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FEATURE: BUDGET: 2018 Revenue Projections by City's financial team are conservative; Do not include new revenues from Memorial Hospital, new hotels

Category: Local Govts & Politics

PHOTO: Day One of Savannah City Council's two-day budget retreat. In the foreground in blue sweater is Alderman-at-Large Brian Foster.

Brian Foster Proposes that GWCC take over Management of Savannah Civic Center

By Lou Phelps, Savannah Business Journal

November 30, 2017 – As the City Council looks at various operating budget options put forth by City Manager Rob Hernandez for 2018 – ways to spend money – Alderman-at-Large Brian Foster, a former banker and head of the Savannah Economic Development Authority, along with Alderman Julian Miller, asked City Manager Rob Hernandez to clarify his revenue projections for 2018. A number of business leaders are weighing in that the approach Hernandez is using for 2018 is tooconservative – that any budget shortfall for 2018, and certainly for 2019, is overstated.

And, because of the shortfalls that Hernandez is predicting, he and Mayor Eddie DeLoach are strongly supporting implementing a new Fire Service Fee. That fee would generate an estimated $31 million in new revenues a year, based on the current number of properties in 2017 within the city limits, if the fee is set at 100% of the proposed rate structure. The rates are based on per square footage of a structure, type of structure - a residential home versus a gas station - and condition of the structure.   

But In 2017, both property taxes and sales taxes came in far higher than had been projected by the city’s financial management staff back in 2016, and are resulting in the city projected to end 2017 with a surplus of at least $3.8 million.  The city also ended up 2016 with a surplus. 

The rate of increase he is using for the growth in the property tax digest in 2018 is only for a 3.5% growth rate, low in the opinion of  business leaders interviewed. 

Further, the revenue Hernandez's team is predicting in the three major revenue line items that are affected by the economy and new construction - property taxes, sales taxes and hotel/motel taxes -  in  2018 do not include any new property tax revenues anticipated by the sale of Memorial Hospital to a private company, set to close within the next four weeks.  Further, the $300 million in new hotels along West River Street that will begin to open and become occupied during 2018 – and will all come onto the property tax rolls – is not included. Occupants at those hotels will generate new hotel/motel taxes and sales taxes, as well. 

Alderman Van Johnson also asked questions about whether Hernandez is considering an approach that might phase in changes, and allow for a mid-year correction if these new revenues do not materialize, versus cutting city employee jobs and freezing wages as of January 1, one of Hernandez’s possible budget balancing scenarios.

The City’s net property tax digest growth rate was 5.5% - actually, 6.5% before exempted property, with continued increases expected in 2018 as the city’s residential and commercial property valuations continue to rebound from the economic downturn, and the general strong, local economy. 

“We hope we’re conservative,” Foster said, as he asked for clarification of the figures being used to develop the 2018 budget. But, he stated that, “2019 will be a very strong year,” when Memorial, the new hotels are completed, and other new projects all come online, but until the revenues are realized, the city can not use them to develop a balanced budget. 

Both Johnson and Alderman Tony Thomas questioned a plan that freezes wages and does not include any salary bump for employees, pointing out that there is almost full-employment of sought-after employees, and "there are many out there ready to hire good employees," said Thomas.  

City Budget Director Melissa Carter explained that the City’s financial team is predicting hotel/motel taxes will be $11.4 million in 2018; $9.9 million was budgeted in 2017, but the actual rate was a 6% increase this year, and another increase of 6% is anticipated in 2018, according to tourism leaders.  Therefore, the question is:  what is the final 2017 revenue going to be, and is the 2018 revenue projection in that line item too low?

Of the hotel/motel taxes collected, the first $850,000 each year goes to the cover the operating costs of the Civic Center, and then 75% goes to the Trade Center Authority, and the remaining 25% goes into the City’s General Fund.  But, when the new Sports Arena and venue is completed, the Civic Center will come down, expected to occur within six to seven years.  Foster said that “obviously, that will have to be renegotiated.” 

The Council was presented with various options to fund the budget by Hernandez in the Thursday afternoon session of the City’s two-day budget retreat, now underway.  The two primary options he was supporting was either increasing property taxes or instituting the fire safety fee, which could generate as much as $31 million if fully implemented.  If the fire fee approach is approved, he predicts the city could reduce the property tax millage rate by 2 mills, to generate the net $12 million in new revenues that he states is his budget shortfall – to fund Hernandez’s preferred budget option.

Conversely, if property taxes were raised, versus instituting a fire fee, a .5 mill increase would raise $2,518,835; a 2 mil increase would raise $10,075,338. Property taxes are a deduction on State and Federal Income Tax returns, but fees are not.

Even with what is termed a 'conservative approach,' and the City holds its current property tax millage rate at 12.48 mills in 2018, Hernandez is projecting the city will receive $11,115,319 in new revenues in 2018, based on the strong local economy.  This is without considering any new property tax revenues, from Memorial or the hotels. But, it will not be enough to cover the budget he seeks.  Detail of the increases in 2018  Revenue Line items over 2017 include:

Property Tax Increase over 2017:             + $ 3,319,254                      

Sales Tax Increase over 2017:                 + $ 3,652,500

Other Taxes Increase over 2017:              + $ 1,003,200    

Licenses and Permits over 2017:               + $    776,750

Parks and Recreation Fees over 2017         + $     19,150

Other Revenues                                        + $   311,629

Grants                                                      + $   162,834

Internal charges                                        + $      34,152

Operating Revenue                                     + $     29.600

Non-Operating Revenue                               + $    237,000

Fund Transfers                                           + $  1,569,250

TOTAL                                                    + $ 11,115,319

A Fire Safety Fee

And, the Council got into a heated debate on how a new Fire Safety Fee will impact many of the city’s low-income residents.  “Once we pass this, how does this affect them?” asked Alderman Van Johnson. “If we pass this, we have no relief for those who are renting.  We are subjecting poor folks to a market situation that we or they do not control,” if landlords raise rents.

The possibility of setting aside a $500,000 fund to help low income home owners who can not pay the fire fee is being looked at by Hernandez, the City Manager responded.   

But there was push back. “It is a reality – I want to talk right now,” insisted Alderwoman Estella Shabazz. “The majority of us here may not think that $15.00 or $20.00 is much, it’s just change to them. But, Alderman Johnson and me are speaking for these people right now,” she stated emphatically.

When Alderman Julian Miller responded to their concerns by saying, “But the low-income people are going to be the ones most affected by cuts in services,” Johnson responded, “Such as what? That they don’t have the grass cut?” he said sarcastically. 

“Whatever it is, they’re going to pass it off to those who rent,” added Alderman Thomas, who said that he had talked to a number of Southside landlords, who said that he thinks renters will be hit by $25 a month and $50 a month increments.

According to the latest figures from the U.S. Census Bureau, 56.4% of all Savannah residents live in rental properties.

Hernandez, and the consulting firm he is using to look at the city’s long-term expense needs and revenue projections, point to the 10% of properties in the city limits that are exempt from property taxes because they are non-profits, including schools, churches, non-profit organizations, government buildings and colleges.

The cost impact to the Savannah-Chatham Public Schools is projected to be approx. $700,000, for example.  

The bill to the Savannah Housing Authority for the Fire Safety Fee will be much higher, but no specific cost was discussed, by Hernandez. 

“We understand that the first year is going to tough,” for institutions, he said, such as for Savannah State University and St. Joseph’s Candler, both of which he has met with recently to discuss the fire free proposal, understanding that their 2018 budgets were set, and the last-minute news of a fire fee was problematic.

He stated that the new fire fee bills would be going out Sept.1, and might be a receivable carrying into 2019 by those institutions.  If that is the case, then how is the City counting on the revenue, Johnson questioned.   

Foster asked those objecting to the Fire Fee if they wanted to increase the millage rate, or cut services?

A Proposal to Outsource Management of the Civic Center

And, in a late afternoon surprise, Alderman-at-Large Foster told the Council that he wants them to consider a proposal to have the management of Savannah Civic Center taken over by the same entity that now manages the Trade Center Authority – the Georgia World Congress Center (GWCC), which is a State of Georgia entity.

“There are significant savings to net to the City, and it would be better managed by this Authority,” he stated, adding that he has prepared a two-page report to be presented Friday morning at the retreat. He projects a minimum of $750,000 to $1 million a year in savings. While the Civic Center is operated in a separate fund from the city’s General Fund, it is losing money and must be subsidized.

“I have never heard so many complaints,” he said. “The place is dirty and cold. We won’t have an arena for another 6 to 10 years.”  He explained that the Georgia World Congress Center would take over maintenance, management of programming, and the staff would become State employees “which has better benefits than they now receive as City of Savannah employees. 

But, Hernandez responded that his understanding was that to do this, the GWCC is looking for an annual commitment to capital costs. The deal will be discussed on Friday. 

New Savannah Police Department impact

The City's total revenues will be $11.4 million less in 2018, without the contribution of Chatham County to a merged Savannah-Chatham metro police department, but the de-merger means that the city will also be cutting 140 total employees off its payroll and benefits programs.  The net savings is $9,8 million in 2018.  Some employees who are moving to the County's new police force will have to be paid out for vacation and sick time, and other retirement costs to the City.  There are also one-time costs that the City must cover to get the new department up and running, including buying a number of new police cars, as Chatham County owned many of the vehicles that SCMPD was using.  The annual borrowing costs on burying the cars will be over $600,000 a year for five years. 

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