How Much is Cityhood Really Going to Cost?

As we close in on the cityhood election (just over four weeks away) an increasing amount of attention by the anti-city crowd has been directed toward the potential increase in taxes residents may face if the cityhood initiative is approved.

Opposition to the city has coalesced around an organization known as the Peachtree Corners Ballot Committee.  They have their own website in addition to a Facebook page.  Many of their supporters have already been using their comments on other articles to post the links to these pages so I’ll leave any additional advertising/marketing efforts to their supporters. 

If you visit the Ballot Committee’s (BC from here on out) website you see the following argument being made:

In order to fund the new city, there will be a 1 mil property tax increase ( $120/ yr on a $300,000 home). There will also be a 1 mil increase in the ad valorem tax on your automobiles, motorcycles, RVs, boats, etc. Additionally, the city will collect franchise fees on utilities such as telephone, natural gas, cable tv and electricity. Some of these fees are already being paid on a county level and will be redirected to the new city. The franchise fee on electricity will increase nearly 2%.  The economic feasibility study (go to the Resource Center to read it) commissioned by , anticipates residents will pay approximately $30 per capita in franchise fees. A family of five, living in a $300,000 house and owning three relatively new cars could expect to pay an additional $300-$400 per year or more in property taxes, ad valorem taxes and franchise fees.

I thought it would be beneficial to actually break down the BC’s financial analysis and see how it holds up the proverbial sniff test. 

Property Tax (House) – the BC uses a $300k house for their test case which I agree with because most sources I have spoken seem to think the average home in the proposed city borders would be about $300k.  The 1.0 millage rate addition would indeed generate about $120 in additional tax on a $300k house.  So that part passes the sniff test.  For now let’s just assume that someone with a $300k house would actually end up paying the maximum 1.0 mil rate which would cost the homeowner $120.  That being said let’s keep in mind that the MAXIMUM allowed tax increase is 1.0 mils.  There is no guarantee the city will need that much in taxes.  In fact if you visit the feasibility study http://www.upcca.com/item_list.asp?subcat=18&subtitle=Feasibility+Study references in their analysis you will see on the very first page that the estimated revenues are about $3.0M against expected expenses of less than $0.8M.  Further study indicates that the expected revenue comes from two sources – property tax of about $2.0M and franchise fees of about $1.0M.  Keep these numbers handy as we will explore them further very shortly.

Franchise Fees – The BC’s financial analysis assumes a household of five people.  You may be asking yourself what the number of people in a house has to do with increased taxes since taxes are not assessed based on number of people in a household.  What the BC is doing is taking the estimated franchise fee revenue per person from the feasibility study (about $30 per person) and then applying that number times  the number of people in the house.  So five people x $30 would equal $150.  Now, the only problem with this is that the vast bulk of the franchise fees ARE ALREADY BEING PAID by the homeowner.  It appears that the only NEW franchise fees would be a 2% increase in fees on electric bills.  So, for a 3000 sq. ft. house an average power bill might be $2000.  This fee would end up costing about $40 extra a year.  So, instead the proposed $150 in new franchise fees that the BC’s financial analysis claims the reality is closer to $40. 

Ad Valorem Tax – this is the equivalent of a property tax on your car/boat/RV, etc.  As you might imagine it is difficult to know what the average resident has in car/boat/RV value.  Even though Peachtree Corners is a fairly affluent area I would put to you that only a very small percentage of residents actually own any boats or RVs.  Let’s say 2% to be generous.  In statistics these individuals would be known as ‘outliers’ so we’re not going to count them in our comparison of the average Peachtree Corners resident.  That leaves people with cars.  Instead of just totally guessing at how many cars people own, what their cars are worth or how old their cars are I decided to do a little research and found some interesting data.  Now granted some of it might be two or three years old I suspect it is still fairly accurate as our economy has not really changed much in the last three years.  

Here is the data:

Average age of a car in the US – 9.2 years

http://www.motorauthority.com/news/1025087_average-age-of-cars-in-u-s-increases

Average price of a used car – about $9,900 from a dealership

http://usedcars.about.com/b/2008/11/19/dealers-selling-used-cars-8-9-below-asking-price-on-average.htm

Average Number of Cars per Household – 2.28

http://www.autospies.com/news/Study-Finds-Americans-Own-2-28-Vehicles-Per-Household-26437/

Now I recognize that 1) our area is a bit more affluent than most of the US and 2) the average price of a used car might not properly take into account the value of new cars whose value is obviously a good bit above the average used car value.  So, I am going to use an average value of $20k per car to be generous and multiple that times 3.0 cars per household since that is the number the BC used in their analysis.   Here is the math - $20k per car x 3.0 cars = $60k in taxable value.  If we apply the 1.0 mil to $50k of value we come up with $24 in new taxes.

So, let’s do a quick update of where we are with our current calculation of potential new taxes and fees

Property Tax - $120 (remember, we’re going to look at this further in a minute)

Franchise Fees - $40 (electricity)

Ad Valorem - $24

TOTAL - $174

So, our initial look at new taxes and fees using the BC’s test case comes up to $174 as compared to the BC’s claim of $300 to $400 with this same test case.  So right now their estimates are already about 72% to 130% too high.

Earlier I had mentioned that we were going to examine the estimated revenue of the city and its two components – property tax and franchise fees.  Remember that the feasibility study estimated about $2.0M in revenue from property tax and $1.0 from franchise fees. 

Also, keep in mind that the feasibility study estimated costs at less than $0.8M.  Now, simple math will show that estimated franchise fees (almost all of which you already pay) are in excess of the estimated expenses by about $0.2M. 

The point of this is to show that it would be possible to fund the city on franchise fees alone with no property tax increase and considering most of the franchise fees are already being paid that would be a very minimal increase to anyone.  Earlier we estimated an increase in franchise fees at about $40 per household or about $3.67 per month – roughly the cost of a Chick-Fil-A sandwich and a drink.  

And to avoid any tirades about not having any official quotes I won’t go into any details about potential trash savings that could just about offset the entire cost of a property tax increase even if one was imposed.   Of course the new City Council and the Mayor would decide whether a property tax increase would be needed and that debate is to be had both when we are choosing a council (seeing what each candidate’s position is) and then once the council is chosen to follow the deliberations on whether any tax increase is needed. 

So after going through the details of the BC’s claims of your wallet taking a net hit of $300 to $400 it appears that a more realistic number is somewhere in the range of $0 to $174 (absolute top end for the person in the BC’s example). 

A lot of assertions have been made during this debate about not forming a city because whoever we (the residents of Peachtree Corners) choose from amongst our ranks cannot be trusted.  Now, that in itself is a sad commentary on the faith some of us have in our neighbors and in ourselves to choose wisely. 

But something else to ponder is, after going through the BC’s financial analysis line by line and holding it up to a little scrutiny and finding it sorely lacking in accuracy, how many of their other assertions should be taken at face value.   Just something to think about. 

This is an excerpt from the BC’s Facebook page about an upcoming meeting they are having.  They advocate getting all the facts.  If you attend or attended (depends on when this article gets posted) please feel free to post some comments on this blog about the math they use to get to their $300 to $00 net tax increase using the example from their webpage.

 PEOPLE OF PTREE CORNERS NEED TO BE HEARD.... SEEN .... TOLD ALL THE FACTS.....BEFORE THEY VOTE ON THIS IMPORTANT ISSUE...

Peachtree Corners – make the smart decision and choose to take control of your future – Vote YES on November 8th!!