cvi peachtree corners fiscal analysis

Fiscal Analysis of a Proposed City of

Peachtree Corners

By

Governmental Research and Services Division

Carl Vinson Institute of Government

March, 2010

Peachtree Corners Fiscal Analysis

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Contents Executive Summary ...................................................................................................................................... 3

Key Assumptions and Methodology ............................................................................................................. 4

Findings ........................................................................................................................................................ 6

Population Estimate .................................................................................................................................. 6

Comparison Cities ..................................................................................................................................... 8

Capital Startup Costs ................................................................................................................................. 9

Expected Expenditures and Revenues from Service Provision .............................................................. 10

Elections .................................................................................................................................................. 16

New City Governance and Unaccounted-for Indirect Costs ................................................................... 16

Elected Official’s Salary ......................................................................................................................... 18

Legal Services ......................................................................................................................................... 18

Additional Revenue Sources Findings ........................................................................................................ 19

Franchise Fee Revenue ........................................................................................................................... 19

Property Tax Revenue ............................................................................................................................. 21

Conclusion .................................................................................................................................................. 25


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Executive Summary Based upon the assumption of the proposed new city providing a limited set of services (i.e., planning and zoning, building/code enforcement, and sanitation) and having access to a limited set of revenues (i.e., charges for services, franchise fees, and up to one mill of property taxes), Carl Vinson Institute of Government (CVIOG) faculty modeled the likely expenditures and revenues for the new city. The model of expenditures was based in part on the costs for similar services in comparison cities and included short- and long-term capital start-up costs, the cost of providing direct services as well as the cost of governance and elections, and administrative, legal, and judicial functions needed to support the provision of direct services. With regard to modeling revenues:

1. CVIOG faculty estimated service charge revenue based on the experience of comparison group cities.

2. CVIOG faculty developed a conservative estimate of franchise fee revenues by basing the estimate on the lowest per capita revenue for franchise fees among a group of comparison cities.

3. For property tax revenues, CVIOG faculty were able to identify all the parcels in the proposed new city area and to calculate the value of a mill in property taxes on each parcel. Real property tax exemptions and motor vehicle property taxes were estimated based on the experience of comparison group cities.

Table 1: Summary of Expected Expenditures and Revenues, and Net Revenues

Total Estimated Expenditures Above Service Charge Revenue

$760,917

Total Estimated Revenue Above Service Charges/Fees/Fines

$3,076,378

Net Revenue/Deficit $2,315,461

Based on the assumptions outlined in this report, the findings of this study indicate that the proposed new city of Peachtree Corners would be fiscally viable; that is, the new city could support the delivery of the proposed services with the revenue sources specified employing fees, charges, and tax rates at customary levels.


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Fiscal Analysis of a Proposed City of Peachtree Corners The Carl Vinson Institute of Government has been asked to assess the fiscal viability of a proposed new city of Peachtree Corners. Fiscal viability in this context refers to the ability of a city to fully support a set of services and service levels from the expected revenue stream that the city would be able to generate. Because a proposed city does not yet have a history of service expenditures or revenue collection, in order to conduct such a fiscal viability analysis for a proposed city it is necessary to adopt certain assumptions about the ability of the new city to provide services and generate revenues. These assumptions are outlined in the next section of this report.

Key Assumptions and Methodology Services Georgia law requires that cities must provide for at least three services. Consequently, the proposed city will need to provide at least this number of services.

1. The new city will provide the following services: a. Planning and Zoning b. Building/Code enforcement c. Sanitation

2. The new city will either operate sanitation services as an enterprise fund or as a franchised service that is contracted out to either another government or to a private firm.

3. In order to complete the code enforcement process, the new city will need to operate or contract for the operation of a municipal court.

4. In order to govern and manage the specified services, the city will need to have sufficient managerial staff, a city clerk, and a city council. As a consequence, the new city will incur some administrative costs that will be over and above the cost to operate the specified departments/units of planning and zoning, building inspections, code enforcement, and municipal court.

a. Our assumption would be that the city would need: i. a single, full-time administrator to coordinate the efforts of staff in the

specified departments, to file necessary state and local reports, and to serve as the city’s financial director.

ii. a part-time city clerk to handle fees, customer service calls and citizen requests for service. This role would be shared by the staff of two operational departments (Planning and Zoning and Code Enforcement).

Revenues

1. The new city will generate fees (planning and zoning fees, building inspection fees, code enforcement fines) from its service provision.

2. The new city will collect the allowable franchise fees for gas, electricity, and cable television.


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3. Additional sources of revenue that are available to most cities (e.g., Hotel/Motel, Motor vehicle, Insurance Premium, Business Licenses, Occupational Taxes, Financial Institution taxes, etc.) will either be collected and expended by Gwinnett County or collected by the new city and transferred to Gwinnett County to support service delivery provided by the county to its special services district.

Methodological Assumptions:

1. The new city will incur expenditures that will be similar to cities that are of comparable size.

2. The new city will support its service provision with general fund revenues to a degree similar to comparison group cities.

3. The new city will incur some start-up capital costs that can be paid for over a 30 year period.

Study Approach: A. Identify 4-6 comparison cities based on population and general development characteristics (so as to control for potential variations in franchise fees). B. Develop a range of estimates for the fee revenue and expenditures based on the experience of the comparison cities. C. Purchase the GIS/Tax Data from Gwinnett County and perform the GIS analysis based on the proposed city boundary to identify the potential revenue from one mill's worth of property tax for the area. D. Estimate the cost of a full-time administrator, associated office space and equipment. E. Check with the comparison cities to identify whether indirect costs are accounted for in the reporting of departmental costs and make adjustments as needed. F. Identify to the degree possible the fees that might be generated from a limited code-enforcement-only municipal court. (Generally, cities generate the vast majority of their municipal court fees from traffic fines.) G. Estimate expected revenues and expenditures for the new city by using the average per capita revenues and expenditures for the comparison cities adjusted for potential differences in the scale of the proposed new city in comparison to the study-group cities. H. Estimate the long and short-term start-up capital and equipment costs based on an assessment of personnel needs and space usage identified in a similar city adjusted for the population of the proposed new city. I. Estimate the costs for resources that may not be adequately accounted for in the indirect expenditures reported by city government service departments (e.g., public decision maker


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liability, general liability, legal services, operational expenses of a limited city management function, and consulting services).

Findings

Because a number of the steps in the fiscal impact methodology will require a population estimate for the new city, we begin our findings with this subject. Next, we estimate the start-up capital costs. Then we address the issue of expected expenditures and revenues from the development-related services that the new city will provide. Following this section, we address the issue of cost and revenue related to the operation of a limited-service municipal court. In the subsequent sections, we estimate the cost of holding election, paying for city governance, and we estimate the potential for the new city to generate property tax revenue and franchise fee revenue. In the final section we describe the financial viability of operating the proposed new city based upon the findings in the previous sections. Population Estimate Based on the proposed new city boundaries (see map below), CVIOG faculty identified the population of the individual Census blocks that comprise the new city area and summed these populations to arrive at an estimate of the 2000 population of the new city area. (Blocks are the smallest (finest grained) areas for which population data are available). While there is a potential for inaccuracy due to blocks overlapping the proposed city boundary, the degree of error is relatively small, e.g., probably less than 3% for an area as large as the proposed new city. The estimated 2000 population for the area is 26,846. Because the Census Bureau does not publish population estimates for areas that are smaller than existing counties and some cities, we identified the closest existing city (i.e., Norcross) and calculated the percentage increase in population from 2000 to 2008 using Department of Community Affairs (DCA) population figures for these years (i.e., approximately 27% growth). We then applied this percentage to the 2000 estimated population of the proposed new city to arrive at a 2008 population estimate for this new city area of 34,274.


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Comparison Cities To develop a list of comparison cities, we first identified the cities within Gwinnett County that might be reasonable comparison cities based on population and service delivery patterns. While the City of Buford might have been included in this group, we chose not to because this city is a major provider of utility services. Cities that provide a high level of utility services will sometimes cross-subsidize services which can complicate the tracing of revenues and expenditures. We added some cities that are generally in the north Georgia area and also on the outskirts of Atlanta but did not choose cities from South Georgia as they tend to have different labor and capital costs. Next, we checked to see if the cities in question reported expenditures in the Local Government Finance Survey in the Building Inspections and Regulation category. This check eliminated the cities of Norcross and Stone Mountain. We also eliminated the City of Stockbridge because this government reported only minimal expenditures in this category and reported no income from building permits, indicating that they did not perform the function. Some cities that met our criteria were excluded due to faculty’s inability to accurately identify the amount of revenues that were derived from the planning/zoning/code enforcement functions. For those cities making the final cut, we contacted each one to identify how much of the revenue that was reported in the Department of Community Affairs Local Government Finance Survey’s “Other Charges” category was derived from development-related functions. This clarification was necessary to avoid revenues from other types of charges that can be reported in this category. Our final list of potential comparison cities includes:

City County

Duluth Gwinnett

Loganville Gwinnett

Powder Springs Cobb

Snellville Gwinnett

Sugar Hill Gwinnett

Suwanee Gwinnett

Lawrenceville Gwinnett

Newnan Coweta

Data Sources The primary data source for estimating the expected revenues and expenditures for the new city is the DCA Local Government Finance Survey for FY2008. Within the expenditure data provided by this survey, we primarily use the data for operational expenses. While the DCA Survey does provide data for land and construction-related expenditures, these data cannot easily


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or accurately be used to estimate these costs because, except for the case of start-up cities, capital costs tend to occur in a large lumps followed by small or non-existent sums. Consequently, the full capital costs of operating a city can only be identified across a very long period of time which will itself vary by the degree to which cities choose to build facilities. Consequently, our data sources vary for capital costs (e.g., using tax assessment to arrive at an estimate of land costs, prevailing area interest rates for auto loans, etc.) Additionally, CVIOG faculty supplemented all these data sources with interview data from city finance officials, particularly in cases where we believed that the reported data might not tell the complete story with regard to revenues or expenditures. Capital Startup Costs Based on both the knowledge of CVIOG faculty and interview data gathered for this study, we estimated expected short- and long-term capital costs as follows. Long-Term Capital Costs Assumptions:

1. The new city will need to purchase, lease or construct sufficient meeting and office space to conduct city business.

2. The construction costs would be in the $155-160 per sq. foot range (or an average of $156.50)

3. That on average city staff will use 110 square feet of space per staff member. 4. That the city will need 300 sq. ft. of record storage space, 400 sq. ft. of customer service

and accessible record space, 100 sq. ft. of GIS station space, and 1000 sq. ft. of council meeting/conference space.

5. Each staff person will have access to a desk, chair, computer, shared copying capability, and work-related software and that these start-up costs can be covered at $3,000 per person. (While these costs are typically included in reported operational costs, operational costs do not fully account for start-up costs. Hence, there is a need to have an amount included as a capital cost so as to provide a fudge factor in this regard).

6. That the total number of staff will be 13 which will allow for some combination of a city manager, city clerk, general administrative assistant, planning director, planner/assistant director, administrative assistant, enforcement director and six Inspectors/Enforcers.1

7. That the cost of the land on which the facilities will be built will be approximately $225,000.2

1 The staffing of the proposed planning/code enforcement department is based on an assessment of the current Planning and Development Department of the City of Sugar Hill. The proposed new city is approximately twice as large in terms of population as the City of Sugar Hill. We made adjustments based on our knowledge of appropriate span of control within local government organizations. For records and customer service space, we only added an additional 75% as these areas should be able to service a greater number of customers based on the assumption of a movement toward more electronic and on-line government services. For council and meeting space, we estimated need as being somewhat smaller than a full-service local government. 2 Based on interviews with Gwinnett County Tax Assessors, we estimated that an acre of land in an ordinary office park would cost approximately $150,000. We then allocated $50,000 for obtaining land that may be somewhat more desirable in terms of location and amenity factors and $25,000 for land preparation.


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8. That capital costs will be amortized over 30 years. 9. That the interest/bond rate will be approximately 5.5%3

Table 1: Calculation of Needed Square Feet

Staff 1,430

Records 525

Customer Service 700

GIS 100

Council/Meeting 1,500

Total Sq. Ft. 4,255

Table 2: Calculation of Annualized Start-Up Capital Costs

Construction Cost @ 156.50 per Sq.Ft. $665,908

Land Cost/Land Prep $225,000

Equipment Start -up $39,000

Estimated Total Start-Up Capital Costs $929,908

Estimated Total Annual Start-Up Capital Costs @ 5.5% for 30 Years

$63,359

Short-Term Capital Costs The primary short-term capital costs for a city that is only providing code enforcement services is the provision of vehicles for code enforcement personnel. In addition, we budget vehicles for the planning director and the city manager. The assumptions for estimating the cost of short term capital and the expected cost of the needed vehicle is presented in the table below.

Table 3: Annual Cost of Short-Term Capital4

8 Vehicles @ $30,000 $240,000

Annual Cost @ 7% for 4 years $68,965

Expected Expenditures and Revenues from Service Provision

3 Bond rate based on a conservative (worst-case) assessment of municipal bond rates found at: http://georgia.municipalbonds.com 4 Vehicle cost based on earlier studies of local government vehicle costs. Interest rate based on rates published at http://www.bankrate.com/auto.aspxl


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The services that the city will provide include:

a. Planning and Zoning b. Building/Code enforcement c. Sanitation

This study assumes that the sanitation services will be provided via contract with private haulers and that this service will be operated as an enterprise fund such that citizens will pay a fee to the franchise holder of the service and that this fee will cover the entire cost of the provision of the service, excluding only the cost of negotiating and monitoring the contract for services. We assume that this negotiating and monitoring of the franchise contract will be included in the regular duties of the city manager/administrator. Development-Related Costs and Revenues Both planning and zoning and building inspections and code enforcement generate fees to support the provision of the services provided by these departments. In order to estimate the expected cost of providing these services and the degree to which fees will cover the cost of providing them, CVIOG faculty collected revenue and expenditure data from the comparison cities. Data were drawn from the DCA Local Government Finance Survey for FY2008. CVIOG faculty supplemented these data with interviews of city finance officials in cases where they believed the reported data might not tell the complete story with regard to revenues or expenditures. While the DCA survey reports expenditures for these services as a total, the revenues derived from these services are reported in three categories of revenue: Building permits. Other licenses, permits, & fees, and Other service charges. For the “Other service charges “category, CVIOG faculty contacted city officials to identify what portion of the reported amount could be attributed to development-related charges. Based on the information provided by these city officials, this amount was adjusted to reflect only the development-related revenue. The following tables present the data on Expenditures, Revenues and the Balance of Expenditure over Revenues.

Table 4: Expenditures on Development Related Services, FY2008

Community Population Gov. Exp.-Building inspection & regulation (a) Per Capita

Duluth 26,125 $350,701 $13.42

Loganville 10,562 $417,528 $39.53

Powder Springs 15,614 $387,750 $24.83

Snellville 20,112 $568,873 $28.29

Sugar Hill 17,204 $521,121 $30.29

Suwanee 16,277 $747,136 $45.90

Lawrenceville 29,258 $480,395 $16.42


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Newnan 30,474 $802,174 $26.32

Table 5: Revenues from Development-Related Services, FY2008

Community Building permits

Per Capita

Other licenses,

permits, & fees

Per Capita

Other service charges Revised

based on Interviews

Per Capita

Duluth $264,371 $10.12 $64,394 $2.46 $0 $0.00

Loganville $150,627 $14.26 $8,150 $0.77 $110,123 $10.43

Powder Springs

$108,494 $6.95 $22,829 $1.46 $0 $0.00

Snellville $93,669 $4.66 $79,159 $3.94 $5,731 $0.28

Sugar Hill $132,105 $7.68 $53,575 $3.11 $276,706 $16.08

Suwanee $846,434 $52.00 $20,420 $1.25 $64,742 $14.56

Lawrenceville $119,285 $4.08 $720,902 $24.64 $48,751 $1.67

Newnan $471,389 $15.47 $14,736 $0.48 $42,209 $1.39

Table 6: Balance of Revenue/Expenditures for Development-Related Services, FY2008

Community Balance of Revenue/ Expenditures Balance Per Capita

Duluth ($21,936) ($0.84)

Loganville ($148,628) ($14.07)

Powder Springs ($256,427) ($16.42)

Snellville ($390,314) ($19.41)

Sugar Hill ($58,735) ($3.41)

Suwanee $184,460 $11.33

Lawrenceville $408,543 $13.96

Newnan ($273,840) ($8.99)

Average ($69,609.63) ($4.73)


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In terms of fiscal viability, the key factor is the degree to which the expected total revenue stream is sufficient to cover the expected cost of providing services. Within the development-related service area, it appears that most of the comparison cities do not quite cover the cost of these services. As a consequence, if we assume that the new city’s experience in this regard will be similar to the average of the comparison group cities, we would estimate that the new city would need to subsidize development-related services at a rate of approximately $4.73 per capita. The estimated amount of this subsidy is presented in the following table.

Table 7: Estimated Development Services Subsidy from the General Fund

Estimated Population 34,274

Estimated Subsidy per Capita $4.73

Total Estimated Subsidy $162,140

Municipal Court In order to enforce the code violation citations that a code enforcement unit will issue, it will be necessary for the new city to operate (or contract for) the services of a municipal court. To our knowledge, there are no municipal courts among the potential comparison cities that adjudicate only code enforcement cases. Instead, these courts tend to be used as a place for adjudicating cases brought by the city police department, primarily cases involving traffic citations. In order to estimate the likely net cost or surplus of operating a municipal court for the purpose of code enforcement, we first identified the general fiscal experience of cities with regard to their operating municipal courts. As the tables below indicate, most comparison-group cities are able to generate a surplus from their municipal court operations.

Table 8: Municipal Court Expenditures and Revenues

Community Gov. Exp.-

Municipal court (a)

Per Capita Exp.

Fines, forfeits, & court fees

Per Capita Fine/Fees

Conyers $356,670 $26.33 $1,338,972 $98.85

Duluth $1,969,728 $75.40 $5,043,685 $193.06

Kennesaw $332,357 $10.51 $1,298,239 $41.05

Lawrenceville $1,077,610 $36.83 $3,978,727 $135.99

Loganville $387,981 $36.73 $1,150,321 $108.91

Monroe $86,259 $6.45 $576,724 $43.10


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Newnan $143,292 $4.70 $835,169 $27.41

Norcross $348,656 $32.47 $2,253,179 $209.85

Powder Springs $208,813 $13.37 $739,117 $47.34

Snellville $841,129 $41.82 $2,606,622 $129.61

Stockbridge $426,940 $29.73 $984,515 $68.56

Stone Mountain $321,747 $42.06 $714,706 $93.43

Sugar Hill $18,226 $1.06 $40,411 $2.35

Suwanee $380,131 $23.35 $1,276,933 $78.45

Average $492,824 $27.20 $1,631,237 $91.28

Table 9: Municipal Court, Balance of Revenues Over Expenditures, FY2008

Community Balance Revenue/Expenditures Per Capita

Conyers $982,302 $72.52

Duluth $3,073,957 $117.66

Kennesaw $965,882 $30.54

Lawrenceville $2,901,117 $99.16

Loganville $762,340 $72.18

Monroe $490,465 $36.65

Newnan $691,877 $22.71

Norcross $1,904,523 $177.38

Powder Springs $530,304 $33.97

Snellville $1,765,493 $87.79

Stockbridge $557,575 $38.83

Stone Mountain $392,959 $51.37

Sugar Hill $22,185 $1.29

Suwanee $896,802 $55.10


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Averages $1,138,413 $64

While municipal courts tend to be revenue-generating operations, interviews with municipal court staff indicate that very little of the revenue that is generated come from code enforcement-related cases. In fact, according to these respondents, only a small percentage of the cases in these courts are so related. Based on these interviews, we estimate that only 2-4% of the cases are likely to be code enforcement-related. Moreover, in some code-related cases, the adjudication may not result in a fine, but rather in a court order. As such, we would expect that code-related cases may account for an even lower percentage of the revenue than they do of the cases. Based on this knowledge our estimate for the expected revenue stream from operating a municipal court in the new city is presented in the following table.

Table 10: Estimated Revenue from Code Enforcement Related Fines


Estimated Revenue per Capita $91.28

Total Estimated Revenue $3,128,543

Estimated Revenue from Code Enforcement

$62,571

Based on the typical experience of a municipal court, the workload for a court that only dealt with code enforcement cases would likely be quite light. However, in order to provide for enforcement in a timely manner, the city would need to make arrangements for the court to operate on a regular basis (e.g., at least once a month) whether or not there were cases enough to justify holding court for the minimum number of hours for an efficient operation. In addition, courts have a need to provide for a basic level of record keeping, information provision, and associated clerical support. As a consequence, even though a full-scale municipal court operation appears to be able to achieve a surplus of revenues over expenditures, we do not feel that the new city should necessarily expect the same outcome in the operation of a scaled-down municipal court. However, in our research we did identify one city—Sugar Hill—that reports operating a municipal court that is only responsible for non-traffic-related code enforcement. Interviews with city officials indicate that they are able to cover the cost of operating their court entirely on revenues from fines, and that they are able to generate a surplus of $1.29 per capita. However, because of the limited nature of the sample of code-enforcement-only municipal courts, it is difficult to know with assurance that of code-enforcement-only municipal courts are generally operated with revenue surpluses. Consequently, for the purposes of this study we estimate that the operation of a municipal court in the new city could potentially provide a small surplus. In order to provide a conservative estimate of this surplus, we assume that the new city could


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achieve a surplus of half of what the City of Sugar Hill earns per capita. This estimate is shown in the table above.

Elections In most counties in Georgia, the county government’s election office will conduct the election for the cities within the county. In these cases, the cities will pay the county for the service. This is not the case in Gwinnett County where cities have chosen to conduct their own elections. While the county does not operate municipal elections, it does facilitate these elections by allowing the cities to use the electronic voting machines and also programs these machines for the cities without charge. However, cities may incur other expenses related to operating elections such as paying poll workers and vote counters, and paying staff to coordinate the election effort in general. To estimate the cost of conducting an election in the new city, we contacted a number of the cities in Gwinnett County and asked them to supply information on their costs.5 Based on these data we estimated that cities in Gwinnett County are able to conduct elections at a cost of approximately 33 cents per person. Based on this assumption we estimated the cost of elections in the proposed new city as follows:

Table 11: Estimated Cost of Elections

Estimate New City Population

$34,274

Cost of Elections @ 33 Cents per Capita

$11,310

New City Governance and Unaccounted-for Indirect Costs Although the operational costs figures that local governments report in the Local Government Finance Survey are supposed to include the indirect costs of providing administrative support to individual departments/functions, there are typically some administrative costs for which there may not be a full accounting. In addition, for government of a certain size economies of scale can skew the indirect cost data. Though the proposed new city will have a population size that would ordinarily make it easy to achieve basic economies of scale in administrative operations, it will be much less likely to be able to achieve such economies of scale due to the fact that the new government’s scope of operations will be very narrow (i.e., comprising just a few functions). Functions such as human resources, information technology, risk management, purchasing, payroll, accounting, reporting to state agencies, etc. will need to be performed on a small scale

5 Contacted: Sugar Hill, Norcross, Snellville, Lilburn


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and by managerial staff who will need to be multi-skilled. Because such staff will need to be multi-skilled, the new city will probably need to pay a premium to hire and hold such staff. In addition, the city will need to support the governance operations of the city, which although minimal, also require some level of staff support (e.g., for keeping track of city ordinances, meeting minutes, etc.) In order to achieve a basic level of functionality in administrative services, we posit that the new city will need at a minimum (over and above the direct service provision staff): A skilled city manager with some financial management skills. Ideally this manager would also have a planning background so as to support this function when the planning director has to be out. A highly-skilled city clerk who can perform all the administrative functions and who has some technical skills. An administrative assistant/receptionist who can also backup the administrative assistant working in the planning/code enforcement department. An ability to provide for additional insurance (above what is accounted for in the operational costs for the service functions) and consulting services. We allocate $100,000 for these functions and services.

Table 12: Estimate of Administrative Costs for the New City

Salary Benefits @ .26% Total Cost

City Manager $100,000 $26,000 $126,000

City Clerk $65,000 $16,900 $81,900

Administrative Assistant $30,000 $7,800 $37,800

Sub-Total $245,700

Insurance & Admin O&E and Consulting6

$100,000

Total Admin. Costs $345,700

6 Based on an interview with Public Risk Underwriters, the cost of general liability and public decision maker liability would be approximately 10,000-12,000. We have included an additional 15,000 per year for building insurance and maintenance costs. While Worker’s Compensation insurance for departmental staff should be accounted for in the estimate of direct service expenditure, in the case where they have not been so included, we estimate the cost for this insurance at $5,000. We estimate operations and expenses for the administrative functions at $10,000.


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Elected Official’s Salary The proposed new city charter provides that each council member will be paid an annual salary. The total cost of these salaries is outlined in the following table.

Table 13: Estimate Cost of Salaries for Elected Officials

Number of Council Members Including Mayor 6

Salary per Official $5,000

Expected Expenditures $30,000

Est. Cost of Required Social Security/Medicare Benefits and Honesty Bonds @ 10% $3,000.0

Total Est. Cost $33,000

Legal Services Finally, because the proposed new city will be making decisions related to planning and zoning—an area of governance that is potentially litigious—the new city will need to budget for attorney services to a degree that would represent a higher proportion of the city budget than would ordinarily be the case. Estimating legal fees involves a potential for a large degree of error due to variations in local governments’ propensity to be involved in conflict and liability or the need to obtain legal counsel as well as their willingness to contest issues. As such, there is no true average cost of legal services. Also, many larger cities will employ in-house attorneys. For the purposes of this study, we identified some cities that appear to pay for outside counsel and who reported legal fees for these services. The data on the cost of these services are presented in the following table.

Table 14: Comparison Legal Fees, FY2008

Community Gov. Exp.-Legal fees (a) Per Capita

Duluth $86,945 $3.33

Monroe $46,840 $3.50

Norcross $19,783 $1.84

Stockbridge $99,118 $6.90


Sugar Hill $48,634 $2.83


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Average $55,616 $4.00

If we assume that the new city will need approximately a third of the amount of legal services as these comparison cities purchase (on a per capita basis) we can estimate this expenditure as follows:7

Table 15: Estimated Cost of Legal Fees for the New City


Estimated Cost per Capita

$2.00

Total Estimated Cost $68,548

Additional Revenue Sources Findings

The new city is assumed to have two sources of revenue in addition to service-related fees, charges, and fines: franchise fees and property tax up to one mill. Estimates of the revenue stream that can be expected from these sources are presented below.8 Franchise Fee Revenue Municipal governments in Georgia are allowed to assess a franchise fee on private utility operators in the form of a percentage of gross sales. These fees can vary substantially based on the use of electricity and gas. While it is fairly straight forward to model and estimate the likely usage of gas and electricity among residential consumers, industrial consumers vary tremendously in terms of their use of these utilities. As a consequence, expected revenue from franchise fees can vary substantially among communities based on the degree to which these communities contain industries that are major users of gas or electricity. For example, the following table outlines franchise fee revenues and per capita revenues for similarly-situated cities in Georgia. Even among these cities, there is a good bit of variation in per capita revenue. Based on descriptions of the proposed new city, we believe that a conservative estimate of per capita franchise fees would be in order. That is, the proposed new city area does not contain any substantial industrial faculties, and the commercial facilities tend to be standard retail and office

7 Interviews with comparison city respondents indicated that the percentage of time that legal staff spend on planning, zoning and code enforcement issues can vary (e.g., from 12 percent to as much as 40 percent) depending on the local situation. Our estimate of the cost of legal services is based on a combination of the need to secure a base amount of these services for advising city council, the inclusion of a factor that considers the new status of the proposed city as well as an estimate of the legal services needed to assist the city with the contract for sanitation services. 8 As specified in the assumptions for this study Gwinnett County will keep all other revenues available to the city such as insurance premiums, excise taxes, business licenses, etc. Also, that the city would not negotiate for portion of local sales taxes used by the county to continue to provide services to city. However, it should be noted that because the new city will be able to collect franchise fees, the cable franchise fee revenue currently collected by Gwinnett County would be lost to the county.


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units. Based on this description, we believe that the best estimate of the expected revenue for the new city from franchise fees would be based on the per capita fee amounts that are reported by Lawrenceville and Stone Mountain. The average per capita franchise fee revenue for these two cities is $29.35.

Table 16: Comparison Group Community Franchise Fee Revenue, FY2008

Community Franchise payments taxes Per Capita

Duluth $1,865,005 $71.39

Kennesaw $1,528,223 $48.32

Lawrenceville $855,845 $29.25

Loganville $510,176 $48.30

Monroe $197,159 $14.73

Newnan $1,324,724 $43.47

Norcross $1,119,199 $104.24

Powder Springs $678,198 $43.44

Snellville $946,039 $47.04

Stockbridge $1,255,583 $87.44


Sugar Hill $741,131 $43.08

Suwanee $1,521,683 $93.49

Based on this figure our calculation and estimate for the expected revenue from franchise fees for the new city is presented in the following table.

Table 17: Estimated Revenue from Franchise Fees for the Proposed New City


Estimated Revenue per Capita

$29.35

Total Estimated Revenue $1,005,946


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Property Tax Revenue The proposed new city would be authorized to assess up to one mill in property taxes. In order to estimate the expected revenue for the new city we performed the following steps:

1. Using a Geographic Information System cutout of the city boundary and a GIS parcel layer purchased from Gwinnett County, we identified all of the properties in the proposed new city area using an Intersect Join of the proposed new city cut out with the GIS parcel layer for Gwinnett County.

2. We aggregated the assessed values for the properties in the proposed city area. Assessed Value of Properties in the Proposed New City Area: $ 2,005,836,720.

3. Because the number and type of property tax exemptions that the new city will provide is unknown, we estimated the likely provision of exemptions by identifying the impact of exemptions on the collection of tax revenue in a number of comparison cities. We measured the impact of exemptions by calculating the percentage of the adjusted gross digest that exemptions represent. The adjusted gross digest was calculated by subtracting the assessed value of motor vehicles from the gross digest. (This step was necessary because we have to add in an estimate for motor vehicles after estimating the revenue value of real estate property). We averaged the comparison cities’ percentage of the adjusted gross digest that exemptions represent and then used this average to estimate the likely impact of exemptions on the proposed new city’s real estate portion of the ad valorum tax.

Table 18: Exemption Percentages for Comparison Cities

Sugar Hill

Adjusted Gross Digest 631,955,262

Exemptions 4,424,210

Exemptions as % of Gross 0.7001%

Suwanee

Adjusted Gross Digest 1,141,931,990

Exemptions 153,520


Norcross



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Exemptions 124,760


Lawrenceville

Adjusted Gross Digest 1,111,749,580



Snellville




Average of Cities' Exemptions as % of Gross 1.0005%

Table 19: Estimation of Value of One Mill of Real Estate Property

Average of Cities' Exemptions as % of Gross 1.0005%

Total Assessed Value of Real Estate (Adjusted Gross) $2,005,836,720

Estimated Value of Exemptions $20,068,817

Est. Net Assessed Value of Real Estate $1,985,767,903

Est. Value of one Mill of Real Estate Assessed Value $1,985,768

4. Next we identified the percent of motor vehicle assessed values as a percent of the

adjusted gross digest value (the portion of the gross digest that is for real estate). These are presented in the table below. The value of motor vehicles in a jurisdiction can vary by the wealth of the community and by the amount and type of businesses in the community (e.g., some communities have more businesses that own and operate more valuable vehicles than others). Without knowing the nature of these variables in the proposed new city area, we chose to use the data from the community with the lowest ratio of motor vehicle values to adjusted gross value (i.e., Norcross’s 4.22%) as the basis for estimating the likely revenue from motor vehicles.

5. Finally, we totaled the estimates for real estate and motor vehicle property revenue.


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Table 20: Motor Vehicle Assessed Values as Percentage of Adjusted Gross Digest Assessed Value

Sugar Hill

Motor Vehicle Assessed Value 43,624,720

Motor Vehicle as % of Adj. Gross 6.90%

Suwanee



Norcross



Lawrenceville



Snellville



Average of Cities Motor Vehicles as % of Adj. Gross 5.3643%

Table 21: Estimation of Value of One Mill of Motor Vehicle Property

Estimated Assessed Value of Motor Vehicles based on the Norcross Ratio of Motor Vehicle Values to Adj. Gross Digest Value

$84,664,461

Est. Value of one Mill of Motor Vehicle Assessed Value

$84,664


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Table 22: Estimation of One Mill of Property Tax

Est. Value of one Mill of Real Estate Assessed Value $1,985,768

Est. Value of one Mill of Motor Vehicle Assessed Value

$84,664

Total Estimated Value of One Mill $2,070,432

Summary Findings Related to Fiscal Viability The following two tables summarize the finding of the earlier sections on expenditures and revenues.

Table 23: Summary of Expected Expenditures

Expenditure Area Estimated Expenditure (Above Service

Charges/Fees/Fines Revenue )

Long-term Capital $63,359

Short-term Capital $68,965

Development-Related Services $162,140

Municipal Court -$22,107

Elections $11,310

Legal Services $68,548

Administration $375,700

Elected Officials $33,000

Total Estimated Expenditure $760,917

Table 24: Summary of Expected Additional Revenues

Franchise Fees $1,005,946

Property Taxes $2,070,432

Total Estimated Revenue Above Service Charges/Fees/Fines

$3,076,378


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As the table below indicates, the proposed new city would likely experience a substantial surplus of revenues over expenditures.

Table 25: Net Revenue/Deficit

Net Revenue/Deficit $2,315,461

It could be argued that the expected surplus is such that a property tax may not even be needed. However, a key factor in assuming the responsibility for planning and zoning decisions is the potential for incurring liability for decisions that can have substantial economic impacts (e.g., denying a re-zoning request that is later determined by the courts to have been unjustifiable). Consequently, the proposed new city may at some point need to employ property tax revenue to cover potential liability that is not covered by liability insurance. In addition, during the first year or two there are likely to be some additional expenditure that cannot be foreseen. In sum, while city officials may choose not to employ a property tax as a major revenue source, they may desire to establish the property tax as legitimate in the eyes of city residents, but set the millage rate at a very low level. Conclusions and Qualifications9 Based on the assumptions established at the beginning of this report, the findings of this study indicate that the proposed new city of Peachtree Corners would be fiscally viable; that is, support the delivery of the proposed services with the revenue sources specified employing fees, charges, and tax rates at ordinary levels. While we conclude that a proposed city of Peachtree Corners would likely experience a substantial fiscal surplus, particularly in normal economic times, our conclusion needs to be qualified in that the development-related services and revenues proposed for the new city tend to be sensitive to economic conditions. Likewise, some of the other revenues that we estimate (e.g., franchise fees) are also likely to fluctuate with the economy. Finally, our revenue estimates are based in part on an estimate of the population residing within the proposed city boundary. Because we are at the end of a Census cycle, the potential for error in the population estimate is larger than would otherwise be the case. For these reasons, the persons who would be responsible for the initial budget of the new city should be careful in the use of the data presented in this report and should probably add a margin of safety to our revenue estimates.

9 It should be recognized that this conclusion regards the equilibrium state for the new city. During the first year of operation, new cities may incur some one-time expenditures such as interest costs for the short-term note that may be needed until property taxes are collected. Also some start-up consulting costs may be incurred for getting the financial system up and running, filing appropriate information with the state, conducting infrastructure survey for the audit.

cvi peachtree corners fiscal analysis

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