Local governments pondering a new tax on energy use face a difficult choice: Impose the tax and risk running off industries, or do without it and lose revenue.
Local leaders across Georgia have until the end of the year to levy an excise tax to replace the pennies in sales tax they lost when the General Assembly voted to eliminate all sales tax charged on manufacturers’ energy use.
In Hall County, the ball is already rolling to replace the lost revenue. Votes taken so far don’t bind the county to collect the tax, only to allow governments the option to collect them.
But whether other communities in the state will do so is unknown.
Georgia Municipal Association spokeswoman Amy Henderson said last week the organization surveyed its members on the issue and didn’t get a clear answer.
“Most of them, at this point, really don’t know,” Henderson said.
The bill to eliminate the tax was seen as a move for state leaders to attract manufacturing jobs to the state. It came after recommendations of a special panel seeking to alter the state’s tax structure to make it more competitive for industry.
Lawmakers who supported it said it put Georgia on an even playing field with surrounding states, who don’t charge sales taxes on energy use.
“We’re the only state in the Southeast that had this energy tax,” said Sen. Butch Miller, R-Flowery Branch. “We’re talking about attracting new business and encouraging existing business to expand, yet we’re taxing the input on manufacturing. ... It’s been proven time and time again that this is counterproductive for our economy and for communities. It’s a jobs issue.”
But as local leaders consider it here, the stakes are an unknown.
First, they don’t know how much local revenue they’ll lose if they let the tax go away, as planned by state legislators, incrementally over the next four years.
While state lawmakers knew the financial impact of losing the tax on state government, what no one yet knows its effects on local governments.
The state Department of Revenue isn’t prepared to answer that question. The taxes are paid each year by utilities that provide power to those communities, said Jud Seymour, a spokesman for the state revenue commissioner.
“Whenever they remit or send in their return to us, it’s not broken down like ‘energy for manufacturing’ or ‘farmers.’ It’s just for overall sales,” Seymour said.
Gainesville’s admittedly rough estimate from informal talks with Georgia Power Co. is that the city’s revenues will be cut by some $400,000 per year.
“It really does vary from place to place as to what impact this may or may not have,” Henderson said.
Because of that, the municipal association is telling members they may want to instill the tax for at least a year to determine the impact.
Local leaders’ gripes on the tax changes are targeted at the state.
In two recent discussions, one among the Hall County Board of Commissioners and another in a joint meeting of representatives all the county’s elected boards, the term “unfunded mandate” has been used.
Local leaders say that by eliminating the local tax, state lawmakers cut into territory that wasn’t theirs and left local governments to deal with the aftermath.
But Miller, who supported the change in the Senate, said that’s not the case.
“A mandate, by its very definition, is an obligation handed down by an intergovernmental agency,” Miller said. “There’s no obligation handed down in this legislation. There’s nothing to fund.”
But it leaves the decision on whether to keep the funding and if not, how to deal with its absence, either with budget cuts or by raising revenues elsewhere.
One issue is whether Hall leaders, by keeping the tax on energy use, might put the county at a competitive disadvantage with others in the region or the state who let the tax go.
“It might turn out to be a disincentive,” Gainesville City Councilman George Wangemann said.
But another issue is how local governments can make cuts or create new revenue when they don’t know exactly how much money they’ll lose by cutting the tax.
Oakwood Mayor Lamar Scroggs, at a meeting on the issue early last week, questioned how changes would impact residents.
“That money’s got to come from somewhere,” he said.
Presumably, if local governments get rid of the tax, they would make up the revenue with higher property tax rates or by cutting services. No one is sure they want to go that route.
Dalton’s tax decision
But Dalton Mayor David Pennington, one of the biggest proponents of getting rid of the tax, said that wasn’t the case for his Northwest Georgia city. It lowered its millage rate over four years, reducing spending from $31 million to $25 million.
The economy of Dalton, dubbed the “Carpet Capital,” relies heavily on manufacturing.
Eliminating the tax might lead carpet manufacturers who are planning an expansion to bring their high-energy yarn-making machinery to Dalton, Pennington said.
Dalton’s city government operates the electric utility, and thus has an idea of how it will fare without the sales tax revenue.
Pennington said carpet manufacturers in Whitfield County paid $2 million in sales tax on energy use last year.
But Dalton only receives a 14 percent share of the county’s Local Option Sales Tax, meaning it has less revenue at stake than Gainesville. Pennington said eliminating the local taxes on manufacturers’ energy use will cost the city’s budget about $250,000 a year.
He said the city will deal with the loss as it has others over the last several years as the housing industry, and subsequently the carpet industry, has suffered in the recession: by making more cuts.
Admittedly, Dalton has cut its city government workforce by 20 percent over the last five years.
The sacrifices, Dalton said, are for the greater good.
“We’re Georgians, also, and not just Dalton (residents),” Pennington said. “If the local communities are going to just put an excise tax on top of this (eliminated tax), that’s going to hurt our competitive ability. ... I would implore them, if they’ve got to have the revenue, find another source. Don’t tax these valuable manufacturing jobs.”