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Governments cut back as sales tax revenues decline

POSTED: December 28, 2008 5:00 a.m.
Scott Rogers/The Times

Sandra Veal, left, places an order for a bag to be embroidered by Helen Loggins on Thursday evening at the Corner Cottage inside the Main Street Market.

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Local government officials are having to adjust their spending to match that of Hall County consumers.

Revenues from the three local sales taxes were lower in October than they were the last four years, and those in charge of local government spending say they have been watching the revenues steadily decline with the crumbling economy since January.

Gainesville’s Chief Financial Officer Melody Marlowe expects revenues from Local Option Sales Tax to come in at about $500,000 to $600,000 under budget this year. Assistant County Administrator Phil Sutton said the county’s revenues could be as much as $3.5 million under budget.

Oakwood and Flowery Branch officials also are bracing for slowdowns in sales tax revenue.

The options for making up the losses in sales tax revenue are few for local governments.

Their other revenue sources, which might possibly pad the losses, also are taking a hit.

"Property tax is flat at best," Sutton said. "And revenues from building activities are down drastically."

Gainesville’s Planning and Appeals Board, a barometer for the city’s development activity, has no zoning, variance or annexation requests set to go before it next month.

Gainesville and Hall County governments might be suffering more from the losses than smaller municipalities in the county that receive smaller shares of sales tax.

Gainesville and Hall County both fund nearly one-quarter of their operations with revenues from the Local Option Sales Tax, a 1 percent sales tax that funds governmental operations.

The county government rakes in 75.5 percent of the Local Option Sales Tax, and Gainesville’s government receives another 20 percent, leaving less than 5 percent to be doled out among the other seven municipalities in the county.

Recent growth in Flowery Branch has given the South Hall city some leverage in difficult economic times.

The development of the Stonebridge Village shopping center on Spout Springs Road and the 2,000-home Sterling on the Lake community has increased Flowery Branch’s population, thus giving it a bigger piece of the sales tax pie.

"New retail (in the city) helped to counteract the (worsening) economy," Flowery Branch City Manager Bill Andrew said.

Still, there is no denying, for either government entity, that sales tax revenues are a threat to government operations and projects.

Hall County’s Sutton says that because revenues are down nearly $4 million for the 1 percent Special Purpose Local Option Sales Tax, which funds road improvements and government construction, some of the current projects funded by the tax may have to be downsized.

The county’s Board of Commissioners has yet to decide which projects will receive cuts.

Because many other revenue sources are stagnant or declining, many local governments have had no choice but to take their budgets to the chopping block. Each of the governments already has had to revise the spending plans for this fiscal year that were approved only months ago.

With the changes, big ticket items like replacement vehicles for Gainesville and Hall County will stay on the dealers’ lots this year. In addition, the city has cut 5 percent of each department’s operating expenses — "especially in our streets department, sidewalk, those areas," Marlowe said — and eliminated much of its training and travel expenses.

"Where training’s necessary to maintain your licenses or certificates, we’ll of course continue with that, but even with that, we’re trying to move a lot of it in-house," Marlowe said.

Government employees also have had to take part in lightening the financial load.

Hall County’s employees have been forced to take one day of unpaid leave each month, and Gainesville’s staff members likely will have to wait another year for a raise they would have received in January.

Both governments have stopped filling vacancies except in a few, key positions.

For Gainesville and Hall County’s school systems, sales tax revenues from the Education Special Purpose Local Option Sales Tax determine whether school officials will be able to make payments on loans that paid for the construction of new schools, technology and extracurricular activity supplies.

They, too, are seeing a decline in sales tax revenues. The county school system has seen sales tax revenues drop by nearly $2 million this year. Some of the revenue drop can be attributed to the fact that the city school system is receiving a larger percentage of proceeds from the educational sales tax, but most can be blamed on the economy.

"I think you’ve got to assume we’re just a reflection of the general economy and everything that we read is that consumer spending is down," Hall County Superintendent Will Schofield said.

Although neither Schofield or Janet Allison, director of finance for the Gainesville school system, expect any problems with making near-monthly loan payments, Allison said she is keeping a close watch on sales tax revenues.

The city school system has a $4 million loan payment due in February that is depending on revenues from sales tax.

If the tax proceeds for some reason do not cover the bond payment, Allison said the city school system will have to dip into its general fund to fill any holes left by missing sales tax revenues. Dipping into the general fund could mean that educational expenses such as teachers’ salaries, transportation and textbooks could suffer.

The lagging economy has its few saving graces, however.

For Gainesville’s Marlowe, the loss in revenues is as much an opportunity to evaluate the efficiency of the city government as it is an obstacle to the budget.

As more positions become vacant, there are chances to restructure departments.

"It’s a challenge, but it creates an opportunity to take close looks at the way we’re doing business," she said.

And while sales tax proceeds will be lower this year, there will not be a need to build a new school to catch up with the population.

Stifled housing developments have slowed the once exponential growth the county school system has been experiencing for the past several years, giving the school system a chance to "catch its breath," Schofield said.

As Schofield catches his breath, other local government officials will be holding theirs, hoping that predictions are correct that the economy — and with it consumer spending — will recover.

But the future direction of the economy is difficult for anyone to predict.

"Who knows which way that will go," Marlowe said.

Staff writers Jeff Gill, Jessica Jordan and Melissa Weinman contributed to this report.



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