A big cause of California’s budget crisis was spending commitments derived from overreliance on volatile revenue sources, particularly taxes on high-income earners, corporate profits, and capital gains revenue. These revenue sources soared during the boom, and legislators made spending commitments as if that soaring would never end. It did, and that’s where the budget hole came from…

Here, county leaders banked primarily on two revenue sources to fuel growth in government—property taxes on both commercial and residential development; and the Special Purpose Local Option Sales Tax (SPLOST) to build infrastructure.

County politicians ignored the more innovative revenue sources such as a Local Option Sales Tax (LOST) to reduce property taxes and impact fees, which transfer the cost of infrastructure from existing taxpayers to the new residents who not only create the need for the new facilities (police, fire, roads, etc.) but are the most likely to benefit from them.

The politicians failed to diversify Gwinnett’s revenue stream primarily in deference to the business community—mostly developers—who feared that the fees and taxes would cut into their bottom line. And, for many years, the development community has steered public policy with their campaign contributions.

During the county’s boom years, the politicians banked excess revenues rather than return them to the taxpayer in the form of a lower tax rate. In recent years, the politicians used Gwinnett’s explosive growth to hide their failure to control costs. From 2005 to 2008, Chairman Charles Bannister spent the county’s savings account to balance the budget rather than increase property taxes or tap non-tax revenue sources.

When the economy tanked, Bannister essentially had his pants jerked down. The tax base took a significant hit, reducing county revenues. And when a government relies on property taxes for over 75% of its revenue, it hurts.

SPLOST not only fueled the growth in government that now demands to be fed, but it now hinders us from responding to the crisis. SPLOST pennies can be spent on nothing but capital expenditures; they cannot be applied to maintenance and operations. Many fear that adding another penny to the county’s sales tax would drive consumers to nearby counties with a lower tax.

And as if homeowners didn’t need yet another reason to criticize the seemingly endless string of strip shopping centers, drug stores and mini-malls that were approved throughout the 90’s and later– take a look at the number of empty storefronts that line the county’s thoroughfares. Because most commercial properties are valued for tax purposes based on income, empty buildings represent a loss of income to the landlord and, thereby, a loss of tax revenue to the county.

And yet, those empty buildings still require government services like police and fire protection. Residential property owners, the folks whose property values aren’t tied to income, are the ones who foot the bill over time.

Gwinnett’s situation is compounded by the fact that the current Chairman appears unwilling or unable to think innovatively and act aggressively to respond to the crisis. Charles Bannister has apparently chosen, by his inaction, to sit on his hands and rely on the county’s taxpayers to bail him out.

The Tax Foundation – Pew Report on State Budget Troubles: Good Research But Misses Causes