Georgia Votes on Regional Sales Tax Initiative for Transportation Funding, With Mixed Results

Posted on: August 14th, 2012 by Carrie Kissel

On July 31, voters in Georgia made their choices about transportation funding in conjunction with the state’s primary elections, with their decisions having significant impacts for the state and causing ripples in the national conversation on infrastructure investment.  Up for consideration was a regional one-cent sales tax that had been expected to raise a total of $18.7 billion over 10 years, referred to as the Transportation Special Purpose Local Option Sales Tax (or T-SPLOST).  In nine of 12 regions, the sales tax referendum was defeated.  Only three regions in south central Georgia passed the initiative, the Central Savannah, River Valley, and Heart of Georgia regions.

T-SPLOST Process

In the enabling legislation, the Transportation Investment Act of 2010 called on the state to create Regional Roundtables to identify priority transportation projects (including highways and transit) that would account for 75 percent of the projected tax receipts in each region (85 percent in Atlanta).  Using a formula of four-fifths road miles and one-fifth population, local governments would receive the remainder of the T-SPLOST funds for local transportation projects.  These Regional Roundtables were created along the boundaries of existing regional commission (http://garc NULL.ga NULL.gov/main NULL.php?Home-7) lines (the multi-county regional development organizations serving local governments in a variety of planning, economic development, and other roles).

Patti Cullen, executive director of the River Valley Regional Commission (one of the regions that passed the sales tax increase), explains the roles in the process: The regional commissions were responsible for facilitating the roundtable process to come up with constrained lists of projects for the 75 percent of tax receipts destined for regional priorities.  The regional roundtables consisted of two representatives from each county (one commissioner, one mayor), some of whom also serve on the regional commissions’ governing councils.  In fall 2011, all the regional roundtables voted to approve the project lists.  A statewide campaign was established to provide education about the referendum, and local chambers of commerce took on outreach to the residents of the region.

Beginning in January 2013, the Georgia Department of Revenue will be responsible for tax collections, while the Georgia State Financing and Investment Commission is responsible for financial policy and procedures.  The Georgia Department of Transportation (GDOT) will manage the program and deliver the projects, together with consultants and local governments.  Moving forward, the regional commissions in the regions that passed the T-SPLOST referendum will likely continue to play a role as a convener of local officials and stakeholders.  With their broad experience in administering community development and other types of projects, the regional commissions could assist with project administration for smaller communities.

Referendum Challenges

The reasons for the mixed results of the vote varied across the state and included very vocal political opposition from the right and the left in some regions, as well as the mix of transit and road projects in Atlanta and elsewhere.  But some of the opposition was even more basic: “It’s a tough economy to sell a sales tax,” explains Jim Dove, executive director of the Northeast Georgia Regional Commission.  “Marketing was also a challenge—much of our state is served by Atlanta-based media.  The campaign here tried to make everybody aware that money stayed in each region, but with the media attention on Atlanta, it was difficult to make that clear.”

The River Valley region is further from Atlanta, so mixed messaging was less of a barrier.  Although the tax still had local detractors, political opposition was not as organized or vocal as elsewhere in the state.  Fourteen of the River Valley’s 16 counties voted to pass the sales tax increase, some with over 20 percent margins, so the sales tax will be administered regionally across all 16 counties in accordance with the law passed in 2010.  “People here felt like we had to do something for ourselves and try to build our infrastructure.  We need the jobs that this is going to create.  The campaign here did a good job of communicating the economic impact and that local people had control over the projects,” Cullen says.

With the referendum vote occurring in conjunction with the state’s primary election, incumbent local officials with primary challengers had to negotiate the political risks inherent in voicing support for any kind of tax increase.  Moreover, primary elections tend to have fewer overall voters and a different mix of voters than general elections, which may have affected the outcomes for each region.

Regional Sales Tax Impacts and Next Steps

Cullen says of the sales tax referendum’s impact on financing the state’s transportation needs: “On the state level, since only three regions passed it, it will not have the significant impact that was originally thought.”  But the regions that did pass it are among the most economically distressed in the state, so having a new source of funds will be a major boon—in fact, Cullen estimates that if the River Valley counties had not passed it and neighboring regions did, the region might have stagnated, economically set back 20 years compared to its neighbors.

Because federal funding is insufficient to meet the state’s needs, many small communities in the River Valley region felt their priority projects would not be implemented very quickly without having a new source of funds.  “The 25 percent of the sales tax revenues that will go to local governments can be used as a cash match for other federal and state funds that come through the DOT district,” Cullen says, a powerful tool in identifying how locally important projects become feasible to complete.

Elsewhere in the state, the referendum for the financing mechanism did not pass, but the project lists developed through the roundtable process gathered momentum.  “The Northeast Georgia Region will have to take a look at what we can do now that vote failed,” says Dove.  “But the Regional Roundtable process was really valuable because it gave elected officials a chance to sit around table and look at what they really wanted to accomplish together. Our region developed a great list of projects that have regional buy-in and that show a great deal of connectivity.  The elected leadership wants to move forward, so we’ll look at how we can fund the projects, including if there are innovative financing approaches that are appropriate or if the state has other ideas.  But it will take a lot longer to implement these projects than we had anticipated.”

Although much of the media attention in the past two weeks has been on the impact on the Atlanta region, the other parts of the state that rejected the referendum will also see a significant impact.  In addition to the loss of potential match for federal highway and transit funds, the 2010 authorizing statute puts sanctions in place for the regions that rejected the sales tax, so that their match rate for GDOT’s Local Maintenance and Improvement Grant program would be 30 percent, compared to the 10 percent match required for regions that did pass the tax.  That stipulation is now under discussion in the state.  Previously, there was no match requirement for the two local programs now combined in the grant program, but local governments contributed significantly in preparatory work on roads to be resurfaced, as well as engineering, right-of-way acquisition, and construction funds on other local projects.

The decisions whether to raise new local revenue for infrastructure may have an impact on local government credit in the future.  According to the Atlanta Journal-Constitution (http://blogs NULL.ajc NULL.com/political-insider-jim-galloway/2012/08/06/moody%E2%80%99s-awards-metro-atlanta-a-credit-negative-for-tsplost-failure/), Moody’s considers the rejection of the tax in nine regions to be a credit negative, while in the three regions that adopted it is a credit positive.  This determination is not a change in the credit ratings of the state or the local governments in those regions, but it indicates what the impact could be on credit issuers as a result of the sales tax.  In the bi-weekly Moody’s Credit Outlook (http://www NULL.moodys NULL.com/researchdocumentcontentpage NULL.aspx?docid=PBC_144514) newsletter, the credit ratings organization claims that the regions that failed to pass the tax, especially Atlanta, may see barriers to economic development from their lack of funds to upgrade infrastructure.

The enabling legislation allows for regions to conduct a referendum after two years if the sales tax increase failed the first time, although Governor Nathan Deal has voiced a lack of support for future votes on the issue.  For regions that did pass the tax, it will be in place for 10 years before coming up on the ballot again.  For more information on the TSPLOST initiative and how it will be administered in the three regions that passed it, visit www.dot.ga.gov/TransportationReferendum (http://www NULL.dot NULL.ga NULL.gov/TransportationReferendum).  To learn more about Georgia’s regional commissions, visit garc.ga.gov (http://garc NULL.ga NULL.gov/main NULL.php?Home-7).

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