Atlanta-Area County Plans Tax Increase to Fix Finances
(Corrects to include exemption in 10th paragraph of story first published June 14.)
Commissioners of DeKalb County, an Atlanta suburb that lost its Standard & Poor’s bond rating in March, proposed raising property taxes to rebuild its finances.
The commission agreed today at a meeting in Decatur to advertise to residents an increase of as much as 27 percent. It will vote on the plan July 12.
Today’s decision followed a June 7 letter from county Chief Executive Officer Burrell Ellis, which said declines in property values swelled the county’s estimated remaining budget gap by 65 percent, to $55.6 million.
“Our revenue situation is much worse than originally anticipated,” Ellis wrote, saying a midyear assessment put 2011 property values down 13 percent to 17 percent below forecasts.
The Georgia county of about 700,000 people is home to the U.S. Centers for Disease Control and Prevention and Emory University. It exemplifies challenges facing local governments, because of the collapse of housing values. The county had a 20 percent decline in the value of taxable property since 2008, Ellis said in his letter. Property values fell three times as fast in the past year, Ellis said.
Plunging Values
The county’s chief appraiser, Calvin Hicks, said the lower valuations stemmed partly from a state law that took effect in January. It required counties to take foreclosures into account when deciding a property’s value. A report yesterday from Equity Depot, an Alpharetta, Georgia, company that provides real-estate data, said DeKalb’s foreclosures were the third highest in the state.
S&P downgraded DeKalb in March and then withdrew its rating because county officials failed to approve a $34 million tax increase and wouldn’t say how they would stem a dwindling cash balance. Moody’s Investors Service downgraded $444 million of general-obligation debt in December, and put the county on credit watch for future ratings cuts.
The extra interest investors demand to hold DeKalb’s debt compared with top-rated bonds has been declining as officials discuss the tax increase.
The difference in yield between a 4 percent DeKalb general- obligation bond maturing in December 2021 and an index of top- rated 10-year municipal bonds was about 1.61 percentage points yesterday, down from about 2.3 percentage points in late May, according to data compiled by Bloomberg.
Hitting Homeowners
The county’s tax rate may increase as much as $450 per $100,000 of assessed property value. Properties are taxed at 40 percent of that value, Burke Brennan, a county spokesman, said in an e-mail.
The commission’s vote to advertise the tax increase doesn’t guarantee that it will approve the entire amount. In his letter last week, Ellis proposed $435 per $100,000 in value. The impact would be $93 for the average home because of the decline in assessment values and other factors, he wrote. The increase would generate $50 million in new tax revenue, along with spending cuts, he estimated.
The increase will hit areas with more stable housing values hard, said Elaine Boyer, a commissioner for the county’s wealthier north side and the commission’s lone Republican.
It’s “an absolutely ridiculous amount,” Boyer said in an interview. “This isn’t going to just hit residents. It’s going to hit businesses. The constituents I represent are going to be hit very hard.”
Backdrop of Credit
Lee May, the commissioner who introduced the tax proposal, said he did so reluctantly. He said commissioners asked Ellis’s office in September for a five-year forecast and an efficiency audit of county departments. They have received nothing, he said.
“Here’s our dilemma,” May said in an interview. “If we want to keep this government working, we have to resolve the revenue issue, even while the expenditure side has not been addressed. The backdrop is our credit rating.”
Moody’s will be watching the county’s actions, said Julie Beglin, vice president for the company’s Southeast region.
“We’re waiting to see if there’s a possible adoption of a new tax rate for 2011, for potential future expenditure reductions and for continued development of formal cash management practices,” Beglin said.
To contact the reporter on this story: Margaret Newkirk in Atlanta at mnewkirk@bloomberg.net
To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net
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