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Response to BRAC and BRAF Report

Wednesday, December 11, 2013

Response to BRAC and BRAF Report on Impacts of Proposed New Municipality in East Baton Rouge Parish

The Baton Rouge Area Chamber (BRAC) and the Baton Rouge Area Foundation (BRAF) recently released a jointly commissioned report by LSU economists led by Dr. Jim Richardson outlining potential impacts of a new, separate municipality (St. George) proposed to be incorporated in the southern part of East Baton Rouge Parish.While we generally agree with several of the findings of the report related to revenues available for St. George, anticipated expenditures of St. George, the need for assuming partial responsibility for legacy costs and parish-wide services, we do have several concerns regarding the numbers used and the dire predictions of what will happen to the revenues for the City-Parish.To begin, the report assumes revenues available to St. George of approximately $84 million (Table 5, Page 21) and reduced expenditures of approximately $31 million which results in a potential deficit of $53 million for the City-Parish (Page 23). We generally agree with these numbers, but they are missing several revenue sources that are and will remain City-Parish revenues and current City-Parish expenses that will be assumed by St. George.

The report states the City-Parish will have available revenues of $197 million and $250 million in expenditures. We dispute these numbers due to the following:
-  We believe the estimated Gross Receipts Tax amount for St. George is too high and that most of these revenues, $2.9 million of the $3.8 million (Table 5, Page 21), will remain as City-Parish revenues. The estimate of $3.8 million is what is collected throughout the East Baton Rouge Parish (excluding Central, Baker, & Zachary).
- Two items of estimated revenues in the "Charges for Services" section (Table 5, Page 21) include Fiscal Management Fees which are the fees the City-Parish charges various agencies to handle their financial matters; the other is the Sales Tax Collection Charges that the City-Parish receives to collect all sales taxes within the parish and then remit them to the different entities. Both of these items would remain with the City-Parish and therefore these revenues would not become revenues of St.George. These revenues amount to over $5.1 million.
- The revenue estimates for several other items (Occupational License, Insurance Premium, Licenses & Permits, Charges for Services, Fines and Forfeits, Miscellaneous Revenue, and Interest, Penalties, and Audit Collections) are 100% of what is estimated to be collected in the entire unincorporated areas of East Baton Rouge Parish, including those areas on the north end of the parish that will not be included in St. George (Table 5, Page 21). The population of St. George is estimated to be 107,000, or 66% of the total population of the unincorporated areas of the parish. If these revenues are allocated per capita that would result in $715,000 of revenue that should remain with the City-Parish.
-Finally, another revenue source that is estimated incorrectly are the Miscellaneous Revenues (Table 5, Page 21), these revenues include items such as Interest Earnings and Mineral Royalties. We estimate that St. George would not collect more than 30% of these revenues due to the fact that, for mineral royalties, St. George only makes up approximately 23% of the land area. These revenues would amount to approximately $120,000 and would remain with the City-Parish.

The above revenues that were not included in the $197 million in City-Parish revenues amount to slightly under $9 million, which should bring available City-Parish revenues up to almost $206 million.

The report also lists that the City-Parish will still have $250 million in expenditures. We agree with the common theme throughout the study that St. George has financial responsibility to certain overlapping services and St. George is committed to that principle. Because of that responsibility, St. George has already made the following proposals in an effort to remain a partner in East Baton Rouge Parish:
- St. George proposes to fund the 2014 City-Parish budgeted amounts for the parish for the Constitutional Parish-Wide offices, Parish Prison and Medical Expenses, Juvenile Services, Animal Control, and the Non-Governmental Organizations. This reduction in City-Parish expenditures amounts to approximately $28.27 million.
- Also St. George proposes to fund 50% of the legacy costs (post-employment benefits) budgeted in the 2014 City-Parish budget for the shared agencies mentioned in the report on page 34. This reduction in City-Parish expenditures amounts to approximately $2.31 million.

The above expenditures can be removed from the $250 million in expenditures estimated in the report. That would result in the City-Parish having just over $219 million in expenditures.

The end result is that, according to the report and the revenue facts and expenditure proposals presented above, the City-Parish's revenues are actually about $206 million, and their actual expenditures will be below $220 million. This would result in an approximate $14 million shortfall instead of the reported $53 million or slightly over 5.5%.

* The $14 million shortfall is prior to negotiations and intergovernmental agreements that will reduce the fiscal impact further.

This response was prepared by the Committee to Incorporate St. George.