increasing again, largely due to recovering property values that had fallen during the recession.

Austell’s fiscal 2016 budget, adopted June 6, balances general fund revenue and expenses at about $7.6 million, up about $629,000, or 8 percent, compared to fiscal 2015. Marietta, in its budget, adopted balances general fund revenue and expenses at $52.7 million for fiscal 2016, up $2 million or 4 percent compared to fiscal 2015. 

Powder Springs’ general fund revenue and expenses are projected to be $7.6 million for fiscal 2016, up $504,000 or 6.9 percent compared to fiscal 2015. Smyrna’s fiscal 2016 budget balances general fund revenue and expenses at about $42.1 million, up about 1.5 million or 3.7 percent compared to fiscal 2015.

Kennesaw operates on a different budget cycle than Cobb’s other cities: Its fiscal year begins Oct. 1. However, it’s fiscal 2015 budget, adopted by the City Council Sept. 15, balanced general fund revenue and expenses at $20.7 million, up $900,000 or 4.5 percent compared to fiscal 2014.

Despite these increases in revenue for their general funds, which pay for most basic government services such as police and road maintenance, none of these six budgets called for increases in property tax rates or cuts to those city’s services.

Property values are traditionally a stable tax base, Tutterow said, giving some protection to local governments from economic volatility. That was not the case during the recession in the late 2000s, however. 

“(Local governments) are very reliant upon property tax revenue,” Tutterow said. “And so typically what happened is that even during periods of economic softness, tax revenues hold up pretty well because property values didn’t drop very much if at all … but the most recent recession in 2008 (and) 2009, we saw property values both for residential and commercial real estate plunge. That meant that the tax receipts coming in off the tax digest fell significantly.”

Because many elected officials in office during the boom years from 1998 to 2005 – when tax rates could be lowered and governments could still receive as much if not more tax revenue due to rising property values — had never seen this kind of revenue drop, the crash in the real estate market made these local governments make hard choices about how to make ends meet.

“During the Great Recession and the early part of the recovery, it forced these municipalities and counties into a tough situation to where they had to choose between raising millage rates or further reductions in the services they provided,” Tutterow said. “And I think all that is starting to reverse over the last fiscal year and I think that most municipalities are looking at their FY16 budgets as being the first time in a while where they really felt like they were seeing revenue recover.”

This recovery is evident in Cobb’s tax rolls. In 2013, the total value of Cobb’s commercial property was about $7 billion, according to Stephen White, director of the Cobb Tax Assessor’s Office. In 2014, the commercial digest increased to about $7.3 billion and is projected to increase to $7.7 billion this year.

Likewise, Cobb’s residential digest increased from about $15.8 billion in 2013 to $16.9 billion in 2014, a jump of about 7 percent, according to White’s office. In 2015, the digest is expected to increase another 7 percent to a projected $18 billion in 2015, according to White. The 2015 values for both residential and commercial properties is expected to be finalized Wednesday by the Board of Tax Assessors, White said.

The biggest contributor to this increase in property value is a drop in foreclosures, White said.

“There’s fewer and fewer foreclosures occurring in the marketplace,” White said. “We don’t have bank-owned properties being offered anymore at drastically discounted prices.”

As of May 2, a total of 1,259 foreclosed properties have been advertised in the legal notices of the Marietta Daily Journal. By May of last year, 1,531 foreclosed properties were advertised for auction, and by that time in 2013, 3,251 properties had been put up for auction.

This month, five of Cobb’s six cities adopted budgets for the next fiscal year, which begins July 1, and all five are projecting an increase in revenue of at least 3.5 percent for their general operating funds without a tax increase.
For instance, Acworth projects general fund revenues at about $13 million in its fiscal 2016 budget, which was adopted by the Board of Alderman on Thursday. This is a 7 percent increase compared to the fiscal 2015 budget adopted last year.

Acworth Mayor Tommy Allegood said this is largely a result of increasing property taxes: Acworth is projected to see a 6 percent increase in the total value of taxable property in the city limits this year on top of a 4 percent increase the city saw last year. 

“After a five-year downward trend where we were releasing about 4 percent a year in the tax digest because devaluation of property (values), we’ve got that reversed and, more than likely during the next five or six years, we’ll make up the ground that was lost in the tax digest,” Allegood said.

Acworth’s budget includes funding for a 4 percent merit-based raise for permanent employees, which will cost the city about $197,900 in personnel costs, according to Brandon Douglas, assistant city manager. 

Allegood said holding back on employee raises was one of the biggest ways the city was able to survive the recession without raising taxes.

“We never cut any services and we never cut any people, we were just able to be very, very careful. The biggest thing we did during the Great Recession was there no raises for employees. … Payroll is your largest expense for a city, and that’s exactly how we dealt with it,” Allegood said.

Recovery Reached Local Governments

Coming Back

While revenue is increasing for Cobb’s six cities, Tutterow said they should be cautious about overreaching. One of the early priorities for cities will likely be raises for their employees, he said.

“Many of them went through many years without getting raises, but hopefully, they will do that in a thoughtful and selective manner as opposed to broadly arguing that everyone should get raises,” he said.

Austell’s FY16 budget includes $204,000 for raises between 1 and 5 percent for full-time employees and Powder Springs’ includes about $77,561 for merit-based raises averaging 3.6 percent, including a 1.5 percent cost of living adjustment. Smyrna’s FY16 budget includes funding for employee raises, but the specifics of the raises will be determined in January, according to Jennifer Bennett, spokesperson for the city.

Kennesaw’s FY15 budget included a mid-year, 3 percent cost of living raise for all city employees, which Kennesaw Communications Director Pam Davis said cost the city $150,000.

Marietta’s budget, which the City Council approved June 10, includes $600,000 for a 3 percent across-the-board raise for city employees, according to City Manager Bill Bruton. It also includes a new full-time and three new part-time positions in the city government. However, Bruton said the city has actually been reducing the number of city employees over the last few years.

“Since fiscal 2012, the city has reduced its overall position allocations by more than 20, including almost 10 since fiscal 2015. Since fiscal 2002, the city has reduced its overall position allocations by almost 50,” Bruton said.

Smyrna’s budget includes five new full-time positions and three new part-time positions. One of the new positions is a full-time inspector for fire prevention, which had seen the number of inspectors reduced from five to three in recent years because the demand for inspections dropped alongside the decrease in new construction.

Tutterow said local governments coming out of the recession will encounter situations like Marietta’s and Smyrna’s.

“I think probably the first priority will be to look at services that were discontinued or were tapered during the downturn and ask, “To what degree do we want to return those back?’ Sometimes what happens is you cut services during economic tough times and then you realize that maybe those services aren’t as high a priority as you thought,” Tutterow said.

-Marietta Daily Journal