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Date Posted: 17:26:18 11/13/07 Tue
Author: Grizz
Subject: Fear this

Some of you may be aware of Georgia House Speaker Richardson's radically revised tax scheme. The big selling point is "no property taxes" and isn't that wonderful. Well, like all of the loopy changes proposed by the left and right, this one takes dead aim at our schools. Here's a post that's worth the read and further investigation:




HR 900 -- Repeal of the Local Property Tax for K-12 schools
by Sally FitzGerald on 9/15/2007

HR 900, a constitutional amendment, repeals nearly every tax in Georgia except income taxes and tobacco and alcohol taxes. The income tax is changed to a flat rate of 5.75% and a new value added tax of 5.75% is empowered. From a consumer view, a value added tax is much like a sales tax, but calculated much differently. It is used in many countries, the closest being Canada. The repealed taxes can not be reenacted or reimposed. One of the taxes repealed is the local property tax which is the primary funding source for county and city governments and local school systems. This is the proposal introduced during the last days of the 2007 legislative session by Speaker of the House Glenn Richardson.

The Speaker and others in House leadership have been making presentations all over Georgia to explain this GREAT plan, Getting Rid of Every Ad Valorem Tax. The proposal changes with every speaking date. Visit www.thegreatplanforgeorgia.com where the most current version can be found. It continues to repeal most taxes,including the property tax, keeping only the income tax at a 4% flat rate and the sales tax at a 4% rate with most sales tax exemptions repealed. These stated parameters are unofficial. No amended wording has been presented to the House Ways and Means Committee which will have to evaluate the proposal, and the committee has posted no hearing dates through the end of 2007.

How would local governments get money to run their activities? Local entities will get appropriations from the state to replace the revenue lost from the ad valorem (property) tax. The amount they received would be based on what each raised in 2006 without consideration for growth, changes in economic circumstances, or other needs. The locally elected officials would continue to have the authority to spend the money received but could not raise additional funds. The risk, of course, is that if needs change within the jurisdiction, the only way to get additional money is to petition state legislators.

One of the quirky things about the proposal is that the sponsor is asking for the passage of the constitutional amendment first, he hopes in November 2008, and then in 2009 to change the sales tax code to remove most of the exemptions except: governmental transactions (sales to governmental entities), raw materials in manufacturing, business to business, and agricultural products. Sales tax exemptions being proposed for repealed are: food, prescription medicines, health care costs, legal services, financial services, tax preparation and all other services. What if the changes in the sales tax code do not get completed as desired? Revenue will be depressed, and appropriations must be cut. Where will those state cuts be made?

Compute whether you are better off with a property tax bill or a sales tax on virtually everything you buy. Include for a recent year all purchases for anything you don’t already pay sales tax on: groceries, medical bills, insurance, pre-K and private school tuitions, private college tuitions, barber shop and hair salon services, home and auto repairs excluding parts, trash pickup, water bills, yard services, tax preparation and legal fees, dues and subscriptions. Multiply by the sales tax rate in your county. Add the additional federal and state income tax to be paid because one no longer can deduct the property tax. Compare the sum to the property tax bill for that same year. Renters will pay sales tax on rent [and you probably won’t get a rent reduction when the owner no longer pays property taxes, either]. Those most likely to see tax increases are: renters, households with three or more people, more modestly priced homes, higher medical or drug expenses, in counties with lower tax rates, and/or those with high property tax exemptions. Those with lower property tax bills (renters, families with children living in starter homes, or seniors with large property tax exemptions) will have less to offset the much higher sales
taxes paid. This may be one of the biggest tax shifts in Georgia history, from corporations and the wealthier to taxpayers with lower incomes and/or more people to support.

All property taxes raised $9.7 billion in FY 2006, but the Fiscal Research Center of Georgia State suggests that only $9 billion can be raised if all exemptions are repealed. Where would the additional moneys come from? Well, part of it is the $400 million that the state now appropriates for homeowner tax relief grants which are credited to a property owner’s tax bill. The rest may not be forthcoming. Period. Thus, unless the state raised the state sales tax rate, the additional revenues will not be sufficient to cover the revenues previously generated by the
property tax.

The current speeches suggest that no strings will be put on the block grants awarded the local entities. Each government or school district would decide how to spend the money they get. This is not part of the written proposal, and the very long track record of the Georgia General Assembly is that every appropriation has strings. Assuming no change in legislative modus operandi, the state legislature will determine which roads can be paved, how many policemen or firemen can be hired, what will teachers be paid, how many textbooks can be purchased, how many buses in the school bus fleet or the city transportation system.

Adjustments in the distribution formula are promised to be made annually, based on increased population and consumer inflation. Consider: 1) consumer inflation measures a basket of purchases unlike that which governments purchase, and major governmental purchases, such as health care, public safety, and educational
expenses, are going up faster than the rate of consumer inflation; 2) population increases do not always translate into school populations which must be served. A downturn in the economy often raises the public school population at a much higher rate than general population increases as people return their students to public
schools rather than pay private school tuition.

Other promises made are that money raised in a jurisdiction will be returned there, and that the budgets of each of the local entities will remain whole (as they exist today). These are contradictory, i.e. impossible to fulfill both.

The bottom line is governance. Do Georgia citizens want to transfer every decision for local communities and school districts to the state? Will there be a line of school district, county, and city government representatives at the Appropriations Committee hearings in efforts to get the state to recognize and fund their individual
local needs? If not, then funding must be available to these local entities to accomplish their local priorities. That is currently the property tax, also known as the ad valorem tax. Let’s keep it.

Let your legislator know that local school districts need to keep their local sources of funding, and the state needs to stay out of deciding for local entities how to finance their local issues.
#####

Sally FitzGerald
Education Policy, GPTA
sallyfitz@bellsouth.net
everychild.onevoice

#####

Examples within local schools that could develop if the state were the only source of revenue.

• The state suggests that teachers should be paid only on the state salary scale. A local school system has been paying up to one-third more in salary and benefits to attract the best and brightest to teach its students. What would be the reaction of the experienced teaching staff to a cut in pay? What else would be cut to keep the salaries elevated? Teaching positions? Non-core courses? School nurses?

• The state does not currently fund any federal mandate such as the employer portion of the social security tax and costs of educating special ed children. Will the state increase its appropriation or will the locals have to cut
services?

• The state funds this year’s students based on last year’s enrollment. Then in the supplemental budget, adjustments are made for any increased enrollment. In 2007, the mid year budget was signed on May 30, after most school systems broke for the summer and just 30 days before the end of the fiscal year. Without a local source of funds, how will these additional children be educated? What funds will be available to pay the additional teachers, buy more instructional materials, or move in more portables?

• The QBE funding formula does not now include many employees: i.e. janitors, clerks, parapros, classroom aides (except kindergarten). Only educators, food service workers and bus drivers have state salary scales. Could the state assume that the unearned positions were not needed, and if so, how would those duties be accomplished?

• How would school districts deal with sharply rising costs, such as utilities and fuel for buses, between sessions of the General Assembly? Or must the school system simply quit heating and lighting buildings and driving students to school?

• The state paid $35 million to local schools for instructional materials and texts, but $124.6 million was spent locally in FY06. Local property taxes paid the nearly $90 million additional. With no local sources of revenue, local school systems would have to choose which students or which subjects will not get updated textbooks.

• The state only pays $150 per year for substitute teachers, about 2 days worth, yet teachers earn more than 11 days of sick leave annually. If teachers take more on the average than 2 of the earned days, how would substitute
teachers be paid? Would they even be hired?

• Currently, local school systems pay half or more of the costs of building schools or additions or major renovations. There is evidence that the state bond rating, now AAA , will be lowered by bonding agencies if the property tax is repealed. Lower bond ratings translate into higher interest rates. How will this affect the state’s ability to participate in the funding of local school projects? Will students have to remain in portables longer? Will necessary repairs go unfixed? Will preventative maintenance be deferred?

• How will the situation be handled if school enrollment continues to rise but the sales and income tax revenues to the state decline, as they did in 2003 and 2004? More austerity cuts? School districts have already endured more than $1.4 billion in such cuts since FY02. What would our schools look like today without that local property tax cushion?


http://www.ciclt.net/gapta/main.asp?PT=n_detail&Client=gapta&N_ID=400237

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