In the midst of a recession, Hall County has purchased a new building, broken ground on a new park, and has plans for a new library, among other projects.

So how is it possible?

The answer is SPLOST — Special Purpose Local Option Sales Tax — 1 cent levied on every dollar spent that goes directly toward funding capital projects and expansion.

The concept can be confusing because the county is running bare bones in other areas. Employees still take monthly furlough days, a hiring freeze remains in place and almost no new equipment has been purchased for the last two years.

That is because everything operational comes out of the county's general fund, filled mostly by property taxes.
Though it would be tempting to borrow a little out of the SPLOST pot to pad the general fund, state law explicitly prohibits it.

"(Counties) can only spend it on the capital projects approved by the voters," said Clint Mueller, legislative director for the Association County Commissioners of Georgia. "It has to be held in a totally separate account. It can't commingle with any other funds. And that's by state law. The counties can't make these decisions."

Hall County Finance Director Michaela Thompson said the county has to treat the sales tax money as completely separate revenue.

"If we had a choice of building a park or ending the furloughs, if we could use those (SPLOST) funds for that, trust me that would have been our first recommendation," Thompson said. "But we are prohibited by Georgia law from doing that."

In March of 2009, Hall County voters approved SPLOST VI, which is planned to collect $240 million. Voters were asked to vote "yes" or "no" to a list of projects that would be funded by the sales tax over the next six years.

SPLOST VI will pay for roads, sewer infrastructure, public safety improvements, courthouse renovation and new building projects among other things.

Mueller said statewide, SPLOST is almost always approved by voters.

"It seems to work pretty well. The passage rate is above 90 percent if you look long term at the SPLOST elections that passed versus those that failed," Mueller said. "We attribute that because the voters know exactly what they're getting for their tax dollars. Here, you know the projects you're going to get if you agree to pay this tax."

The first SPLOST was enacted in 1985 after politicians saw a need to fund capital improvements without incurring too much debt.

"Folks have tried to hold down property taxes over the years and they were getting to a point where there was just not a lot there for capital infrastructure," Mueller said. "The General Assembly saw a need to make sure the capital needs were being met so they put in this sales tax that's temporary in nature so it has to be voted on periodically."

Before SPLOST, many of the improvements were funded through revenue bonds that local governments would have to pay back over the years.

"Georgia has always been reluctant to issue a lot of bond debt. We're kind of a low-debt state at the local government level. The SPLOST allows us to pay as you go on a cash basis instead of having to issue a lot of debt," Mueller said. "A lot of other states issue a lot of debt through bond financing."

Despite its many positive aspects, SPLOST has its challenges. When people spend less, collections go down.
"One of the downsides of sales tax is the volatility because it does fluctuate with the economy," Mueller said.

Thompson said because SPLOST is reliant on people's shopping habits, the county has to constantly monitor collections.

"The original SPLOST is for a $240 million collection and I think we're going to be under that," Thompson said.

Because collections have been lower than expected, some projects may have to be scaled back.

"(Counties) have some latitude in shifting some money around in those projects," Mueller said. "They can change the scale of the project but they can't change the type of project."

Thompson said some tough decisions will need to be made in the future.

"The county commission will just have to review which projects will be able to fully come to fruition," Thompson said. "It's something we'll have to look at year by year and monitor."

Another challenge with SPLOST is that as years go on, costs tend to increase.

"You're not only hit with the fact that you may not get the (expected) revenue, but your costs for goods and services can go up," Thompson said. "The cost of that project could go up even if you have the revenue come in as you planned." "You have to factor that in, too."