December 5, 2001

About a month ago, I was introduced by a Tennessee friend to a candidate running for governor of that state. My first question was why. After all the platitudes and slogans were made, I indicated that I wanted to know why anyone knowledgeable about the budget situation in Tennessee would want to be governor there.

Although the problems are especially acute in Tennessee, the same questions could be asked of all those winning executive positions in our local governments. In Atlanta, we not only are trying to determine how large the budget shortfall will be but also what we are going to do about the fines levied against our sewer and water systems.

To add further to the woes, recent events have lowered the revenues at Hartsfield airport, the number one asset held by the city of Atlanta. Can we hold our bond ratings with so much turmoil in the airline industry? If not, what does that do for the expenses of the expansion projects at Hartsfield (the dirt controversy is small if higher interest rate payments are needed to finance the ultimately $5.4 billion projects).

In the latest employment report, private jobs fell by 33,000 from previous year levels in metro Atlanta. They were up by more than 5000 for local government positions. How can fewer paychecks in the private economy support so many more paychecks in local government?

Certainly, the wages and incomes of Atlanta citizens have little direct impact upon Atlanta's budget. We do not have an income or wage tax at the local level.

However, sales tax collections, more than a third of the revenues provided to Atlanta other than through its airport and waterworks enterprises, almost certainly will be impacted by those reduced paychecks. With low inflation (less than 2 percent in the private sector) further diminishing the sales tax collections, even merit wage gains in the public sector will exceed revenue growth.

Furthermore, our safety personnel are understaffed and overworked in these heightened crisis times (although that nearly $30 million assigned to the police chief's office certainly can be tamed). Overtime for the additional security provided by local governments already is a budget buster. Yet, we need to fill some of those police and fire positions to meet additional requirements.

Another indirect impact of lower paychecks is the property tax digest. Companies who are downsizing do not need as much space in buildings. About 4 million square feet of sublease space currently is being added to the office market. Rents already are off by more than 15 percent in many parts of the city, and the values of buildings will follow.

This does not mean that property tax collections will fall off soon. After all, properties under construction will be added to the digests as they are delivered. Also, Fulton county, which is responsible for property tax collections for much of the city of Atlanta, may be able to reduce the past due accounts and speed collections.

Nevertheless, two years from now, the new mayor of Atlanta may not be able to depend on a property tax digest that is growing. With so much of the school budget dependent upon those collections (the city has rarely used oversight but generally passes through the revenues to the Atlanta school board), the ability of the city to raise millage rates may be stymied by political pressures.

The business franchise taxes have a revenue base as well as some fixed fee component. The fixed fee will fall only if businesses expire or leave the city, but the revenue portion of the collections will be impacted in a similar fashion to the sales tax collections.

Other fees probably will not create a serious collection problem (except those pesky parking tickets), but the ability to raise them during economic weakness certainly is restrained.

In short, the city of Atlanta is facing a substantial budget squeeze that will not end when the economy turns higher. Furthermore, revenue shortfalls this year must be made up in next year's budget. Actual money available for existing and new programs will be significantly lower than this year.

The one ace in the whole is that technology has not been used as effectively in Atlanta as in other local governments around the country. Implementation may add even more pressures to the budget, but it will lower costs over time.

Finally, if I were the mayor elect, I would tell all departments they have only 90% of last year's budget for existing services and programs. I would then issue adjustments where service shortfalls are occurring, such as in safety personnel. All new programs would be reviewed. (Remember, there is some cost cutting implementation). Anyone who believes the budget problems can be solved without lowering personnel is not aware of the dimensions of the problem.

However, I also would work on collections and on leveraging local needs with state and federal dollars where possible. Good luck mayor elect Shirley Franklin.

Editor's note: Some people have objected to a contract to provide dirt to the City of Atlanta to be used in the construction of a new runway at the Atlanta (Hartsfield) Airport, claiming that the cost is excessive and expressing suspicion that campaign contributions to the outgoing mayor of Atlanta played a role in the contract being approved.


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