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Ehrnrooth Final Report Budgets & Finances Course FSU 2008
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The incorporation of Sandy Springs Effect on City of Atlanta Budget. Final Paper for Budget & Finances Course FSU 2008

The incorporation of Sandy Springs Effect on City of Atlanta Budget. Final Paper for Budget & Finances Course FSU 2008

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Ehrnrooth Final Report Budgets & Finances Course FSU 2008 Ehrnrooth Final Report Budgets & Finances Course FSU 2008 Document Transcript

  • City of Atlanta Budget Analysis 1 City of Atlanta Budget Analysis FY 2004-2009 The Incorporation of Sandy Springs Effect on City Budget By Madeleine Ehrnrooth Budgets & Finances November 20 2008 Florida State University
  • City of Atlanta Budget Analysis 2 In the past few years, Georgia has incorporated four new cities including Sandy Springs, Johns Creek, Milton, and Chattahochee Hill Country 1. With over 500 cities already, and more new cities being proposed, concern has risen about how these new governments will affect the existing local government within Fulton County. Currently there has been talk about turning the newly redeveloped Buckhead area of Atlanta into a city. While a plethora of reasons for incorporation back new city proposals, the key argument has been to relieve heavy tax burdens on citizens. Jeffrey Doorfman, Atlanta-Journal Constitution contributor, in an article about services not matching the tax burden, mentions “[w]hen a county or city advances the argument that the formation of a new city will cause economic hardship to the existing government, resulting in service cutbacks or tax increases, it is admitting to overcharging the area considering forming a new city” (Doorfman,2008).2 Doorfman goes on to explain that Atlanta doesn’t want to lose Buckhead as the area residents pay “far more in taxes and fees” (Doorfman,2008).3 Sandy Springs, incorporated in December 2005, had a similar case where residents felt the value of the city services received were disproportionate to the taxes paid. Fairness of the current tax system is a political question with no right or wrong answer. However, these recent city formations convey a growing discord among north Fulton County citizens whose taxes are being used to provide for south Fulton County residents, primarily within the city of Atlanta. Sandy Springs residents not only paid a general fund tax but were also required to pay a special service district levy used to pay for betterment projects totaling an estimated $23 million. Using Sandy Springs as a case study, this analysis examines the economic consequences of incorporation and effects on the budget process of the city of Atlanta. To determine whether or not the City of Atlanta incurred economic damage, the budget 1-3Dorfman, Jeffrey H. (2008, July 8) “Incorporating Cities: Tired of Services not Matching Tax Burden”. Atlanta Journal-Constitution. Retrieved November 9, 2008 from http://www.ajc.com
  • City of Atlanta Budget Analysis 3 cycle before Sandy Spring’s incorporation (2004 & 2005) and the budget cycles ensuing (2006-2009) will be analyzed for significant changes in revenues and expenditures. The city of Atlanta, located in the north-central part of Georgia was Incorporated in 1847. For 30 years, the Atlanta Metropolitan area has been one of the highest growth areas of the country 4. According to the United States Census Bureau, Atlanta has a population of 483,108, approximately 10% of the total metropolitan area. Policy-making and legislative authority are vested in a City Council whose primary responsibilities are adopting the budget, setting policy for the city and passing ordinances.5 The municipal services provided by the city range from fire and police protections; infrastructure such as construction and maintenance of highways and streets; recreational activities and cultural events; land use and building regulation; and solid waste collection and disposal. Hartsfield-International Airport is operated and maintained by Atlanta, but as the world’s busiest airport it is exclusively financed by airport-generated income6. The city is home to a diverse mix of industries the largest of which include, government, services, finance, trade, education, real estate, insurance, ad manufacturing sectors. Often called the economic engine of the Southeast U.S, Atlanta’s “highly integrated transportation network” helps to lend further support to it’s economic base (City of Atlanta, 2007).7 The City of Atlanta participates in an executive budget process, where all departments submit budget requests to the Mayor. The Mayor then proposes the budget to the City Council whose finance committee after discussion and review approves or suggests changes to the City Council. After modifying the budget it is formally adopted by Ordinance no later than June of that fiscal year.8 Each year the Mayor and City Council together publish a Budget Report and Capital 4-7 City of Atlanta, Georgia website. (2007) 2007 Comprehensive Annual Financial Report. pg iii. Retrieved November 15 2008 from http://www.atlantaga.gov 7-10 City of Atlanta, Georgia Website. (2007 December) 2007 Comprehensive Annual Financial Report. pp iii-iv. Retrieved November 15 2008 from http://www.atlantaga.gov
  • City of Atlanta Budget Analysis 4 Improvement Plan. The annual budget includes activities of the general fund, special revenue funds, and the debt service fund. 9 Budgetary control is accomplished by maintaining an encumbrance accounting system and allotment system. If appropriations for encumbered amounts at the end of the year exceed a certain percentage of the ensuing years budget, the excess is carried forward to the proceeding year. 10 The City of Atlanta Department of Finance manages and accounts for the Cityʼs financial resources by preparing the annual budget. During the Fall, multiple public hearings take place throughout the city regarding budget proposals. The City of Atlanta takes a conservative approach to budgeting by placing restrictions on revenue anticipations. Conservative anticipations coupled with the securities already available at the beginning of the fiscal year determine the Fund appropriations.11 The City of Atlanta budget is structured on a performance basis with departmental spending information presented at the line item level. The 2009 Budget includes detailed information on City operating performance, finances and spending as well as an economic outlook. Additionally, each service department such as fire and police services create their own budget included within the budget document. Each entity provides a detailed expenditure summary along with revenue anticipations, appropriations, and actual and target performance measures.12 On January 1st 2006, Atlanta moved from a calendar year ending December 31 to a Fiscal year ending June 30th. For this reason the 2006 Budget Report accounts for only 6 months. 11City of Atlanta. Georgia website. (2005) FY 2005 Proposed Budget, 2, 14. Retrieved November 19 2008 from http://www.atlantaga.gov. 12 City of Atlanta. Georgia website. (2008) FY 2009 Proposed Budget. Retrieved November 19 2008 from http://www.atlantaga.gov
  • City of Atlanta Budget Analysis 5 There are three fund groups in the City’s budget. The Governmental Fund Group is supported mainly by general taxation, special assessments intergovernmental grants. The General Fund is the principle operating fund of the City. Providing basic city services such as parks and fire services, the General Fund is financed through general purpose tax receipts such as Sales, Property, and Business taxes.13 Other funds within the Governmental Fund include The Special Revenue Fund, The Debt Services Fund, and the Special Assessment Fund. Steve Rapson is the Assistant City Manager for Administration and Finance for the City of Sandy Springs. Previously the Fulton County budget director, he “came to Sandy Springs from the Fulton County Chairman’s Office” (Rapson, 2008). Mr. Rapson has experience in administration, coordination, and supervision of the county budget. As Assistant City Manager, Rapson works closely along with the City Manager directing and overseeing all operations. When asked how Sandy Springs’ incorporation affected the City of Atlanta’s budget process Rapson replied. “with the incorporation of Sandy Springs, there was uncertainty for them with regard to budgeting and revenue forecasting; the [Fulton County] general fund lost a considerable amount of revenue from sales tax” (Rapson, 2008). While Atlanta continues to struggle along with the rest of Fulton County, Rapson mentioned Sandy Springs is facing a surplus. “With a budget of over $79 million, our priority right now is to maintain and ensure financial stability” (Rapson, 2008). While Unincorporated Sandy Springs didn’t pay the City of Atlanta property taxes, Rapson explained how high property values made Sandy Springs a cash cow to Fulton County accumulating an estimated $23 million in special service district property taxes alone. These receipts were placed in the Fulton County General Fund, 20% of which was appropriated to the City of Atlanta (Chart 1) .14 According to Mayor Shirley Franklin, whose comments came during a City Hall meeting in 2008, Atlanta is facing two problems. First the city is “facing a projected deficit of about $65 13 City of Atlanta. Georgia website. (2008) City of Atlanta Budget Update. Retrieved November 19 2008 from http://www.atlantaga.gov/ 14 Fulton County, Georgia website. “About Our Office”. Retrieved November 19 2008 from https:// www.fultoncountytaxes.org/
  • City of Atlanta Budget Analysis 6 million” due to “rising pension, health care, fuel costs, and some budget errors” (Stirgus, 2008).15 Secondly, the city’s 2009 budget will come short about $119 million. In efforts to balance the budget, the mayor is considering service cutbacks of approximately 25% in all areas except police, fire and public safety16. To close the now estimated $140 million budget gap for 2009, the City of Atlanta proposed in the FY 2009 General Fund Budget four ways to eliminate the budget shortfall. These methods include; “reducing expenditures by creating work efficiencies and improved business practices”; “increasing revenue through adjustments in existing fees”; and increasing property tax revenues” (City of Atlanta, 2008).17 Since 2005, expenditures have increased for Corrections, Fire services, Waste and Wastewater Management, the Department of Aviation, and Police services (Table 1). Cutting back on general services will take $14,575,000 away from the budget.18 Looking at the budget documents for 2005 through 2009, property taxes make up on average 12% of total revenues with taxes in general making up 65% of revenues (Chart 2). In FY 2009 Fulton County will raise property tax rates by .43 mill inducing a tax increase of $7.31 for a $100,000 home and a $41.71 increase on homes valued $300,00019. Property taxes in the City of Atlanta consists of taxes levied by The State of Georgia, Fulton County (or Dekalb County) Atlanta Public Schools, and the City of Atlanta.20 The mayor is also proposing increasing the property tax rate which has decreased by 22% since 2002 as a result of higher property values21. Having some of the 15-17 Stirgus, Eric. (2008, March 31).“Tax hike being weighed to make up Atlanta budget shortfall”. The Atlanta Journal-Constitution. Retreived November 9, 2008 from http://www.ajc.com 17 City of Atlanta. Georgia website. (2008) City of Atlanta Budget Update. Retrieved November 19 2008 from http://www.atlantaga.gov/ 18 City of Atlanta. Georgia website. (2008) FY 2009 Adopted Budget. Retrieved November 19 2008 from http://www.atlantaga.gov 19-21 City of Atlanta. Georgia website. (2008) City of Atlanta Budget Update. Retrieved November 19 2008 from http://www.atlantaga.gov/
  • City of Atlanta Budget Analysis 7 highest property values within the Atlanta-Metropolitan Area, her statements suggest the loss of Sandy Springs may have had an economic impact on Atlanta. The proposed property tax increase for 2009 is anticipated to add an additional $40,411,262 in revenues to the budget (Table 2). This places total anticipated revenues for FY2009 at $583,911,489, up $2,977,827 from FY 2008 anticipations. 22 After making adjustments the adopted budget for FY2009 was reduced to $570,850,199 down $74,657,025 from the FY 2008 adopted budget.23 A portion of Sandy Springs tax dollars were placed prior to 2006 in a Special Assessment Fund providing financing for betterment projects. As mentioned earlier, most of these receipts were spent in South Fulton building parks and improving impoverished areas. Interestingly enough, in 2007 the City of Atlanta reduced spending on parks and recreation facilities, and cut public works expenditures in half since 2005. Due to the January 2006 change in the calendar year, the 2006 budget accounts for only 6 months (Jan-Jun) of revenues and expenditures. This makes it difficult to analyze the effects of Sandy Springs incorporation on the 2006 budget as the majority of tax revenue for the city was obtained after that period. Noting a $371.7 million decrease in revenues compared to prior years, the 2006 Comprehensive Annual Financial Report attributes 45% of the decrease to property taxes 24. However, the 12 month period following (FY 2007) saw only a 6% increase in total net assets (Table 3). Total Revenues increased by 8% since calendar year 2005 and were noted in the budget report as being attributable to an increases in sales tax receipts, investment income, and service charges (Table 1).25 When reviewing the City of Atlanta Budget through FY 2004-2009, my main concern was with finding a noticeable decrease in revenues and expenditures during the FY 2006 after 22-23 City of Atlanta, Georgia website. (2008) FY 2009 Proposed Budget. Retrieved November 19 2008 from http://www.atlantaga.gov 24City of Atlanta, Georgia website. (2006) 2006 Comprehensive Annual Financial Report, 24-25. Retrieved November 15 2008 from http://www.atlantaga.gov 25City of Atlanta, Georgia website. (2007) 2007 Comprehensive Annual Financial Report, 24. Retrieved November 15 2008 from http://www.atlantaga.gov
  • City of Atlanta Budget Analysis 8 Sandy Springs incorporation. While the accounts were substantially lower than the other reviewed Fiscal Years, the low numbers were a result of the change in calender year. Therefore it isn’t possible to determine the immediate effects of Sandy Springs incorporation. However, review of 2007 and 2008 Financial Reports revealed that both revenues and expenditures increased since 2005. In 2007 the largest revenues came from user charges for services, and taxes. As noted in the budget documents, rates for these items were raised after Sandy Springs incorporated. Although there is no mention of raising rates in anticipation of the loss of Sandy Springs, the incorporation may have been a contributing factor in the budget decision making process as almost a quarter of the City of Atlanta’s revenues came from the Fulton County General Fund. When analyzing the City budgets from the past 5 budget cycles, there was noticeable inconsistency. Each budget listed the prior years budget anticipations for comparison. However when going back to see the prior years adopted budget, the amounts were different. In the 2009 Budget Proposal, one of the addressed issues impacting deficits were budgeting errors. When reviewing the 2005 budget documents, the Change in Net Assets table listed corrections made to the prior year due to budgeting errors. One such correction reported an over calculation of about $1.13 million. This brought the Net Assets as previously reported in the beginning of the year in 2005 down from $4,263,623,000 to $4,150,620,000. That is just an example of a number of budgeting errors by City budget workers that have had an impact on the current deficits as reported by Morse Diggs (2008) from Fox 5 News Atlanta.26 Facing a $4 million budget shortfall in June 2008, it is no surprise the city of Atlanta’s Chief financial Officer Janice Davis recently resigned. 26Diggs, Morse. (2008, June 05). “Atlanta Chief Financial Officer Resigns Amid Budget Shortfall”. Retrieved November 19 2008 from http://www.myfoxatlanta.com
  • City of Atlanta Budget Analysis 9 Appendix
  • City of Atlanta Budget Analysis 10 Chart 1 - Fulton County Expenditures by Region 2007 Nothwest Fulton County: Sandy Springs, Roswell Northeast Fulton County: Milton, Alpharetta, Johns Creek South Fulton County: Atlanta, College Park, East Point, Fairburn, Hapeville, Palmetto, Union City
  • City of Atlanta Budget Analysis 11 Table 1 - City of Atlanta Changes in Net Assets, FY 2004-2007 (in thousands)
  • City of Atlanta Budget Analysis 12 Table 2 - FY 2009 Revenue Anticipations and Appropriations Retrieved from City of Atlanta 2009 Proposed Budget
  • City of Atlanta Budget Analysis 13 Chart 2 - Anticipated Revenue Percentages by Source (2004-2009 Average)
  • City of Atlanta Budget Analysis 14 Table 3 - Change in Net Assets FY 2006-2007 Retrieved from City of Atlanta 2007 Comprehensive Annual Financial Report
  • City of Atlanta Budget Analysis 15 References: City of Atlanta. Georgia website. (2008) FY 2009 Adopted Budget. Retrieved November 19 2008 from http://www.atlantaga.gov. City of Atlanta. Georgia website. (2008) City of Atlanta Budget Update. Retrieved November 19 2008 from http://www.atlantaga.gov. City of Atlanta, Georgia website. (2005) 2005 Comprehensive Annual Financial Report. Retrieved November 15 2008 from http://www.atlantaga.gov. City of Atlanta, Georgia website. (2006) 2006 Comprehensive Annual Financial Report. Retrieved November 15 2008 from http://www.atlantaga.gov. City of Atlanta, Georgia website. (2007) 2007 Comprehensive Annual Financial Report. Retrieved November 15 2008 from http://www.atlantaga.gov. City of Atlanta, Georgia website. (2008) FY 2009 Proposed Budget. Retrieved November 19 2008 from http://www.atlantaga.gov. Dorfman, Jeffrey H. (2008, July 8) “Incorporating Cities: Tired of Services not Matching Tax Burden”. Atlanta Journal-Constitution. Retrieved November 9, 2008 from http://www.ajc.com. Diggs, Morse. (2008, June 05). “Atlanta Chief Financial Officer Resigns Amid Budget Shortfall”. Retrieved November 19 2008 from http://www.myfoxatlanta.com. Fulton County, Georgia website. “About Our Office”. Retrieved November 19 2008 from https://www.fultoncountytaxes.org. Stirgus, Eric. (2008, March 31).“Tax hike being weighed to make up Atlanta budget shortfall”. The Atlanta Journal-Constitution. Retrieved November 9, 2008 from http://www.ajc.com.