,-G~ ; ,S I , FS-:D'j ' I Georgia Local Government Finances, 1982 An Overview . . : / / Georgia Local . Government Finances, -1982- An Overview 1/ Received MAY 3 0 1983 DOCUMENTS UGA LIBRARI ES 0- ) C: . Prepared by: Georgia Department of Community Affairs 40 Marietta Street, N.W. Atlanta, Georgia 30303 Jim Higdon, Commissioner INTRODUCTION The decade of the 1970's was a time of fiscal uncertainty and financial crisis for many local governments in our country. The Georgia General Assembly, reacting to financial situations that shook cities such as New York and Cleveland, and which impacted the states in which those cities were located, decided to take some positive action. In 1980, Act 1405 became law in Georgia and mandated every local government to meet certain minimum financial management standards. An additional feature of the Act was a requirement for the Department of Community Affairs to produce an annual report on the state of finances in Georgia's cities and counties. The Department and Georgia's local governments have had just over a year to comply with the requirements of Act 1405. This first report stands as a representation of the overall financial picture of Georgia's local governments. The report is by no means exhaustive or completely descriptive of the condition of city and county finances. In a real sense, just as many local governments are beginning to understand the impact that Act 1405's new financial management standards are having on tracking their operations, so state government is discovering the areas where local governments need financial management technical assistance. While this first year's report raises more questions than it answers, it does provide a starting point in examining the condition of local government finances. 2 The purpose of this report is not to cover every aspect of local government finance. It is a first attempt to understand the various components of city and county revenues, expenditures, and debt. The process of compiling the information for this report and analyzing the collected data has been a learning experience for the Department of Community Affairs. The intent of this report is to provide as much descriptive information about local government finances as possible, in order to establish a base which can be used to measure trends in subsequent years. In addition to reviewing this base data, the report will identify some emerging issues in local government finance. To collect the 1982 data, a multi-purpose form was developed which captured the base data necessary for reporting on local government finances in Georgia. The form also provided some of the necessary input data for the Federal Office of Revenue Sharing to allocate Revenue Sharing funds to these same local governments. Since there is no standard bookkeeping format mandated for local government use in Georgia, the questionnaire had to be flexible enough to adapt to several different accounting methods. It is important to bear in mind that the information that DCA received is unaudited. It was compiled by local governments in order to satisfy the provisions of Act 1405 as well as the requirements for receiving Revenue Sharing funds. The assumption which DCA made was that the information provided was complete, accurate, and that appropriate adjustments had been made for differences in local accounting procedures. The Department of Community Affairs provided a survey form to every local government in Georgia. The percentage of return was excellent. All of Georgia's 159 counties completed and returned the surveys, including Muscogee County which is included in the city tabulations because of its consolidated government arrangement with the City of Columbus. Of Georgia's 533 cities, 519 returned the survey form , and 500 of those forms were suitable for use in the analysis. This means that 100 percent of all counties and nearly 94 percent of all cities are represented in this report. After the survey forms had been returned , the information was tabulated and compiled. The data were divided first into city and county categories,and then by population within each category. Revenues , expenditures, and debt were the three major areas of analysis, and the data were compiled to report both the magnitude of dollars in each area, as well as some unique characteristics in each of these categories. Population stratification was used to develop a clearer picture of finances in Georgia's com munities, since over 44 percent of total revenues for all city governments were generated in those five cities with over 50,000 population, and similarly, over 59 percent of total county revenues were concentrated in those nine counties with a population of over 100,000. Additional tabulated informat ion is available in a companion volume to this report, GEORGIA LOCAL GOVERNMENT FINANCES, 1982: A STATISTICAL SUMMARY. Other pertinent information is maintained in a data base by the staff of the Department of Community Affairs. This overview report is designed to provide both a general picture of city and county finances, and a look at the emerging issues in local government finance . Although it is too early to point to any definitive trends in local government finance , since the period of this report covers only one year's time, it is not too early to use this base data to delineate those areas which will need further exploration and analys is in future years. Conclusions are difficult to draw after just one year , but this report is a beginning in the process of more clearly understanding the relative health and financial operations of Georgia's cities and counties. Many of the lessons that were learned this year will be applied to the formu lation of the questionnaire and the report for 1983. The lessons learned in developing this report, as well as comments received on the report, will be important ingredients in the next report on local government finances. While financial report ing is not a new endeavor for many local governments, an overall analysis of the financial condition of Georgia's cities and counties is a new venture which will be fine-tuned to meet the needs of policy makers and local government officials for the future. 3 MUNICIPAL FINANCES The five hundred Georgia cities surveyed range in size from under 100 residents to the City of Atlanta with a population of over 425,000. Of the results generated by the survey, most important are the characteristics of municipal revenue, types of revenue sources, expenditures, and debt financing. In general, Georgia cities rely upon four basic revenue sources for day-to-day operations of municipal government - property taxes, excise, sales and special use taxes, service charges and intergovernmental transfers. These four sources account for over 88 percent of all municipal revenues, the balance being generated through investment of funds , fees for licenses and permits, fines and forfeitures, and miscellaneo.us revenues. All of these sources of revenue generated approximately $1.492 billion for these Georgia cities. The leading revenue source for municipalities is service charges. Revenues are produced through service charges such as water and sewer, electricity, natural gas and garbage collection. Over 85 percent of revenues generated from service charges came from the four services listed above. Service charges represent a substantial portion of municipal income ' - contributing over 46 percent to the total revenues. Intergovernmental transfers represent nearly 15 percent of municipal revenue. Most of these funds come from the Federal government through programs such as the Community Development Block Grant program, General Revenue Sharing, and the Comprehensive Employment Training Act. Specifically, app roximately 79 percent of intergovernmental revenues come from the Federal government, 16 percent from various State programs, and the remaining 5 percent is received from other units of local government. Property taxes provide about 13 percent of city revenues with real and personal property taxes generating 90 percent of the revenues from this source. The use of excise, sales and special use taxes varies widely throughout the State because most are of the " local option" type. However, revenues received from the local option sales tax, alcoholic beverage tax, franchise payment fees, insurance premium taxes, and others represent over 14 percent of municipal revenues. MUNICIPAL REVENUES FROM ALL SOURCES (Percent of Total) Servic e Cha rge s Garbage & Trash (2.9 %) A(1ll.3o5t%he)r t===========-~~ Fines and Forfeitu res (1.64%) Use of money and property (5.67%) The remaining municipal revenues are generated through the investment of funds and use of property accounting for 6 percent, licenses and permits totalling 3 percent, fines and forfeitures - 2 percent, and miscellaneous revenues - the remaining 1 percent. It is apparent that cities rely most heavily on income generated from the provision of services, local taxes - both property and excise, sales and special use as well as intergovernmental transfers from both the State and Federal government. 4 As Georgia cities received approximately $1.492 bill ion in revenues, they expended over $1.380 billion for the operation of municipal government in all areas other than debt retirement. Approximately 67 percent of mun icipal expenditures were in three top areas - public works at 28 percent; electric and gas utilities at 21 percent ; and pub lic safety and corrections at 18 percent. Administration, transportation, leisure ser.vices, health and human services, and education account for the remaining 33 percent of municipal expenditures. This concentration of municipal expenditures into three top categories reflects the cities ' revenue characteristics. Service charges represented over 46 percent of total revenue while expenditures for services such as water, sewer, garbage, electricity, and gas - total 49 percent of municipal expenditures. MUNICIPAL EXPENDITURES BY CATEGORY (Percent of Total) Trans portal ion (5.5 1% ) Hou sing and Commun it y Devel opm ent (4.18 %) Ad min istrat io n (6.58 % ) Leis ure Servic es (4.9 1%) Health and Human Services , Ed ucati on, Courts (2.89 %) MUNICIPAL EXPENDITURES BY POPULATION GROUP (Percent of Total) E (4.67%) F (2.14 %) Group A B C D E F Cities 50,000 and over 25,000 . 49 ,999 10,000 . 24,999 2,500 9,999 1,000 2,499 Under 1,000 Municipal debt, both short-term - less than one year obligations and long-term - revenue or general obligation bonds, is a significant factor in municipal finance. During this reporting period , Georgia's cities had approximately $1.541 billion in outstanding debt. The largest single category of debt is from revenue bonds issued for the construction of water and sewer systems. General obligat ion bonds and short-term debt to serve a variety of purposes account for almost 62 percent of municipal debt. Industrial Revenue Bonds and bonds issued for improvements to local gas or electric systems comprise only 3 percent of the total outstanding debt. Municipal debt activity during the period saw total obligation grow by approximately $31 million. In this period $75 million of new debt was issued as $44 mlil ton of old debt was reti red. 5 COUNTY REVENUES FROM ALL SOURCES (Percent of Total) All other Revenu es (3.74%) Fines and For fe itures (4.93 %) Use of Mone y and Property (3.75% ) COUNTY FINANCES The 158 counties included in the survey reported total revenues of $1.333 billion. Like cities, counties generated most of their revenue from four sources - property taxes, excise, sales and special use taxes , intergovernmental transfers, and service charges. These sources accounted for over 86 percent of all county revenues. The remaining 14 percent was generated through fines and forfeitures, investment of funds, fees from licenses and permits, and miscellaneous revenues. Property taxes alone accounted for 37 percent of county income with real and personal property taxes generating over 80 percent of the revenue from this source. Excise, sales and special use taxes comprised nearly 17 percent of county revenues. The local option sales tax is the most significant excise, sales and special use tax revenue source, accounting for almost 87 percent of all revenues from this source. Combined with the alcoholic beverage tax, they comprise 97 percent of revenues received from the tax area. Intergovernmental transfers represent a significant portion of county finances. In fact, approximately 22 percent of county reveune comes from the Federal or State government or through transfers from other units of local government. Unlike cities which receive the majority of their intergovernmental transfers from the Federal government, count ies receive 56 percent of their intergovernmental transfers from the State of Georg ia. Forty-two percent of county intergovernmental revenue comes from the Federal government with the remaining 2 percent transferred from other units of local government. Most of the intergovernmental revenues are physical and mental health grants, State road and bridges grants, and General Revenue Sharing funds. Property Taxes (37.00 %) licenses and Perm its (1.47 % ) Counties receive about 11 percent of their revenue from service charges. Despite a wide variety of service charges levied by Georgia's counties, a few account for most of the revenue. The combination of water and sewer system user fees, garbage and trash collection charges, and hospital fees account for over 82 percent of all service charge revenue. In general, counties rely most heavily on local taxes to finance the wide variety of operation of county government. The combination of property and non-property taxes contribute nearly 54 percent of total county revenues . While the 158 counties received $1.333 billion from the revenue sources described above, they expended nearly $1.217 billion in all areas other than debt retirement. County expenditures are evenly distributed in five major categories with no one line item dominating county expenditures. However, the five categories of transportation , health and human services, public safety and correct ions, public works, and county administration constitute approximately 84 percent of total county expenditures. Courts , leisure services, housing and community development activities, electric and gas utilities and other expenditures account 6 for the remaining 16 percent of county expenditures. the even and varied categories of county expenditure reflects the functions performed by county governments in Georgia. Georgia's counties had approximately $822 million in outstanding debt. This debt was incurred for two major purposes - water systems and industrial development improvements. These two categories accounted for 90 percent of all outstanding county debt. The commitment of Georgia's counties to industrial and economic development is apparent in the fact that approximately 52 percent of all reported county debt is Industrial Revenue Bonds. For the period covered, county debt grew by approximately $35.4 million. Counties retired $28.9 million in old debt but incurred $64.3 million in new debt. Over 64 percent of the new debt incurred in this period was for Industrial Revenue Bonds. Counties reported over $41 million issued for this purpose. The survey indicates that larger counties tend to incur debt through general obligation and revenue bond avenues while smaller counties lean more to the use of shortterm debt to finance their operations. COUNTY EXPENDITURES BY CATEGORIES (Percent of Total) COUNTY EXPENDITURES BY POPULATION GROUP (Percent of Total) Group A B C D E Counties 100,000 and over 50,000 . 99,999 25,000 . 49,999 10,000 . 24,999 Under 10.000 Leisure Services, Hou sing and Comm unity Devel o p m en t, Electric and Gas Utili ties (3.77 %) 7 While the levels of gross revenue were fairly evenly split between cities and counties, the sources of those revenues were quite different. For municipalities, service charges were far and away the leading source of revenue , accounting for approximately 46 percent of the total. This figure is somewhat distorted by the fact that it in- COMPARISONS BETWEEN cludes revenues from municipal electric and natural gas services and particularly airport CITY AND COUNTY FINANCES charges, most of which accrue to the City of Atlanta. Obviously, many cities do not collect these service charges. Nevertheless, even without One revealing fact in this study of local government finances is the great difference between cities and counties when it comes to revenues, expenditures and debt. While cities and counties were fairly equally matched in their share of total these major service charge revenues, Georgia municipalities derive almost 19 percent of their revenues from service charges, just ahead of the second leading source of revenues - intergovernmental revenues at just over 14 percent. revenues and expenditures in the state, the nature of those revenues and expenditures is widely diverse. These two distinct types of local government are very different when it comes to finances. Total revenues for Georgia's cities and counties were $2.8 billion. Counties received $1.3 With property tax the leading county revenue source by a wide margin , accounting for 37 percent of all county revenues and intergovernmental transfers, the second largest source at almost 22 percent, the major differences between cities and counties in terms of revenue sources may be clearly seen. While cities get 46 percent of their billion or just over 47 percent of these revenues, while cities took in $1.5 billion , or almost 53 per- money from service charges, counties derive just over 10 percent from this source, ranking fourth cent. Similarly, total city and county expenditures among revenue resources. Property tax is the big- were $2.6 billion of which almost 47 percent were gest source of county revenue at 37 percent while county expenditures, and just over 53 percent were city expenditures. In both instances, there was more total revenue than expenditure; $111 million for counties and $117 million for cities. cities get just under 13 percent of their total revenues from these taxes. In the areas of intergovernmental revenues and non-property taxes, cities and counties are strikingly close - Despite the rather even split of revenues and expenditures, municipal debt outstanding at the end of the fiscal year ($1.5 billion) was almost twice that of county debt ($800 million). around 14 percent for cities and counties in intergovernmental revenues and non-property taxes at almost 22 percent for cities and almost 17 percent for counties. On a per capita basis, the contrast between city and county finances comes into sharper focus. Cities raised more than twice the amount of counties per capita, $617.34 to $252.53. Expenditures held the same pattern, with cities outspending Expenditure patterns are even more diverse than revenue patterns. Almost half of municipal expenses are devoted to public works or electric and gas utilities. County expenditures are not so dominated by individual categories. Transportation is the leading county expenditure at over 22 counties $571.32 to $230.40. The disparity between municipal and county per capita debt is percent, followed by health and human services at over 18 percent, public safety and corrections even more dramatic. Cities have four times the per at almost 17 percent, and public works at approx- capita outstanding debt of counties, $637.71 to $155.70. imately 15 percent. In both cities and counties, public safety is the third leading.category with the 8 percentage of expenditure c lose for the two. Counties appear to spend a greater proportion of their funds on administration - 11.6 percent as opposed to 6.6 percent for cities. The fact is that bookkeeping differences may account for this divergence, since cities have a much larger category of "other" expenditures which inc lude items that may be administrative in nature. SOME ITEMS OF FISCAL INTEREST This section highlights some specific comparisons between cities and counties that point up the particular contrasts in revenues, expenditures and debt. Property Tax Counties get almost $500 million from property taxes as opposed to under $100 million for cities. While property tax is the lead ing county revenue source, it ranks fourth in importance for municipalities. Looking at this on a per capita basis however, cities and counties are much closer together with the per capita property tax being $93.44 for counties and $78.58 for c ities. In both counties and cities real and personal property taxes are the major sources in th is revenue category. Service Charge Revenues Municipalities receive almost $700 million from service charges, by far the lead ing source of city revenues. This figure is almost five times greater than that received by counties in service charges, and ten times greater on a per capita basis. Less than 20 percent of all cities operate electric and gas systems, yet this accounts for almost half of the service charge revenues for all municipalities - thus distorting the dependency and relative value of such service charge revenues to mun icipalities taken as a whole. In the case of both cities and counties, the leading source of service charge revenues are water and sewer systems. Local Option Sales Tax The total revenues, for both cities and counties, generated by local option sales tax was almost $274 million of which counties received 71 percent. The formulas for the distribution of sales tax revenues between cities and counties in those areas where there is a tax imposed in the county accounts for the close per capita revenues for all parties. Cities receive $32.98 per capita and counties receive $36.79 per capita from this revenue source. Even with this in mind, counties are much more dependent upon this revenue source, deriving 15 percent of total revenue from sales tax , while mun icipal it ies derive only 5 percent of their total revenues from this source. Alcoholic Beverage Tax No local governments depend heavily upon alcoho lic beverage taxes for a large port ion of local revenues. Cities and counties received a total of $69 million dollars from this source, with $47 million of that going to municipalities. Per capita, cities took in $19, while counties received just over $4. Alcoholic beverage taxes were 3 percent of municipal revenues and 1.7% of county revenues. 9 Excise, Sales and Special Use Taxes Excise, sales, and special use taxes, which include all local taxes other than the several types of property tax are, in part, broken out above in the discussion of local option sales tax and alcoholic beverage tax. However,it is helpful to take a look at the aggregate excise, sales and special use taxes to see some differences between cities and counties. Overall, combined city and county excise , sales and special use taxes totalled $441 million, significantly below the combined total of property taxes at $683 million. For cities, however, excise, sales and special use taxes were a greater revenue source than property taxes, $217 million to $190 million. While the percentages of total revenues derived from exc ise, sales and special use taxes were close for cities and counties-14.5 percent and 16.8 percent respectively, per capita excise, sales and special use tax revenues were twice as high for cities, at $90 than for counties at $42. Intergovernmental Revenues Of the $509 million in intergovernmental revenues for cities and counties combined, Federal funds constituted $294 million or 58 percent. Municipalities were far more dependent upon Federal funds than counties. Cities received $174 million from Feder'al sources, equivalent to $72 per capita-almost four out of every five intergovernmental dollar. State government added another $34 million or 15.6 percent to city income in this category. Counties received more from the State than the Federal government - $163 million or 53 percent of the total county intergovernmental revenue as opposed to $120 million from Federal sources. While cities received $53 million more than counties from the Federal government, counties got almost five times as much from the State than did cities-$163 million as compared to $34 million. Public Works Expenditures Use of Money and Property Revenue Income from the use of money and property totalled $135 million for counties and municipalities combined . In this area, cities were well ahead of counties, bringing in $85 million of the total. The big item here was interest on investments, compris ing 90 percent of the revenues in this category. Of the $125 million earned in income , cities made $33 per capita while counties made $9 per capita. This was the source of almost 6 percent of total municipal revenues and about 4 percent of county revenues. The largest single combined expenditure category for cities and counties was public works, totalling $571 million . As the largest single municipal expenditure category at $390 million or 28 percent of total city expenditures, it also comprises $181 million or 15 percent of total expenditures for counties. In terms of per capita spending, public works costs were much higher in cit ies at $161 compared to county expenditures of $34 per capita. Transportation Expenditures Local and Non-Local Revenues Third in combined city and county expen ditures, transportation costs were the leading county expenditure item, almost $200 million All city and county revenues are either locally more than for cities. Counties spent $272 million generated or come from non-local, intergovern- while cities spent $73 million on transportation mental, sources. Locally derived funds comprised related items. Those figures are distorted by the 85 percent of city revenues and 78 percent of fact that more than one half of the city transporta- county funds. Non-local contributions combined tion expenditures were made by the City of Atlan- for a total of $509 million to Georgia's cities and ta for Hartsfield International Airport. Transit counties. On a per capita basis, cities derived systems operated by authorities were not includ- $526 from local sources compared to counties ed in this report as an expenditure by a city or $198. Municipalities also fared better from non- county government. Looking at the percentages local sources , receiving $91 per capita as oppos- - transportation was 22% of county expen - ed to $55 for counties. ditures and 5% of city spending . 10 Public Safety and Corrections Expenditures Combined expenditures by cities and counties on public safety and corrections were the second leading cost item, although they were third for both groups individually. Total expenditures of $454 million were split with $250 million spent by cities and $203 million spent by counties. The per capita figures reveal a somewhat greater contrast with cities spending $104 per capita and counties spending only $34. Health and Human Services Expenditures In the area of health and human services, counties far outspent municipalities. The combined spend ing was $251 million, of which 90 percent or $225 million was county expenditure. Sim ilarly, on a per capita basis, counties spent four t imes as much as cities, $43 to $11. Health and human services expenditures made up 18 percent of total county expenditures and 2 percent of total city expenditures. Courts Expenditures County spending on courts far exceeded city spending, $70 million to $5 million. In per cap ita spending the figures were $13 for counties and $2 for municipalities. In relation to other local government expenditures, courts accounted for almost 6 percent of total county expenditures and less than 1 percent of city spending. Housing and Community Development Of the almost $63 million spent by local governments on housing and community development, cities far outspent counties by $58 mill ion to $5 million. Although this item was not a large share of total spending for c ities or counties, per capita expenditures are revealing with cities spending $24 and counties less than $1. Leisure Services Expenditures With comb ined expend itures amounting to $108 million, cities spent $68 million in this area while counties spent $40 million. In per capita spending, cities outspent counties nearly four to one, with $28 per citizen as opposed to less than $8. Leisure services were 5 percent of all municipal spending and 3 percent of county spending . Electric and Gas Utility Expenditure The city and county combined expenditure of $293 mill ion was almost entirely spent by municipalities - and primarily by those operating these utilities. In this area, the contrast between cities and counties is most identifiable, w ith this item being 20 percent of total city spending , and less than 1/10 of 1 percent of county expenditures. Administrative Expenditures The area of administrative expenditure is a difficult category to analyze. Data indicates that a total of $232 million was spent by counties and cities, with $141 mi llion of that being county expenditure. In terms of percentage, 12 percent of county expenditures and nearly 7 percent of city expenditures were for administration . It must be kept in mind that a large number of the cities reporting spending in the category of " Ot her" could be legitimate administrative expenditures. Per capita expenditures for administration were $38 for cities and $27 for counties. 11 COUNTY DEBT OUTSTANDING AT END OF FISCAL YEAR (Percent of Total) County and Municipal Debt The c it ies and co unt ies of Geo rgia report deb t tot alling $2,363 bill ion at the end of the f iscal .year, of wh ic h 65 percent or $1.541 billion was at tributed to municipali ties. Looking at t hi s information on a per capita basis, cities had four times as much debt per citizen at $638 to $156 for count ies. MUNICIPAL DEBT OUTSTANDING, END OF FISCAL YEAR (Percent of Total) Electric Sy s t em (0 .19 '10) Other Purposes (6 1.67'10) Water/Sewer System (35.43 '10) Indust rial Revenu e Bonds (51 .95 '10) Gas System (0.73 '10 ) Indust rial Revenue Bonds (1.98 '10) 12 Water and Sewer Bonds Water and sewer system debt was the largest single category for cities and counties combined at $863 million or 37 percent of all local government debt. This was the second leading category for cities and counties considered individually. Once again , per cap ita analysis shows that city water and sewer debt was four times larger, per citizen than that of counties, with $226 per person as opposed to $60 in the counties. Industrial Revenue Bonds The combined city and county totals for Industrial Revenue Bonds are $458 million, with counties having over 93% or $427 million of this figure. These Industrial Revenue Bonds were the leading debt category for counties, being 52 percent of all county debt as opposed to just 2 percent for municipalities. These Industrial Revenue Bonds are issued by city or county development authorities and not by units of local government. A further discussion of Industrial Revenue Bond indebtedness ls, contained in the last section of this report. Debt by Type-Percentage of Localities Reporting There are three major forms of debt-revenue, general obligation and short term. Only 158 cities or 32 percent reported having general obligation debt at the end of the year. A slightly larger percentage of counties, 39 percent or 62 counties had general obligation debt. The revenue debt picture was significantly different with 313 cities or 63 percent reporting this debt. On the county side, only 50 counties or 32 percent reported having revenue debt. Short term debt was reported by 21 percent of all cities, a total of 103 and 31 percent in all. Other Debt Outstanding There is a large category of "other" debt which accounted for $1 billion total debt for cities and counties, or 44 percent of all local government debt. This category consists primarily of general obligation bonds and short term debt which is so diverse in nature that it is a part of this "other" category. The nature of general obligation bonds and the variety of uses of this bonded indebtedness makes it difficult to separate with the present diversity of accounting methods. It is apparent that this type of indebtedness was much more important for cities, comprising 62 percent or $950 million dollars and $393 per capita, than in counties where it was only 10 percent of total debt and accounted for $78 million or $15 per citizen. 13 EMERGING ISSUES FOR LOCAL GOVERNMENT FINANCES Difficulties in examining local government finances It has been noted earl ier in t his study that local government f inances are difficu lt to analyze. One analytical lim itation is that imposed by available data and how it is reported . The material wh ich was used in the preparation of th is report was received unaudited from local officials. It reflected their attempts to provide data in an accounting mode that was not necessarily consistent with their normal record-keeping procedures. This resulted in a potential distortion of data which would be most evident in the entry of revenues and expenditures into certain line items used in the DCA survey form. It is difficul t, if not impossible under the present system of diverse local government accounting practices to isolate, for example, administrative expenses since some cities and count ies might report this as one item , while other governments may report their administrative expenses as a part of many different line items. The alternative would be to mandate standardized account ing procedures and a standard chart of accounts for local governments and to require an annual audit. Data for this repo rt could then be drawn from such standardized audit information. This , in turn , might be a much more accurate reflection of city and county financial conditions. By imposing such mandates, however, the state would be removing a degree of autonomy from local operations. The issue is simply one of relative merit - is the difficulty and cost of developing, maintaining, and enforc ing standardized procedures and charts of accounts worth the acquisit ion of informati on at the loss of local autonomy? Difference in city and county finances This report takes special note of the differences which exist between city and county governments in terms of their rationale, priorities and operations. Simply put, cities and counties historically have served separate and distinct purposes in the intergovernmental system , and this exam ination of their patterns of revenue, expenditure and debt reflect those differences. It is almost impossible to talk about "local government" finances at all since there is so much divergence between city and county government financial operations. The finances of cities and counties reflect their inherent differences and raise important questions for policy-makers. Cities and counties shou ld not be treated as identical entities when it comes to po licy decisions related to finances . Their differences almost demand that they be considered in separate ways because of diverse sources of revenue , as well as patterns of expenditure. Revenue and expenditure related to education Educat ion is a major local expenditure, but it is not extens ively covered in this report. The reason is simply that the taxing and spending responsibilities for education in most localit ies lie with a separately constituted body - a school board. The monies raised and spent, as well as some school bonded indebtedness, are not a part of the financial management responsibility of the local government, although education is a factor in the overall operation of the city and county and the qua lity of life for local citizens. Autonomous school boards, which are the most common policy-making bodies on the local level, are generally separately elected and their activities are reported and tracked by other agencies of state government. Since this education item is an important ingredient in local patterns of taxation , expenditure and debt, it is still important to consider education finances as a part of the overall picture of local government f inances, even though it is beyond the purview of this particu lar report. 14 Georgia's smallest cities The information contained in this 1982 report generally indicates that Georgia's smallest cities , those with a populat ion of under 2500, operate with the smallest " margin of error. " In looking at the patterns of expenditure in relation to revenues, these cities are " closest to the edge" of consistant deficit operations. It shou ld be fairly apparent that the size of the tax base and the limited number of revenue sources dictate the continuously precarious nature of some of these smaller Georgia cities . Assistance to these communities from intergovernmental sources, even in small increments, is often the difference between a year of deficits, or a year of mak ing the necessary financial progress. The financial base is smaller in these communities, but often the demand or at least expectation for services is as high as in larger communities. A sewer system , for example, has certain fixed costs for construction and operation that will not change radically with the number of individuals served. Such a facility which can be efficiently operated by a medium-sized communi ty, may not be able to be operated by a small city, even though the environmental need may be present. The financial viability of some of Georg ia's smallest communities needs to be tracked and studied in more depth. Even though their " bailout" would never be that expensive a proposition , the number of relatively fragile small cities needs to be considered. Industrial Revenue Bond Indebtedness The largest area of county indebtedness is Industrial Revenue Bonds issued through local development authorities. This debt needs to be examined in some detail. First, it is important to note that many of the state's development authorities are joint city/county ventures. For our reporting purposes, they have all been included in the county figures, and only exclusively city development authorities are reported with municipal finances. The magnitude of the debt, $458 million, is an indicator that there is a strong commitment on the part of Georgia's local governments to economic and indust rial development. That much can clearly be seen from the indebtedness figure . The deceptive fact comes in the nature or quality of this debt. Indebtedness for Industrial Revenue Bonds are not a direct debt obligat ion for local governments, since their responsibilities for the repayment are never pr imary, or even secondary. The local government serves as an enabling party to provide certain tax advantages in the f inancial packaging for business and financial institutions. The existence of this debt, and the lack of responsibi lity for debt service should not negatively affect the li abili t y structures in local government in the same way that other forms of long term and bonded indebtedness may affect local revenue needs. It would be misleading to consider this debt in the same way that other long and short term debt is evaluated , in relation to the financial health of any commun ity. More informat ion will be needed in the future to adequately understand the issues related to the retirement of this Industrial Revenue bonded indebtedness. It should not be factored into the local financial picture in the same way as other debt is considered. CONCLUSION Local government finance is a complex and involved subject wh ich has an impact on all of Georgia citizens as well as on the operat ion of the state as a whole. The commitment to understanding the nature and relative financial health of Georgia's cities and counties is an important one. This study is a first step in the process of understanding local government finances in order to adequately plan for our state's fut ure. Over the next few years, the trends in local government will be more clearly defined and more readily accessible to policy makers. By careful planning and adequate monitoring, Georgia's leaders will be able to continue to support and protect the interests of local governments in our state. 15 16 \\~N:\fr'ffF\fnr'\\rlnU\\\ 3 2108 05732 644 2 r. - - ~ ...... -, 1- - .. -~7- DATE DUE V L f ~,v l / ....v J t:'u v I DEMeo 38-297