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Judge to decide best tax distribution between cities and county based on filings

POSTED: May 18, 2013 12:35 a.m.

Hall County and Gainesville, on behalf of all the county’s municipalities, each submitted their offers on the distribution of local option sales tax revenue Friday morning to visiting Superior Court Judge Frank Mills.

The cities are asking for 30 percent of LOST tax proceeds with the county keeping 70 percent. Gainesville would receive about 20 percent.

Hall County’s offer is to keep 73.58 percent of the distribution and allocate 26.42 percent to the cities.

The current distribution, which is based on 2000 U.S. Census data, gives Hall County 75.49 percent and Gainesville 19.87 percent. The other seven cities get between 0.01 percent and 1.63 percent.

The cities’ court filing said that they were actually entitled to 38.49 percent of the LOST revenue because the majority of commercial businesses and services are in the incorporated areas of the county, the municipalities.

However, they have compromised to reduce the financial impact to county’s budget.

Attorney Christopher Huskins, representing Gainesville and Hall’s other cities, said he declined to say why the cities’ offer was more appropriate than the county’s. While he said the best offer was in the eye of the beholder, he does have an argument for the judge. He declined to say what that was because his job is to present the case in court.

“I do,” Huskins said. “I’m just not giving it to you.”

LOST is a 1-cent sales tax, its revenue meant to help offset governments’ reliance on property taxes to fund day-to-day operations. It’s the second largest source of revenue for cities and counties after property taxes.

Distribution is determined every 10 years following a federal count of the population. As part of the arbitration process, an outside judge hears the case. Each side will present its “best and final offer,” and the judge will choose one.

Mills’ decision will be final. He is also the judge for a lawsuit between Gainesville and Hall County on distribution of special purpose local option sales tax revenue.

The 2010 census triggered the renegotiation. Talks started in July 2012, but quickly broke down. Mediation also failed.

County Attorney Bill Blalock and consulting firm Eaves Consulting Group LLC argues that any method of calculating distribution takes the population of the entire county into consideration, including the residents who live, work or play in the cities.

Blalock said he hadn’t had a chance to look at the Gainesville filing.

“There’s not really been any chance to react to it,” County Administrator Randy Knighton said.

The county court documents include two letters from Heather Ryfa, Georgia assistant attorney general, to Lowndes, Sumter and Dooly counties that a county’s entire population should be used when looking at service delivery responsibilities. The law refers to eight factors that may be considered in LOST negotiations, including local government service delivery responsibilities for daytime and resident populations.

Service delivery refers to local governments providing assistance to residents such as police and fire protection, road construction and code enforcement.

“To read the statute as requiring the county to only use unincorporated population, either daytime or residential, as the municipalities believe is true, is unconstitutional,” county court filings say.

However, Ryfa and the cities that the Georgia General Assembly didn’t want population weighted more heavily than other factors.

That’s nearly all the guidance lawmakers gave on the factors it mentions. Current law doesn’t describe how to calculate the criteria or what importance to give individual considerations.

The cities of Hall County and Sutton Consulting LLC argue that the incorporated areas of the county generate a disproportionate rate of LOST revenue relative to their populations when compared to unincorporated areas of the county. The cities are the economic engines that produce the sales tax that pays for city and county services.

“The cities of Hall County believe that the residential population is not the most important factor to consider in establishing the distribution formula,” the Gainesville filing states.

The county and the cities also dispute whether there is a tax inequity. The cities state they have tax equity issues; the county states the current distribution arrangement is working and provides equitable tax relief to all county residents.

“In Hall County’s case, 40.5 percent of the services costs are associated with services provided exclusively or primarily for the benefit of the unincorporated areas of the county,” stated a county expense analysis for fiscal year 2010 included in the Gainesville documents.

A hearing date has not been set. The attorneys said they expected some discovery to happen in the next 30 days.


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