SPLOST: Pitfalls to Avoid

SPLOST: Pitfalls to Avoid

When a person or group oversteps the bounds of prudence, or uses discretionary authority in violation of law, it is wrong. It is an abuse of discretion. The following information is compiled toward avoiding potential pitfalls with the SPLOST III (or any future) Program, public perception, the ballot question and project budgeting and completion. It is not presented as an indictment of current or past SPLOST management, but to demonstrate potential pitfalls.

The Dickey Case

The Georgia Supreme Court case Dickey v. Storey in 1992 became the litmus test to determine when a governing authority steps over the line concerning revenues from a special purpose local option sales tax (SPLOST). The commissioners in Floyd County wanted to abandon one set of plans for a Forum complex so that a different plan and new location could be used. They also wanted to replace a baseball field with a new one.

The court imposed a requirement for Floyd County to perform a cost analysis for improving the old ball field versus buying new land and developing a new park. Similarly, Henry is looking at a new soccer complex to be funded in our next SPLOST. It calls for abandonment of the existing soccer complex, buying new property and providing a complex suitable for statewide tournaments. It can be argued that before committing to a new complex, the property purchase, new facility and cost analysis must be fully explored and a feasibility study produced.

Regarding the Forum, the court held that neither personal opinion nor changing political support for the project was sufficient to define it as “infeasible.” Inasmuch as revenues were already invested, and the voters had approved the original plan and costs, Floyd County was ordered to forego plans for a new design and location.

The Association of County Commissioners of Georgia

The ACCG publishes a SPLOST Guide that includes the following passage:

The county is responsible for estimating the SPLOST revenues expected to be collected over the life of the SPLOST as well as the costs if all county projects to be submitted. The county should also ensure that the sum of all project costs, including those submitted by any municipality, equals the estimated revenues (O.C.G.A. § 48-8-111 (a) 3)).

Because all approved projects must be funded as provided under Dickey, counties should be careful not to overestimate SPLOST revenues, thereby requiring the use of other county funds to make up any shortfalls.

To most readers it is clear that a voter-approved project list is expected to include cost estimates and all the projects must be completed. However, during three meetings of the SPLOST Oversight Committee the members were repeatedly told that costs could not be known, and in one meeting a commissioner challenged the chair to investigate whether the BoC would be in violation of any law to provide such consultation to the Committee. There was a gap in understanding, but it was not present in the law or guidance provided by the ACCG.

A SPLOST Committee member posed several queries to the county attorney toward clarification of the issues presented herein. The latest response and opinion was provided April 25, 2007. In response to the query,

Should the SPLOST III Project List be limited to projects that can
reasonably be completed with the anticipated SPLOST III revenues or, is it acceptable to create a list that contains “more projects than could be financed by expected revenue”?

County attorney Mr. Patrick Jaugstetter stated,

“In short, it is my opinion that the list of projects proposed to be
financed by SPLOST proceeds should be one that can be completed with anticipated SPLOST III revenues.”

Project Costs and Accounting

It is early-May 2007 and nearly a year remains for collection of revenues under Henry’s current SPLOST. The program is capped at five-years and $140 million, so about $30 million may yet be collected. According to data published by the SPLOST Office, $109 million has been spent or allocated. Of that amount about $35 million is for capital improvements and about $74 million for transportation. At this point the 70% Transportation/30% Capital allocations approved by voters in 2002 is a bit out of line. It stands at 68% to 32%.

Costs on many things have increased since 2002. Most notably, building/ construction costs and any petroleum-related materials have caused some road projects to exceed initial projections by 200%-300%. However, some factors must be considered when overages occur in capital projects like the Courthouse Annex ($6 million over projection), the Arena at Heritage Park ($1.5 million over) and Holder Park (nearly $2 million over). It could be argued that expansion, rather than reduction of project scope can cause a de-facto abandonment of other unfunded projects.

The Master List of projects posted at the Henry County SPLOST website was updated in April 2007. It lists specific data for each project, but also shows projects for which no allocation or budget has been set. Largely these are transportation projects including roads, intersections and bridges. Unfunded projects include (with original cost estimates):
Capital Projects...... $11,965,000
Transportation...... $15,797,000
+ Dirt Roads........... $25,760,000
+ Bridges................ $ 1,492,000

Total: ..................... $ 55,014,000

The program is capped at five-years and $140 million, so about $30 million may yet be collected.

A review of reports published by the SPLOST Office indicates a potential problem. While each ongoing and completed project is readily identifiable, there is no statement concerning corrective action for under-funded projects. To wit, the annual report must also include a statement of what corrective action the local government intends to implement for each project that is under-funded or behind schedule and a statement of any surplus funds which have not been expended for a project [O.C.G.A. § 48-8-122].

ACCG guidelines state “Since project costs are estimates, each local government receiving SPLOST revenues may shift funds between their approved projects (as long as all projects are completed).”

And in case of a “shortfall” of SPLOST funds to pay for projects, "the approved projects could be scaled back, but not abandoned. A local government must make up any shortfall from their general fund or other funding sources."

In a 1992 decision, the Georgia Supreme Court ruled that the governing authority was obliged to use proceeds from the SPLOST tax for the projects approved in the SPLOST referendum. The Court held that the governing authority…is bound by the SPLOST budget and account reports to complete all projects listed therein unless circumstances arise which dictate that projects which initially seemed feasible are no longer so. In this regard, the governing authority has discretion to make adjustments in the plans for these projects, but may not abandon the projects altogether. Dickey v. Storey, 262 Ga. 452 (1992).

The Supreme Court, in the same ruling, recognized that the county could not use SPLOST funds for a project that had not been approved by the voters, noting that under O.C.G.A.§ 48-8-121(a) proceeds from the SPLOST…shall be used exclusively for the purpose or purposes specified in the resolution or ordinance calling for imposition of the tax.

Monthly updates are provided by The SPLOST Office detailing the status of ongoing projects and a list of completed projects by district. Based on the March 2007 Update, projects are listed that did not appear on the SPLOST II Master List as updated December 2006. The discrepancies occurred because projects were “brought forward” from the SPLOST 1 (1996-2000) program.

The process of “bringing forward” projects that were not completed poses a potential violation under Dickey, and ACCG guidance in that “The Court held that the governing authority…is bound… to complete all projects listed therein unless circumstances arise which dictate that projects which initially seemed feasible are no longer so.”

The ACCG further stipulates that

the term “infeasible” is not defined in the SPLOST law and is
open to interpretation. However, it is clear from the Dickey case, that there must be some intervening circumstance outside the control of the county or municipality before it would be considered infeasible. In contrast, diminished support for a project among the elected officials, a shortfall in SPLOST revenues, or increased project costs would not likely be sufficient for a project to cross the threshold from feasible to infeasible. Likewise, a technical problem in
constructing a facility would not make a project infeasible so long as there is a reasonable engineering solution to the
problem.

Contrary to opinions expressed at various times by county staff, consultants and elected officials, the predisposition to create a Project List containing more projects and greater cost than can be completed is arguably irresponsible. Although the situation may exist that SPLOST revenues could exceed the costs of listed/approved projects, it is far preferable to explore due diligence through budgetary analysis toward providing realistic expectations and goals.

It can be argued that each SPLOST Program must stand distinctly and that allocation of revenues from each Program “shall be used exclusively for the purpose or purposes specified in the resolution.”

This concern combines with the ACCG guidance: The SPLOST law requires that the purpose or purposes for which the SPLOST revenues will be used to be specified on the ballot. The degree of specificity required is not addressed in the law. However, the Attorney General of Georgia has concluded:

There is no necessity that the description of the purpose or purposes for the tax be in exacting detail. Rather, the description and the purposes must be only so specific as to place the electorate on fair notice of the
projects to which the tax will be devoted. Op. Att’y. Gen. U90-18 (1990)

To this end, a realistic, studied and budgeted list of projects should not only exist, but should be included by reference in the ballot question.

It is highly important that the SPLOST Committee, the Board of Commissioners as well as representatives of each city and community share common perception and understanding. Public perception is tantamount to a successful referendum, and subsequently a successful program.

May 2007, Larry Stanley