Johns Creek: Foolin’ Ourselves

The residents of Johns Creek, Georgia have lots of things going for it.  Excellent housing, many of the best schools in the state for kids, and income levels that surpass nearly every other community.

Those positive attributes, however, have led to a flow of tax dollars into the City’s Coffers that is now doing more harm than good.

Since 2006, the year the city formed, the City has amassed $54,348,545 at the end of the fiscal year 2014, according to the City’s Certified Audited Financial Report.  That represents an increase of almost $7,000,000 per year of revenue over expenses.  With a population of around 80,000, that works out to more than $670 per every man, woman and child.

That’s an astonishing amount of money to be held per capita, and it’s growing.  Last evening, the City Council, under the lead of Mayor Mike Bodker voted to maintain the City’s millage rate at it’s current level, despite the property valuations rising sharply over the last year.  More money will be flowing into the City’s coffers again in 2016 coming directly out of the pockets of the residents.  And while it may not seem like a big deal to many outside of Johns Creek(after all, they can afford it), it is creating problems that will soon become more and more apparent as time passes.

[read more=”Read more” less=”Read less”]Incredibly, the Reserve Growth has grown at an annualized rate of 27.35%.  Mayor Bodker and the rest of the City Council have been asked numerous times why are our reserves growing so rapidly?  What will this money be used for?  From listening to dialogue at the City Council’s work session, the perception is that the public just doesn’t understand.   I think we do. I think we also know that other cities, operating under the same general rules as Johns Creek, are not rolling up such large sums of money.

Of course, some of this money is used for day to day operations as a float for paying bills and salaries as funds come and go.  But if we did not have such a large reserve fund, there would be some other financial tool to deal with  cash flow, for instance.  There would be a cost to that technique, of course.  And there are the recommendations of how much to set aside, just in case.  But it seems to me that we have more than enough set aside for a city like Johns Creek that is collecting 10 % more than they are spending year in and year out.  In fact, we have a greater margin of error than a city that barely collects enough revenue to cover expenses.

So there is absolutely no reason that the reserve funds continue to grow at such an astonishing rate without a clear explanation.  And I firmly believe that this Reserve Fund’s size is doing much more harm than good.

The size of this Reserve Fund has not kept Mayor Bodker or the City Manager, Warren Hutmacher, from speculating that one of the wealthiest cities in Georgia has a sustainability issue (despite the rapid growth of the reserve fund).  A wish list of projects was created that totals more than $180 million dollars,which would indeed suggest there is a problem.  There would be if all of these wished for items were approved.  But they haven’t been.  And like a cloud hanging over the City, this wish list is negatively influencing the decisions of the City Council.

First, there is no sustainability issue if the City of Johns Creek sticks to what it is supposed to be doing, rather than dreaming of exceptional projects that have not been proven to be desired by the majority of residents.

Second, the Reserve Fund allows for the perception that we can afford lots of lower cost projects, regardless of the return on the investment(something cities apparently are not as concerned about as the private sector).  Consequently we see 100’s of thousands of dollars allocated for purposes that might not otherwise be approved if we had a lower reserve fund and managed our decisions much more wisely.

Many residents have attempted to point out the lopsided salary structure of the City’s Employees.  They have been met with dismissive attitudes(I am being polite) and promises that this will be looked into.

Residents have pointed out that we are overpaying for certain services, and that we are wasting funds on various projects that benefit only a handful of residents or that the residents already have access to via other means.

Residents have scrutinized the City’s financial results, offering observations and asking questions that go largely unanswered.

As the monies continue to roll into Johns Creek’s coffers, there is simply no pressure to address these concerns.  The residents and the business community are both left paying for this malinvestment.

In an effort to “move the needle” on the City’s revenue sources (too much of the load is on property owners and not enough on business), the concept of a Central Business District was launched.  Several hundred thousand dollars was voted on an approved to explore this “idea”. An outside firm, Urban Design Associates, was hired to bring the concept closer to reality.

The Central Business District has morphed from a :hypothesis” that was going to generate enough revenue to help offset the $180 million in projects on the wish list to being financially accretive.

DEFINITION of ‘Accretive’

The process of accretion, which is the growth or increase by gradual addition, in finance and general nomenclature. An acquisition is considered accretive if it adds to earnings per share.

Applying this word to our situation, if it costs us $10,000,000, and we generate $10,100,000, then it was accretive.  However, that is a very low bar for performance and a horrible return on investment.

This City Council needs to apply the brakes, and hard.  The hard earned money that they are collecting from residents at these levels, which are not being spent on services deemed needs by the residents, and is inducing the Council to approve projects that offer little return on investment, needs to be returned to its rightful owners.

That means cutting the tax rates for both businesses and residents.

One of the Council Members spoke of his concern for residents where even $30 a year makes a big difference.  He voted for a rollback.

I suggest he think about the $670 already collected from those very same residents.

Johns Creek has been a city too long now to keep finding excuses as to why we do not have the budget tools in place to have a firm and clear grip on our fiscal health.

Johns Creek pays the professionals too well to expect anything less than the best analysis from the beginning.  A 10 year financial forecast that would have landed you a D in your college finance course should not be acceptable to anyone, even as a “draft”.

The performance bar must be raised.  We have too much at stake to have sub-par performance from the very same people we are paying top dollars for in compensation.

Below is a chart I adapted from their ten year financial forecast.  I have included some crucial elements that needed to be included, for context.  Prior year data is from the Johns Creek CAFR report, 2015 data comes from the Mid Year Budget Report and years 2016-2025 are from the 10 year financial forecast.

Click on it and have a look.

Reserve Growth, Expense, Revenues, and Capital Expenses

Reserve Growth, Expense, Revenues, and Capital Expenses

These are my opinions.  I’d love to hear yours.
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8 thoughts on “Johns Creek: Foolin’ Ourselves

  1. I couldn’t agree with you more, EJ. In addition to the magnitude of the reserves that you describe, I’d like to point how the reserves have cost us financial opportunities. The actual money in the fund loses purchasing power due to low risk investment/inflation every year and the loss of this extra capital in the hands of the citizens means it won’t be spent at local businesses, used to start local businesses, and so on. It is constricting local economic growth!
    I also agree with you about the potential ROI of the “District” because, with the addition of Forsyth’s proposal – http://www.forsythnews.com/section/5/article/27852/, I don’t know if Johns Creek could sustain the District even if it was built. Where is the data to support the creation? Now that Avalon can barely sell its homes and townhomes and its apartments have a huge vacancy rate, do we still want to build the residential portion of the CBD?

  2. Chris, I agree with you completely. I have not seen any data that supports the creation nor sustainability of “The District”. With business/shopping districts like The Forum in Norcross, and The Collection of Forsyth at the other end of 141, What sustainable retailers/businesses could “The District” attrac? I fear additional nail salons, massage parlors, and dry cleaners, or a semi-ghost town like Johns Creek Walk, where the majority of the businesses come in and out as in a revolving door because there is not enough foot traffic to make them viable. The vacant shop locations in the Downtown Duluth square also show a similar concept/dream that didn’t make it. Closed stores and vacant retail space.

    Since Johns Creek has accumulated these reserves, they need to spend them on what the citizens who contributed these reserves want — one of which is additional greenspace and parkland. This was one of the categories highly prioritized when we incorporated into the City of Johns Creek, and has yet to be addressed.

  3. Ernest,

    Generally, I agree with your arguments. In fact, I made the motion to rollback the millage rate to 4.295 from 4.614 for the reasons you outline and more. As you know, it was a split vote, with Lenny and I voting in favor or my motion and against keeping the millage rate the current level.

    But further, as part of my logic for rolling back the millage rate, based on my assessment of the newly released 10 year financial plan, I concluded that not only do we not need the money, we need to release the reserves and put that capital to work.

    As you can see on the video archive of the city council meeting, I made the following recommendations:

    – Fund working capital through a TAN line of credit, thereby freeing up $14M of capital
    – Assess the true need for the 90 day emergency fund. It’s easy to say we need an emergency fund but the more appropriate decision making process would be to clearly define the risks that need to be mitigated, understand what approaches and solutions there are to do so, and then determine whether in fact we need another $12M in capital tied up. Based on my conversation with the city manager, its not clear at all that we need a 90 day fund.
    – Allocate as much as $22M – $34M to capital projects to 1) neighborhood road resurfacing, 2) road construction and intersection improvements, and 3) land acquisition.
    – Issue bonds or some other debt financing instrument IF opportunities arise to acquire land and we don’t want to miss a unique opportunity
    – Roll back the millage rate to 4.295

    This healthy debate is not over. There will be another bite at the apple in a month when we evaluate the city budget and subsequently approve it. I do appreciate this council’s willingness to at least have the discussion, which apparently was not the case in prior councils.

    I look forward to your continued support as we strive to achieving a better balance in how we manage the city’s finances and operations.

    All the best,

    Bob Gray
    Post 4
    Johns Creek City Council

    • Councilman Gray,

      I certainly thank you for taking the time to read my comments. I also appreciated the support both you and Lenny gave to roll back the millage rate. It would be wrong of me to not mention that if you had two additional council members, your motion would have likely passed. So I would also encourage you to correct the charter so that no one can suggest that the Charter allows an election for a Council Seat only as the Council sees fit.

      I feel that the city has lost sight of just how much income had to be earned and how much businesses had to sell in revenue to generate the profits to help us amass $54 million. These are after tax dollars that came out of their pockets. It is not a trivial amount.

      Meanwhile we have some of the highest business taxes around. And that is why we have more empty store fronts and less business development than our neighboring cities. Most everyone will agree that the more you tax something the less you get of it.

      I also know that this is known by government officials because they will work to help reduce those very same taxes to induce businesses to move into our community.

      Some question my motives. My motive is simple. Create the best business and residential environment for everyone. Not just new businesses. Not just new residents.

      Create an environment that rewards everyone that meets the needs of the local economy. We should not be picking the winners and the losers. The market can do that on it’s own.

      Frankly, sometimes we make the solutions just too complicated. They do not have to be.

      Thank you again.

  4. Great info Ernest. Some I understand some of it and some I don’t. I am not well-versed in a topic so complex- budgets and so forth; however I do get that the city is not spending money on what would benefit the residents. My pet-peeve is the traffic congestion, and approving additional building, only to produce more empty spaces. We cannot fill up what have already, yet more are built. With school out for the summer we have had a reprieve, but all I have seen as far as attempts to make things more tolerable and taking place in my immediate area is several areas where road work is in process, all along Bell/Boyles, and taking place at the same time. It seems to me a planner with any intelligence and foresight would NOT have elected to tear up the same street, a major artery, in so many places sumultaneously. It is amazing how SLOW this process is moving. One cannot get close to saying any improvements have been made this summer. I understand these things take time, although my question would be why tear up the the street in three places at the same time, all along the corridor, and why so slow to complete them? I see weeks pass were nothing is being done… They just seem to tear things up and then take weeks off. A specific example would be the bridge on Bell Road, and even more glaring is at Bell Rd where it intersects Abbotts. They have been working on this right turn lane all summer. It’s not finished. It’s worse than it was. I personally watched a right lane turn lane being added on Rucker Road that began the same time as this one, which finished two weeks ago. The design and objective was exactly what we have going on in this example. I don’t know what city official is responsible to oversee and push these projects along… I doubt it would do any good to call that person. No one at City Hall seems to listen, let alone react, and as you say they ‘dismiss’ and refuse to explain themselves. The traffic situation is still not being addressed in JC. The council members have temporarily had a break in residents complaining about traffic, but with school starting up in 2 weeks the intense frustration will soon pick back up for our residents. It will be even worse due the unfinished road construction.

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