By Christopher Smith
Even if the country averts the much-talked about “fiscal cliff,” the local economy could continue to teeter along its own fiscal cliff.
“It’s a terrible time for Dalton,” said Danny Sane, Whitfield County tax commissioner. “It’s very difficult for folks to make payments on their taxes these days. I’m haunted at night by some of the faces I see on people who can’t pay their taxes. It keeps me up.”
The fiscal cliff is a combination of expiring George W. Bush-era tax breaks and cuts in spending that many economists worry will send the country into another recession. The deadline for an agreement is Dec. 31.
Sane believes paying taxes for most county residents became difficult in the last few years because the local economy depended too much on a struggling housing market, signaled by high unemployment, which was 11.3 percent in October in Metro Dalton (Murray and Whitfield counties).
“It’s only going to get harder,” Sane said, regarding the decisions by local government board members to raise property taxes this year.
The Whitfield County Board of Education voted on Sept. 28 to raise the property tax rate from 14.756 mills to 18.756 mills, nearing a 20-mill cap. Separately, the Whitfield County Board of Commissioners voted on Oct. 11 to increase their millage rate from 5.061 mills to 6.061 mills, with the possibility of gradually raising an additional mill next year. The total rate on the Dec. 20 tax bills is 25.017 mills (including a .2 state tax) and applies to bills due on Dec. 20
Understanding what all that means is hard for most people, Sane said.
“What degree did you get in college that talked to you about millage rates,” Sane said. “When have you ever used millage rates in your day-to-day life? Why is that an accepted political term? We need to make it about percentages that people can understand why they’re paying what they’re paying; we need to make our tax system transparent if we’re going to say we’re honest with the average person.”
Each home has a fair market value, which most people are familiar with. It’s the price tag on a home you see in real estate books. Tax assessors use a tax rate — called assessed value — to determine taxes. In most counties, it’s 40 percent of the fair market value. So for a $100,000 home, the assessed value would be $40,000. The assessed value — the $40,000 figure — is the value the millage rate applies to. A mill is $1 for every $1,000 of the assessed value. At $40,000, one mill would be $40. At a millage rate of 25.017, that’s a total of $1,000.68 due five days before Christmas.
But if you change anything in the formula, the final number changes too.
“The City of Dalton is actually an exception because they tax at 100 percent assessed value,” Sane said. “Basically, you’re being taxed at the fair market value. Even if you have a lower millage rate, you pay more because a mill is only as good as the assessed value it’s based off.”
At 100 percent assessed value, a $100,000 property in the city would be assessed at the same price: $100,000. Dalton Public School officials did not raise the millage rate this year, but city property owners will still pay more because they pay county taxes (not county school taxes), increasing their overall millage rate from 15.803 mills to 16.803 mills. The county tax millage rate still applies to 40 percent assessed value so city residents with a $100,000 property pay $1304.64, with $242.42 of the payment going to county tax.
So why the increase?
“We get property tax revenue once a year,” said Eric Beavers, community and media relations specialist for county schools. “We get everything at the end of the calendar year when they (the bills) are due and that has to carry us for 12 months — like gas in a car. That pays for everyone’s salaries, to buy supplies and our daily operations. For example, we had $7.8 million in payroll for November. Now, we only have $5.7 million in our general fund. By the time we get back to December, most of the money is spent so you can see how our cash begins to dry up before the tax bills are due. People talk about a $10 million reserve in our balance and they wonder why we raise our taxes, but that reserve will be less and less each December even after raising taxes. Eventually, it will be gone.”
A budget forecast provided by Ron Hale, chief financial officer for Whitfield County Schools, predicted the system would have spent all of its reserves and gone bankrupt if the tax rate did not increase. That doesn’t mean raising the rate by 4-mills will prevent bankruptcy, he said.
“We have things we know about and we can plan for them,” Hale said. “But we don’t have any reserves for the unknown. We’re buying time at this point. The millage rate ... will keep us in the black till 2014. None of this will carry us into 2015.”
Bankruptcy could happen sooner than that.
“Operating costs always go up every year,” Beavers said. “Then there’s austerity cuts to our funding formula, which began in 2003. It shot up in 2008 to around $10 million in cuts. And that’s just locally.”
The funding formula — called Quality-Based Education (QBE) — puts a price on every student based on their needs. According to the formula, each Whitfield County student costs $4,261. With a student body of 13,278 kids, school system officials receive $56.5 million in state funding. That’s not enough to cover the $97.7 million budget the school system updates and approves each June. It’s also why taxes went up, said school officials.
“It boils down to who has the money,” said Rep. Tom Dickson, R-Cohutta, who works on the state education committee and is a former educator and Whitfield County Schools superintendent. “The assumption is that the state simply needs to return the funding to the funding formula. People assume the state has money to do that. The austerity cuts are not just in education, it’s in everything. We have a constitutional mandate to pass a balanced budget. Education is about 50 percent of that budget, so some of the cuts have to come out of education when we don’t have enough money for everyone.”
It would take “the nation getting back on track” to restore the funding formula, Dickson said.
“For Whitfield County schools, things are worse than most other systems,” he added. “The drop in property value reduces your tax intake, but also the freeport exemption (the decision by county commissioners to eliminate all inventory tax for businesses in an effort to bring in new companies). That took several millions of dollars out of the county school system. So the county school says, ‘Do we raise taxes or make cuts?’ I don’t think they had much they could reduce. The increased on the millage rate will get them through the next few years.”
But that’s only if there are no additional cuts, Dickson said.
“If there are reductions from federal funding (from the fiscal cliff) and we face drastic cuts, some of that has to come out of education,” Dickson said. “Murray County went to a shortened number of days — longer days, but fewer days. Other systems have gone to four-day weeks, elongating the days to make up the difference. Class size is also a part of that. If you look around, that’s everywhere. State patrol is short of people, the state Department of Transportation is on limited funds, medical costs continue to rise with lower revenues, there’s extra pressure on state workers, and property tax goes up to keep things running.”
The increasing rate is why so many people get an escrow account, Sane said. Escrow accounts let owners pay their lender a higher mortgage every month instead of a one-time payment at the end of the year. The lender puts the extra money in the escrow account, using it to pay the bill when it’s due.
“The bad thing about escrow accounts — which covers 80 percent of the county — is that they’re set up at the beginning of the year, based on last year’s tax rate,” Sane said. “With a 4-mill increase in October, you’re escrow is going to be significantly shorter than the payment due in December. So either you have to write a check to make up for the loss or let the shortfall roll into next year.”
If an owner doesn’t pay what the escrow account doesn’t cover, monthly payments get a “double-whammy,” he said.
“The monthly mortgage payments will get bumped up twice,” Sane said. “Once, to make up for the unexpected shortfall of your escrow account, and again to adjust to the higher tax rate for 2013. My escrow account is about $1,600, but now it has to cover $2,000 in taxes this year and adjust to the $2,000 next year. I will be already be short $400 and I can’t just pay that right away, which means my monthly mortgage payment — including the escrow — will be $66 more a month. With increases in food and gas prices, a jump like this can be enough to put a lot of people in the red.”
There are options, Sane said.
“In the county, if you’re 65 years or older and you only make a total income of $35,000 or less — including the income of your spouse — you can get $87,500 off your assessed value tax for the school tax. If your assessed value is less than that, you will pay no school taxes, but you still have to pay the other taxes. In the city, you only get $75,000 off and that’s because that applies to both the county school tax and the city government tax.”
The benefit goes up for individuals who are 70-years-old or older.
“At that age, the number goes up to $150,000 and there is no income limit,” Sane said. “Again, in the county that applies just to county school tax. If you live in the city, that applies to both the county school tax and the city government tax.”
There is also an exemption for individuals under 65.
“Homestead exemption is when you own the land and the house and you live there as a primary resident,” Sane says. “You can get $20,000 off the assessed value, which only applies to county school taxes. That can help a lot of folks. We have about 4,800 on exemptions right now.”
Exemptions won’t apply to everyone, Sane said.
For most people, they’ll have to wait to see what happens with the state and local economy.
“People I know in state government are working everyday in Atlanta to try and come up with alternatives,” Dickson said. “We are looking for ways to increase revenues without increasing taxes, because we don’t think that’s the answer. The answer is for the House, the Senate and President Obama to learn to compromise and make decisions instead of arguing about things. Of course, if we go over the fiscal cliff and it throws us into a recession, it will affect us all and impact state revenue. State revenues will go down, costs will go up and we will have heavy unemployment.”
All property tax statements are public record and can be accessed at whitfieldcountytax.com