Widening Gap between Revenue and Expense Means Failing Infrastructure is a Way of Life in Many Rural Georgia Counties
By David C. Bridges, Ph.D.
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Background
All one must do is drive through the most rural parts of Georgia to see that something is terribly wrong. Once thriving small towns are now ghost towns, main streets that were once lined with thriving business stand empty, and many crossroads now have stores, churches, and schools that are vacant. These observations are backed up by census data that shows steady population declines over the past fifty plus years.
So, why has this happened? What are the consequences to those who remain? What are the consequences to the State of Georgia? If you take your eyes off the empty buildings and focus on other things you will see some of the consequences. County roads and city streets that have more potholes and patches than paving is the rule these days. You will cross bridges that are narrow with sunken approaches that make them rough to cross. Small towns are constantly excavating failing water and sewer pipes associated with systems that are often well past their useful life. Such is life for those who live and work in the real rural Georgia. What is the consequence to the State? Failed infrastructure, closed hospitals, and educational and workforce challenges limit opportunities for economic development. At the highest level of analysis counties are either producers or consumers. It is incumbent upon the state to facilitate production.
Why don’t these counties and municipalities invest in infrastructure? Why don’t they just fix it? The answer is, in most cases they don’t have the money. That is not just my opinion. Having spoken with county commissioners, county managers, mayors, city managers, and representatives from the ACCG and GMA, I get the same answer - - there simply isn’t enough money to do it!
Among the 53 Georgia counties having a population less than 15,000 (Figure 1), revenue streams have dried up over the past 40 years, and expenses have increased. Revenue streams have suffered via:
· Retail consolidation,
· Loss of manufacturing,
· Because of a decline in demand for commercial real estate, and
· Population-driven decline in residential demand and construction.
Figure 1. Counties with total population less than 15,000 (2020 US Census)
Retail consolidation. Retail consolidation started in the late 1970s and has continued. Big box stores located in larger communities have drawn customers away from small local retailers with promises of selection, price, and convenience. Today, the impacts of that consolidation are heightened by internet-based shopping and home delivery. This consolidation has resulted in declining demand for retail space and loss of sales tax revenue. Over time, weak demand for retail space has driven rents down, which has resulted in steady, or declining, retail property values. In some cases, owners have chosen to tear down these buildings rather than maintain them and pay property taxes.
Loss of manufacturing. Small manufacturing facilities were once prevalent in these low population counties, providing jobs beyond the agricultural and forestry-related industries that dominate these counties. Small industrial parks were once populated with textile mills, cut and sew plants, automotive parts suppliers, and the like. Trade agreements of the 1980s decimated manufacturing in rural Georgia. Green (1) provides an excellent and detailed overview of the loss of manufacturing in his paper, “Deindustrialization of rural America: Economic restructuring and the rural ghetto”. Salas, et al. (2) reported, “… from the point of view of North American working people, NAFTA has thus far largely failed.” He went on to say, “Contrary to what the American promoters of NAFTA promised U.S. workers, the agreement did not result in an increased trade surplus with Mexico, but the reverse. As manufacturing jobs disappeared, workers were downscaled to lower-paying, less-secure services jobs.” A paper by Scott (3) reported that Georgia was among the states suffering the greatest number of job losses.
As plants closed, unemployment rose, or workers took lower paying jobs. The jobs never came back. The economic impact was multifaceted, including loss of wages, declining ad valorem and business taxes, and less demand for industrial real estate. As with retail space, declining demand for industrial space has resulted in depreciated and dilapidated facilities as well as the demolition of some facilities in lieu of the owner paying for maintenance and property tax.
Population declines and revenue losses. Fewer jobs and declining amenities and services led to emigration. The depopulation of rural Georgia continues. Of the 53 Georgia counties having a population of less than 15,000, 44 counties (83%) experienced a population decline between 2010 and 2020 (Figure 2). Furthermore, a similar decline occurred in many counties having a population between 15,000 and 50,000. As population declines revenue streams typically decline. Fewer families mean less demand for housing, ultimately reducing property values and hence tax revenue. Sales tax revenue also declines. The tax burden becomes increasingly focused on a smaller number of property owners.
These changes in the business climate across rural Georgia have restrained growth, which has impaired growth in tax digest, taxes, and revenue and resulted in challenges for county government to fund much-needed investments in infrastructure.
Having observed the state of infrastructure in rural Georgia and understanding the plight of these counties with respect to revenue, we decided to better understand the relationship between revenue and cost of infrastructure maintenance and repair in the 53 counties having a population of less than 15,000.
Figure 2. Population Change in Georgia from 2010 to 2020 – All Ages.
Source: Bridges, D.C. 2023. Testimony from the Center for Rural Prosperity and Innovation to the House Rural Development Council. https://www.house.ga.gov/Documents/CommitteeDocuments/2023/Rural_Development_Council/Aug_29/David_Bridges_Center_for_Rural_Prosperity.pdf.
Data and Analysis
Tax digest. Using data from the Georgia Department of Revenue [1] and the Carl Vincent Institute of Government, we compiled total maintenance and operations (M&O) tax digests for each of the 53 counties having a total US 2020 Census population of less than 15,000 for tax years 1991, 2001, 2011, and 2021. These years were selected as the year following a US census. Change in tax digest was calculated for each county as:
Change in Tax Digest ($) = Tax Digest ($)2021 - Tax Digest ($) 1991
A tax digest multiplier (TDM) was calculated for each county to facilitate tabulation across 53 counties. The calculation was:
Tax Digest Multiplier (TDM) = Tax Digest ($)2021 ÷ Tax Digest ($)1991
Taxes. Total tax collections were tallied for each of the 53 counties for 1991, 2001, 2011, and 2021. Data reported as tax collections included ad valorem (property), motor vehicle, and sales taxes (state sales tax returns only). Because they vary by county and are dedicated for special purposes, tax values do not include county specific sales taxes like Local Option Sales Taxes (LOST), Special Purpose Local Option Sales Taxes (SPLOST), Education Special Purpose Local Option Sales Tax (ESPLOST), or Transportation Special Purpose Local Option Sales Tax (TSPLOST).
Change in tax collection was calculated for each county as:
Change in Tax Collection ($) = Tax ($)2021 - Tax ($) 1991
A Tax Collection Multiplier (TCM) was calculated for each county to facilitate tabulation across 53 counties. The calculation was:
Tax Collection Multiplier = Tax Collection ($)2021 ÷ Tax Collection ($)1991
Revenue. Total county revenue was tallied for each of the 53 counties for 1991, 2001, 2011, and 2021. Data reported for revenue included all general revenue, ad valorem taxes, motor vehicle taxes, sales taxes (state sales tax returns only), fees, fines, levies, intergovernmental transfers, and grants. Because they vary by county and are dedicated for special purposes, revenue does not include county specific sales taxes like Local Option Sales Taxes (LOST), Special Purpose Local Option Sales Taxes (SPLOST), Education Special Purpose Local Option Sales Tax (ESPLOST), or Transportation Special Purpose Local Option Sales Tax (TSPLOST).
Change in county revenue was calculated for each county as:
Change in revenue ($) = Revenue ($)2021 - Revenue ($) 1991
A Revenue Multiplier (RM) was calculated for each county to facilitate tabulation across 53 counties. The calculation was:
Revenue Multiplier = Revenue ($)2021 ÷ Revenue ($)1991
Cost to repair, maintain, and/or build infrastructure. The goal was to analyze the change in cost to repair, maintain, and/or build infrastructure during the 30-year period from 1991 to 2021. Obviously, a comprehensive investigation of all the costs associated with maintenance or construction of roads, bridges, sewer systems, and water systems would be a huge undertaking. So, after consultation with several county leaders and consulting engineers whose work is critical to these types of projects, the decision was made to track the cost of eight (8) component costs that could serve as a proxy for all related costs (Table 1).
Table 1. Proxy infrastructure cost to maintain, repair, or replace – 1995-2021.
Results
Tax digest. All counties experienced an increase in tax digest, as evidenced by TDM value greater than 1.0 for each of the 53 counties. However, nine (9) counties (17%) had TDM values less than 2.0, meaning their tax M&O tax digest did not double from 1991 to 2021 (Figure 3). Thirty-five out of 53 (66%) had an increase of 2 to 3-fold. So, 44 (83%) of the counties’ tax digest did not triple over 30 years. None of the 53 counties’ tax digest increased by 5-fold. The average tax digest increase across the 53 counties was just 2.6-fold over the 30-year period.
Table 2. Summary of changes (multipliers) for tax digests, taxes, and revenue.
However, tax digest changes in the 53 smallest population counties did not compare well with changes for the remaining Georgia counties (Table 3). Multiplier for the remaining 106 counties ranged from 3.45 to 4.51, with a simple arithmetic average for these 106 counties of 4.14. Considering all 159 counties, the average was 4.08.
Table 3. Tax digest changes (multipliers) for all 159 counties from 1991 until 2021.
Tax collections. Tax collections increased more over the 30-year period than did tax digest. Tax collections in twenty-one counties increased by five-fold, or more. Forty four of the 53 counties (83%) increased by three-fold, or more. The average tax collection increase across the 53 counties was 4.5-fold over the 30-year period. Changes in tax collection outpaced tax digest due to increased millage rates and inflationary driven sales tax increases.
Revenue. Revenue included taxes plus fees, fines, levies, intergovernmental transfers, and grants. Revenue increased slightly more than did taxes alone. Revenue for forty-seven (89%) of the 53 counties increased by three-fold, or more. The average revenue increase across the 53 counties was 4.6-fold over the 30-year period.
Cost to repair, maintain, and/or build infrastructure. The cost of all eight proxy components rose significantly from 1995 until 2021 (Table 1 and Figure 3). Proxy component multipliers based on bid tallies reported in Table 1 ranged from 2.4 to 6.8 during this period and averaged 3.5. A review of bid tallies from 2022 and 2023 for individual projects showed that the recent hyperinflation of construction costs had driven the costs of these proxy components much higher. A cost projection for fall 2023 resulted in a lower bound multiplier estimate of 4.9 and an upper bound multiplier estimate of 6.3 (Figure 3)
Figure 3. Change in costs for infrastructure proxies.
Discussion. The goal of this study was to determine the trend in the gap between revenue and cost to repair and maintain. Condition of infrastructure in these counties has declined over the years. Many sewer, water, and bridge assets are at or beyond life expectancy, and roads are in constant need of repair. The presumption has been that county governments have not had the funds to maintain these assets. If that is true, this analysis indicates that the probability of future investment in these assets is unlikely because the gap between revenue and cost has widened. Among these 53 counties, only about one half had a five-fold increase in taxes (21 counties) or revenue (26 counties). A five-fold increase would put them on par with the lower bound estimate of costs (4.9x), but that means their ability to address infrastructure deficiencies did not improve compared to their ability to do so over the past 40 years. All 53 counties fell below the upper bound estimate of a 6.3x multiplier for cost, meaning the gap between revenue and expense is widening.
Figure 4. Comparison of revenue and expense.
Infrastructure is essential for a community to experience growth and increased economic prosperity. Rural prosperity occurs at the intersection of available quality healthcare, education and workforce development, and economic opportunity. Infrastructure is the foundation on which prosperity is built. When infrastructure fails, there will be no investment, no inbound movement of people, and no opportunity for growth. Smart investment today in the infrastructure of these communities can spur development and opportunity. Failing to do so will surely lead to further decline in prosperity in these 53 counties.
Figure 5. Investment drives prosperity.
References
1. Green, G.P. 2020. Deindustrialization of rural America: Economic restructuring and the rural ghetto. Local Development and Society 2020. Vol. 1, No. 1, 15-25.
2. Salas, C., B. Campbell, and R.E. Scott. 2001. NAFTA at Seven Its Impact On Workers In All Three Nations. Economic Policy Institute, Washington, DC. https://www.epi.org/publication/briefingpapers_nafta01_index.
3. Scott, R.E. 2001. NAFTA’S HIDDEN COSTS Trade agreement results in job losses, growing inequality, and wage suppression for the United States. Economic Policy Institute, Washington, DC. https://www.epi.org/publication/briefingpapers_nafta01_index.
[1] Georgia Department of Revenue Statistical Report or Summary of Ad Valorem Taxes Levied Report;
Carl Vincent Institute of Government Tax and Expenditure Data Center for Local Government.
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