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Posted: April 21, 2010 12:30 a.m.

Tax Break: How industries help cover the tax gap left by homes

This is the second part of a series examining the history and economic effects of industry in Newton County, as well as the county’s continuing efforts to attract new business. This second part examines how industry supports a community’s ability to provide public services to its residents.

Simply put, most homes are a drain on the system. Anyone who has one child and doesn’t own a home valued at $365,000 or more, is not paying enough in local taxes to pay for his child’s education. Less than 15 percent of Newton County homes cost more than $300,000, while nearly 48 percent of families have at least one child.

Even for those residents without children, on average, the owner of a moderate to lower-priced home pays less in taxes than it costs his local city and county governments to provide him with mandatory services.

How then can the government and school systems continue to function? Because commercial, agricultural and, most of all, large industrial users subsidize residents' taxes.

Why are industries important? Because they provide jobs to thousands of Newton County workers and help cover the cost of living for nearly all of the county’s 100,000-plus residents.

The Cost of Modern Life

All of the services of government, such as police, fire, permitting and licensing, code enforcement and street and infrastructure maintenance, cost money. Sending a child to school also costs a lot of money — around $8,500 for one student. Every resident uses at least one of these services, whether directly by having a child, or indirectly through the neighborhood police patrols. To pay for these services residents and businesses pay a variety of fees and taxes.

Water and sewer tap fees, business license fees, sales tax, motor vehicle taxes and property taxes. Taxes are universally unpopular and residents generally believe their tax rates are too high. However, the numbers say the tax rates could be even higher.

For every $1 a Newton County resident pays in taxes, his local government spends around $1.15 to provide services. The county loses money on the average home. In a nationwide study of 90 communities, not a single community’s residential tax base was self-supporting.

“The obvious conclusion (sic) is that bedroom communities are not economically sustainable at tax rates that are likely to be levied,” said University of Georgia Professor Jeffrey Dorfman, a land use expert.

Based on the latest available figures from the U.S. Census Bureau, Newton County’s average home value was $153,500. This number is likely overstated in today’s market, but that simply means residences are covering an even smaller percentage of their costs.
In 2010, a county resident living in a median-priced home, who received a homestead exemption would pay $1,823.40 in taxes, according to Tax Commissioner Barbara Dingler. Based on the ratio of taxes to services that resident would cost nearly $2,096 to service.

If taxes were higher, resident’s homes would pay for themselves. Residents, and local politicians by extension, loathe tax increases. Therefore, an alternative pay structure must be found.

The Perfect Citizen
Industries are on the complete opposite end of the spectrum. For every $1 a local industry or commercial entity pays in taxes, it uses 28 cents in services. That results in a hefty profit for the county, especially when you consider the fact the largest industries, like C.R. Bard General Mills and SKC provide millions in taxes.

Industries actually use even less than 28 cents in services. That is the combined figure for commercial and industrial users.
“Industrial would be more favorable, office would be in the middle, and retail would be the least favorable of the business category,” Dorfman said in an e-mail.

The reason is that businesses in general, but industries in particular, very rarely use services and require very little from the government.

“They don’t need animal services. They require little law enforcement costs. Police aren’t visiting the plants and serving warrants and arresting folks,” said Danny Stone, manager of economic development for Snapping Shoals EMC.

However, some industries require a lot of upfront infrastructure investment, which likely offsets some of those gains, at least in the early years.

The largest industries which have total property and equipment values of more than $20 million, regularly contribute between $240,000 and $320,000 of profit to the tax base, which can subsidize the taxes for hundreds of homes. They’re not only taxed on the millions of dollars worth of property they own, but also on their expensive equipment, inventory and corporate jets.

Unbalanced Base
That subsidization is particularly important for the county, which has about 70 percent of its taxes paid by residents and only 20 percent covered by commercial and industrial payers. Not only is the city of Covington’s tax base more balanced, since nearly all of the industries are located in the city limits, but the city also subsidizes property taxes through the sales of electricity and gas.
Over the past two decades, as residents poured into the western end of the county, the cost of doing business has continued to increase. However, for years property values were skyrocketing even faster than population numbers and, therefore, the county’s coffers remained full.

As the fallout from the subprime mortgage crisis occurred, residential values and tax revenues plummeted. Here’s where the unbalanced tax base becomes so important; industries are more stable and their property values are more immune to large decreases. Not many industrial properties are being sold at foreclosure auctions.

The lack of tax base balance explains part of the reason why the county and school system are slashing millions in expenditures and being forced to cut personnel.

Obviously houses aren’t a bad thing, but sprawling residential development is harmful. In general, concentrated growth and very dense communities mean less infrastructure, fewer public safety officials and lower costs.

Help Wanted
The most obvious and direct benefit of industries is in the hundreds of jobs they provide. Ranging from C.R. Bard, which in the past has employed more than 500 workers, to smaller industries which employ a dozen or fewer workers, industries provide jobs.

While small businesses are and will continue to be the largest employers in the U.S., industries employ their fair share and are much more stable. According to the Covington-Newton County Chamber of Commerce, manufacturers employ 4,147 workers.

In general terms, these employees earn higher wages than their retail counterparts and, therefore, increase the expendable income level in the county. Earning wages of $20 per hour allows employees to make more purchases, which increases sales tax revenue and also makes a county more attractive to future retail, something Newton County is lacking. It’s a positive economic chain reaction.

Finally, industries are among the most involved organizations in the county. They donate hundreds of thousands to groups like Newton County Recreation, the United Way and the YMCA. Their employees participate in non-profits throughout the county.

“You look at how involved they are through their various functions. They’re instrumental in the United Way’s fundraiser, and they’ll be a big part of making the Miracle League field a reality,” Stone said.

Saying Thanks
Eight Newton County industries were nominated this year for Georgia’s Manufacturer of the Year award: Beaver Manufacturing, Clairon Metals Corporation, FiberVision, General Mills, Nisshinbo, Pactiv, SKC and Tread Technologies.

When many residents think of industry, they may revert back to historical stereotypes — large smoke stacks, unpleasant odors and generally poor conditions. But, the Chamber’s Economic Development Director Shannon Davis said today’s industries are much different.

“The majority of our industries today are clean, high-tech, clean and green. They’re advanced manufacturers that are among the leaders in their fields,” Davis said.

For all of those reasons, past and present leaders have continually sought out industry. It all began with Covington Mayor Walker Harris, who was the driving force behind the county’s first big industries in the late 1960s: Hercules, Mobil Chemical Company, Bard Urological Division and Covington Moulding Company. The trend was continued by Mayor Bill Dobbs and County Chairman Roy Varner who continued to make the county a leader in attracting industry throughout the 1970s and 80s.

And although the economy is reeling, today’s leaders recognize the importance of continuing to seek large industry. With all of the benefits above, it’s not hard to see why.

See next Wednesday’s edition to learn how more about Beaver Manufacturing in Mansfield, one of the county’s oldest and most successful industries.

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