History

In 1998 and 1999, the City of Atlanta entered into two consent agreements to settle a federal lawsuit brought by the state Environmental Protection Division, clean water advocates, and the federal Environmental Protection Agency.[2] The consent agreements compel the City to clean up its sewers and to limit the amount of untreated wastewater allowed to enter its rivers.[3] To comply, the City developed a five-year, three-billion dollar plan to repair the sewer system; the plan involves constructing subterranean viaducts to store runoff and sewage that the City can then pump to treatment facilities, thereby decreasing the “frequency and severity of untreated sewage.”[4] To finance the project, Mayor Shirley Franklin proposed an increase in the City’s residential water and sewer rates of forty-five percent, three times the then-current rates.[5] In December 2003, the Atlanta City Council rejected Mayor Franklin’s plan, passing a one percent rate increase for one year and eliminating it for subsequent years.[6] Mayor Franklin subsequently vetoed the rates adopted by the City Council because they were not large enough to meet the financial requirements of the sewer overhaul plan.[7]

This standoff created a problem for the City of Atlanta because of the serious economic harm that could result.[8] Failure to abide by the consent decrees could lead to sanctions, including a moratorium on additional water and sewer growth that might cause a decrease in Atlanta’s future economic development.[9] To further complicate the matter, the City needed to sell bonds to finance the sewer overhaul but the City Council’s rate proposal would not provide sufficient revenue to make the required bond payments.[10]

Late in December 2003, Governor Sonny Perdue announced a proposal to assist the City of Atlanta by making a $50 million annual low-interest loan available over the next ten years.[11] Although this assistance was welcome, it would not have made a significant dent in the amount of money the overhaul required.[12] However, in addition to the proposal by Governor Perdue, Senate President Pro Tem Eric Johnson of the 1st district proposed the introduction of legislation for a referendum on a city-wide sales tax increase that could raise another $350 to $500 million over five years.[13]

Along with Atlanta, the City of Columbus was also trying to address financial problems and sought help from the General Assembly.[14] Columbus was already pushing the limits on raising money from property taxes for operations and had, for more than ten years, sought permission to levy an additional one percent sales tax.[15]

Bill Tracking of HB 709

Subjects Not Explored in This Legislative Review

HB 709 addresses other revenue and taxation issues that are not the focus of this legislative review.[16] Other areas addressed in HB 709 include the following: (1) providing property tax relief for the Southern Legislative Conference; (2) increasing homestead exemptions for disabled veterans; (3) exempting cars driven by Medal of Honor recipients from tax; and (4) resolving an annexation dispute between cities and counties.[17]

HB 709, As Introduced

Representatives Kathy Ashe, Bob Holmes, JoAnn McClinton, and Calvin Smyre of the 42nd, 48th, 59th, and 111th districts, respectively, sponsored HB 709.[18] The bill’s authors engaged in “extensive conversations with Mayor Franklin.”[19] The House first read HB 709 on March 6, 2003.[20] The House read the bill a second time on March 24, 2003.[21] The Speaker assigned the bill to the House Committee on Ways and Means that same day.[22] The House Committee favorably reported on the bill, as introduced, on March 27, 2003.[23]

HB 709, as introduced, would have revised Code subsection 48-8-6(b)(2), removing the requirement that a jointly owned city-county water authority administer the Special Purpose Local Option Sales Tax (“SPLOST”) law.[24] Representative Ashe characterized the bill as a correction for a “tiny problem” created the year before.[25] There was no further debate on the bill in the House in 2003.[26]

Passage by the House

By a 166 to 0 vote, the House passed HB 709 on April 8, 2003.[27] The House immediately transmitted HB 709 to the Senate for consideration.[28]

The Senate Finance Committee Substitute to HB 709

The Senate read HB 709 for the first time on April 8, 2003, and the Senate President assigned it to the Senate Finance Committee.[29] The Committee favorably reported the bill, by substitute, on April 17, 2003, but the bill did not pass during the 2003 legislative session.[30] The Senate recommitted the bill on January 12, 2004, and the Senate Committee again favorably reported the bill, by substitute, on February 5, 2004.[31] Senator Vincent Fort of the 39th district introduced two floor amendments on February 9, 2004, but both amendments failed to pass.[32] Senator Fort proposed amendment 1 to remove an exemption in the bill for automobile dealerships within the city limits of Atlanta.[33] Amendment 2 proposed a specific rollback provision of the City’s residential water and sewer rates for every dollar of revenue received from the new tax.[34] Amendment 1 failed by a vote of 5 to 48.[35] Amendment 2 failed by a vote of 9 to 47.[36]

The Senate subsequently adopted the Committee substitute and passed HB 709 on February 9, 2004 by a vote of 49 to 6.[37] The Senate Committee substitute allowed municipalities, like the City of Atlanta, to call a referendum on a one percent sales tax increase to generate revenue to pay for “court ordered storm-water and waste-water systems capital outlay or repair projects.”[38] The substitute also included a provision permitting a consolidated government with a freeze on property tax assessments in place to call a referendum for up to a two percent sales tax increase for government operations.[39] Senator Kasim Reed of the 35th district spoke for the part of the bill that focused on the City of Atlanta.[40] The Senator explained and reviewed the bill section by section and fielded questions.[41] Senator Seth Harp of the 16th district spoke for the part of the bill that focused on the City of Columbus.[42]

The House Amendment to the Senate Committee Substitute to HB 709

The House amended the Senate Committee substitute to HB 709 by removing all language relating to a sales tax referendum for water and sewer projects by municipalities.[43] The House subsequently adopted the amendment and passed HB 709 on March 15, 2004 by a vote of 140 to 16.[44]

The Conference Committee Report on HB 709

The Senate disagreed with the House amendment to the bill on March 22, 2004.[45] On March 25, 2004, the House insisted on its position.[46] Later that same day, both the House and the Senate appointed a Conference Committee to consider HB 709.[47] The House Conference Committee members were Representatives Kathy Ashe, LaNett Stanley-Turner, and Richard Royal of the 42nd, 43rd, and 140th districts, respectively.[48] The Senate Conference Committee members were Senators Casey Cagle, Eric Johnson, and Kasim Reed of the 49th, 1st, and 35th districts, respectively.[49] The Conference Committee reported its version of the bill on April 7, 2004 and recommended “that both the Senate and the House of Representatives recede from their positions” and adopt the Conference Committee substitute to HB 709.[50] On April 7, 2004, the final day of the 2004 legislative session, both the Senate and the House of Representatives adopted the Conference Committee report and passed the bill, a 40 page document, by votes of 40 to 8 and 127 to 34, respectively.[51] On April 16, 2004, the General Assembly forwarded the bill to Governor Perdue, who signed the bill on April 23, 2004.[52]

The Act

The Act amends Code section 48-8-6 to except those municipalities with an average wastewater system flow of more than 85 million gallons per day from the limitation on sales and use taxes for water or sewer capital projects.[53] The Act further amends Chapter 8 of Title 48 to add a new article—Article 4—that provides definitions, conditions, limitations, and the mechanism for a municipality to hold a referendum on the tax, as well as the conditions, limitations, and procedures for imposing the tax if the voters approve it.[54] The Act further amends Code sections 48-8-110, -111 to -113, -115, -120, and -121 to provide definitions, conditions, limitations, and the mechanism for a county to hold a referendum on the tax and to provide the conditions, limitations, and procedures for imposition of the tax if the voters approve it.[55] The Act further amends Code section 48-8-122 to provide for public reporting and publication annually by the county or municipality to show the projects to which the government applied the tax revenue and to show additional financial information.[56]

The Act also adds a new Code section—48-8-96—to provide for an increase in the sales and use tax of one percent by a “consolidated government created by the consolidation of a county and one or more municipalities in which consolidated government homestead property . . . is valued . . . according to a . . . value which does not change.”[57] Code section 48-8-96 provides definitions, conditions, limitations, and the mechanism for a consolidated government to hold a referendum on the tax and provides the conditions, limitations, and procedures for imposition of the tax if the voters approve it.[58]

Analysis

The Act immediately provided the City of Atlanta with two opportunities to have a tax referendum that could provide revenue to pay for the sewer repairs and upgrades.[59] The first opportunity was for Fulton County to place the referendum on the ballot.[60] Prior to passage of the Act, previous efforts by the City to persuade the County to call a vote had failed, and it was considered unlikely that the County would change its position.[61] However, if Fulton County refused to call a referendum vote or if a county referendum failed, the Act provided the City with a second opportunity by permitting it to place a city-only referendum on the ballot.[62]

After passage of the Act, the Fulton County Commission once again considered a request from the City of Atlanta to place the tax referendum on the ballot, but on May 5, 2004 a motion to approve a resolution to impose a vote on the tax failed.[63] Alternatively, the Fulton County Commission approved a substitute resolution that formally denied the request in order to allow the City additional time to place a referendum on the ballot.[64]

On May 7, 2004, the Atlanta City Council “unanimously approved an ordinance . . . allowing for a one percent Municipal Option Sales Tax referendum on the July 20th Special Election Ballot.”[65] Subsequently, on July 20, 2004, 74.70% of the residents of the City of Atlanta who voted approved the special one percent sales and use tax referendum, with only 25.30% of voters rejecting it.[66] With the referendum’s approval, collection of the additional tax began October 1, 2004, with the City’s first receipts expected by early December.[67]

Once the voters approved the City referendum, the tax rate in that jurisdiction became the highest in the State at eight percent.[68] However, the rate increase could “generate as much as $100 million annually and help pay for $3.2 billion in repairs and upgrades . . . . ‘[It will] ensure that future generations have clean water.’”[69]

Because the Act only provided Fulton County or the City of Atlanta with permission to call a referendum, there are few, if any, unintended consequences as a result of the bill.[70] Atlanta Mayor Shirley Franklin’s administration has expressed its intent to utilize revenue generated by a sales tax increase to permit a reduction in the City’s water and sewer rates.[71] However, because the Act provides for the potential extension of the sales tax for up to 12 years, the lack of a binding obligation on the City to offset water and sewer rates is a proper concern and will require the City Council of Atlanta to maintain proper and vigilant supervision of the tax revenue application.[72] Additionally, the wastewater flow gallon requirement in the Act is sufficiently high to preclude all other municipalities in the State from being able to utilize the provision and call for a tax referendum.[73] Finally, it is not expected that any cities will grow to surpass this threshold within the potential lifetime of the sales tax increase.[74]

Jeffrey R. Baxter