United States: Overview Of Special Purpose Local Option Sales Tax (SPLOST) And Related Financing

The unpopularity of property taxes and the simplicity and perceived fairness of sales taxes have made the County 1% Special Purpose Local Option Sales Tax ("SPLOST") a popular method for funding needed capital projects in Georgia. That the voters must approve the SPLOST through referendum reinforces democratic principles and is popular with officials. The voters will decide whether the described projects are funded through SPLOST, and elected officials need not raise property taxes for funded projects. The SPLOST statute was substantially rewritten in the 2004 General Assembly, effective July 1, 2004, with respect to how the tax is to be applied.

The SPLOST statute and procedures are difficult, however, and some SPLOSTs have failed as a result. Questions have arisen concerning the procedures through which the election is called, what language is to appear on the ballot, how long the tax will remain in effect, what projects are financeable and how the projects are to be described, what happens if a project changes after the imposition of the tax, how city projects can be included, when an intergovernmental contract is required, when borrowings may be incurred and repaid from SPLOST monies, and how excess SPLOST monies are to be used.

SPLOST funding is inherently slow, as the 1% tax will be collected over the several years for which the tax is imposed. Since as a general matter construction of a project cannot be contracted for until monies for that purpose are available, taxpayers may be disappointed not see the project they voted to fund until years after the SPLOST election. This can be alleviated by financing the SPLOST-funded project. The SPLOST referendum can be used to authorize the issuance of SPLOST/general obligation bonds. Alternatively, lease-purchase or certificates of participation financing, which is not directly addressed in the SPLOST statute but is authorized by other provisions of Georgia law, has developed as a common method of financing SPLOST projects.

All of these issues will be dealt with in more detail in this Overview. This Overview should not be regarded as a full statement of the applicable laws, as these laws are too detailed to be fully described below. However, the primary issues, general principles and relevant authorities are described below, and knowledgeable attorneys can fill in the details.

Imposition of the SPLOST

The board of county commissioners may authorize the special 1% sales and use tax for up to five or six years, subject to renewal. The imposition of the SPLOST and any renewal is subject to a voter referendum.

Prior to calling for the imposition of SPLOST, the county must give at least 10 days written notice to the mayor or chief elected official in each qualified municipality located within the county of a meeting to discuss possible projects for inclusion in the referendum, including municipally owned or operated projects. That meeting must be held at least 30 days prior to the issuance of the call for the referendum. This process provides an opportunity to assure that the SPLOST will address the broad range of community needs required to gather widespread support for the referendum. County-municipality cooperation in developing the list of SPLOST projects may assist in the passage of the referendum. Following these preliminary procedures, the county commission may by resolution or ordinance call for the imposition of the tax, subject to a voter referendum, and forward a copy of that action to the county election superintendent. The resolution or ordinance must specify the purposes for which the tax will be used, the maximum period of time that the tax will be imposed, the estimated cost of the projects (which is also the estimated amount that may be raised by the tax), and certain details about any general obligation debt to be authorized in connection with the SPLOST.

The election superintendent must issue a call for an election on the SPLOST, to be conducted on a date and in the manner prescribed by general law for special elections (see our "Overview of Georgia Referendum Requirements" for further details). The date and purpose of the election must be legally published in the four weeks proceeding the date of the election. If a majority of the votes cast are in favor the SPLOST will be imposed, and if not, a SPLOST may not be submitted for another referendum for approximately one year.

Projects Authorized

SPLOST can fund any capital outlay projects that are owned or operated by either the county, a qualified municipality in the county, a local authority in the county, or some combination thereof. Capital outlay projects refers to major, permanent or long-lived improvements such as land, buildings and other structures, roads and bridges, and major items of equipment and vehicles.

There may be special cases where ownership is not by the county, a municipality or a local authority. For example, regional correctional facilities, and regional solid waste handling or recycling facilities (excluding incineration), whether inside or outside the county, are specifically authorized and may be owned and operated by regional authorities under intergovernmental contract.

The statute makes special reference that publicly-owned local hospital facilities financed with SPLOST may be operated under contract or lease with a nonprofit "501(c)(3)" organization. Presumably this specific authorization was unnecessary and other publicly-owned projects financed with SPLOST can be operated in a similar manner in appropriate circumstances.

The legislation also specifically authorizes by laundry-list approach a variety of specific types of projects, for example sidewalks, bike paths, civic centers, libraries, cultural facilities, recreational facilities, historic facilities, public safety facilities, and airport and other transportation facilities. It is difficult to see what this list adds to the general authorization to apply SPLOST to all types of capital outlay projects described above in this section. Presumably SPLOST may not be used for projects on this list that are not owned or operated by a county, municipality or local authority (or combination thereof), with the possible exception of such projects when owned or operated by other governmental units and serving the county.

County SPLOST Project Priorities and Inclusion of Municipal Projects

For the purposes of the SPLOST statute, certain projects that are for the use and benefit of the citizens of the entire county are designated "county-wide projects," and these are subdivided into Level 1 and Level 2 projects. A "Level 1 Project" is a project of the county to carry out functions on behalf of the State and may consist only of a county courthouse; a county administrative building primarily for county constitutional officers or elected officials; a county or regional jail, correctional institution, or other detention facility; a county health department facility; or any combination of such projects. A "Level 2 Project" is a project of the county or one or more municipalities, other than a Level 1 Project, which project is to be owned or operated or both either by the county, one or more municipalities or any combination thereof.

The county and qualifying municipalities representing 50% or more of the total municipal population in the county may enter into an intergovernmental contract prior to the call for the SPLOST election (an "Intergovernmental Contract"). Such an Intergovernmental Contract must contain a list of the projects to be funded by the SPLOST, the estimated cost of each project, a procedure and schedule for distributing the municipalities' share of the SPLOST, and recordkeeping and auditing procedures.

However, if no Intergovernmental Contract is reached, the SPLOST statute dictates how SPLOST receipts will be divided between the county and municipalities. The county may alone determine to apply some or all of the SPLOST on a first-priority basis to Level 1 Projects designated on the ballot. If no Level 1 Project is designated by the county, it can designate the county's Level 2 Projects to have first priority on up to 20% of SPLOST receipts. Any SPLOST revenues remaining after this Level 1 or Level 2 Project reservation are to be distributed to the county and the municipalities according to population.

What Goes on the Ballot

The form of ballot language is set out in O.C.G.A. § 48-8-111, and reads as follows:

Shall a special 1 percent sales and use tax be imposed in the special district of _________ County for a period of time not to exceed __________ and for the raising of not more than an estimated amount of $_________ for the purpose of ______________?

When general obligation debt, repayable from the SPLOST, is to be authorized, certain language described below must be added to the ballot.

Despite the apparent simplicity of the ballot form, it can present questions and difficulties. The ballot form requires that the purposes to which the tax will be applied be inserted. The degree of specificity required is not stated, but Unofficial Opinion of the Attorney General of Georgia No. U90-18 (1990) concludes:

There is no necessity that the description of the purpose or purposes for the tax be in exacting detail. Rather, . . . the description and the purposes must be only so specific as to place the electorate on fair notice of the projects to which the tax will be devoted.

The opinion suggests that a brief statement such as "county judicial facility" or "recreational facility to be constructed within the City of Canton" is sufficient. In the case Dickey v. Storey, 262 Ga. 452 (1992), the referendum question described county "recreational facilities and multi-purpose governmental facilities." The Georgia Supreme Court apparently found this description adequate, and permitted the proposed location of facilities to be changed to some degree.

The ballot form also must set out the estimated amount of tax to be raised and the period that the tax is to be applicable.

Length of SPLOST and Amount To Be Raised

If an Intergovernmental Contract is reached between the county and municipalities within the county having population representing 50% or more of the total population of such municipalities, the SPLOST can be authorized for up to six years. Where there is no Intergovernmental Contract, the SPLOST can be collected only for up to five years, except as described below. When SPLOST authorization includes one or more Level 1 Projects, the SPLOST must be levied for five years if the Level 1 Projects will require less than 24 months of estimated tax collections, but the SPLOST must be levied for a full six year if the Level 1 Project will require more than 24 months of estimated tax collections.

The SPLOST will end at the end of the period specified on the ballot, or earlier at the end of any quarter at which the tax commissioner determines the estimated amount for all authorized purposes will be collected. The tax will remain in effect for the full period if the estimated amount authorized to be raised (the costs of the projects authorized to be funded) are set higher than what can be collected during that period, so estimates are frequently set high rather than low. Also, if the SPLOST is based on an Intergovernmental Contract or funds a Level 1 Project, the SPLOST cannot end early and must be collected for the full period.

Imposition of SPLOST for Debt Reduction

The retirement of previously incurred general obligation debt of the county or one or more qualified municipalities also may be described as a purpose for the imposition of SPLOST. The debt must be general obligation debt, presumably not lease-purchase obligations, and it must have been incurred "previously," apparently prior to the resolution or ordinance calling for the imposition of the SPLOST.

Changes to Projects and Infeasibility

As already discussed, both the action taken by the county commission to impose SPLOST and the ballot question can describe the purposes of the tax in rather general terms. Questions arise concerning how much latitude the commission has subsequently to actually apply the tax.

This became an issue in Dickey v. Storey, cited above. Here the county commission adopted a committee report calling for a softball complex and a downtown riverfront governmental office and civic center and at the same time called for a SPLOST referendum on the projects. Only subsequently the commission selected a specific downtown riverfront site and had plans drawn and presented. The referendum was then held, describing the facilities simply as "recreational facilities and multi-purpose governmental facilities." The approved tax began to be collected and portions were expended for a part of the work on both the softball and downtown complex projects. Accounting for these expenditures was made in certain SPLOST budget and account reports as prescribed by the SPLOST statute. Subsequently, after new elections, the board of commissioners attempted to purchase and develop a different site for the softball facilities and to reduce the size of the civic center and move it away from the governmental offices to a site outside of the downtown. The Supreme Court held that
the board abused its discretion in deciding, without the benefit of any plans or studies, [to make these changes on the civic center] after spending 19% of the budget for the entire project when the evidence does not support the board's opinion that the civic center cannot be safely and suitably built on the original site.

The board did not abuse its discretion in purchasing additional property for a softball complex on the evidence presented; the county could change plans and put recreation at two sites and remain consistent with the approved referendum. The county was ordered to proceed with the projects as the voters understood them at the time of the referendum and as further delineated in the budget and account reports made with respect to the initial expenditures of tax proceeds. Generally, the county was required to complete the projects unless circumstances arise which dictate that projects which initially seem to be feasible are no longer so. In this regard the governing authority has discretion to make adjustments in the plans for these projects, but may not abandon the projects altogether.

This case suggests that the details of a project need not be fully delineated when presented to the voters, that a project can be changed in a manner not inconsistent with the voter referendum, but that a project cannot be more fundamentally changed or abandoned unless in fact the project planned is infeasible. In the case of infeasibility, the project can be adjusted, but not abandoned unless wholly infeasible. Further, the case suggests that a project may be further delineated after the referendum by the expenditure of tax funds, and a showing of infeasibility may be required to change this delineation.

Use of and Accounting For SPLOST Funds

SPLOST funds can only be used for the purposes described in the referendum and call for election and must be held in a dedicated account, not commingled with other funds prior to expenditure. Each annual audit must include a schedule for each project, including the estimated total amount of the SPLOST to be used for that project, the amount expended in prior years, the amount expended in the current year, and the estimated percentage of completion. The statute requires that records sufficient for these audit purposes be maintained for every project for which the SPLOST is used.

Financing SPLOST Projects

General Obligation Debt

County or municipal general obligation debt repayable from SPLOST can be authorized in the SPLOST referendum by adding the following ballot language:

If imposition of the tax is approved by the voters, such vote shall also constitute approval of the issuance of general obligation debt of ___________ in the principal amount of $______________ for the above purpose.

Where debt is to be authorized, the resolution or ordinance imposing the tax and the published notice of the election must specify the maximum interest rates which the debt is to bear, and the amount of principal to be paid in each year during the life of the debt. The validation of the debt must demonstrate that the SPLOST receipts for this purpose will be sufficient to pay the debt. Such debt can be issued as notes or bonds in accordance with the usual procedures (see our separate "Overview of Governmental Financing") and is payable first from the SPLOST received, or if the SPLOST is insufficient, from the general funds of the county.

The authorization and issuance of SPLOST/general obligation debt is the most straight-forward and flexible method for financing projects prior to the actual receipt of sufficient taxes, allowing projects to be commenced shortly after the passage of the referendum. The debt will receive the full credit rating of the issue and can be applied to any or all of its projects specified. Nevertheless, the debt authorization frequently is not included on the ballot question. Apparently this is the result of concerns on the part of officials, well-founded or not, that voters may be less likely to approve SPLOST if "debt" is referred to on the ballot question. Possibly, due to failure to understand the nature of this debt, voters could cast negative votes, even though the debt is to be paid from the sales tax that they otherwise would authorize. Although the debt authorization has been used very successfully, this concern, together with the restriction that a defeated SPLOST cannot be reconsidered for one year, has limited the use of SPLOST/general obligation debt in some instances. Properly understood, however, inclusion of the debt authorization can provide desirable flexibility and quicker realization of the funded project without any likelihood of property taxes having to be assessed for this purpose.

Lease-Purchase and COPS

An alternative approach to financing SPLOST projects when there is no debt authorization in the referendum is through a lease-purchase or certificates of participation ("COPS"). Generally, lease-purchase financing allows a county or city to acquire property by paying over its full term an annually renewable contract for the use and acquisition of the property. The contract must not bind the county or city for a period in excess of a calendar year, but may provide for automatic renewal year to year unless positive action is taken to cancel. A third party acquires and provides the property to the county or city in return for payments of principal and interest, usually over the term of the SPLOST. The county or city will make annual appropriations for the payments, but should it fail to do so, or should it determine to cancel the arrangement, the county or city would lose the property and all payments that it made or committed through that year. Of course, it is anticipated that the county or city will make all payments for the full term from the SPLOST and acquire unconditional title when the final payment is made. COPS are a specialized subset of lease-purchase contracts sold as securities resembling bonds. A full description of lease-purchase financing and COPS is beyond the scope of this Overview, and we refer you to our separate "Overview of Lease-Purchase Financing and COPS".

Lease-purchase obligations are not treated as general obligation debt, and the use of lease-purchase financing need not have been referred to, or even contemplated at the time of, the proceedings to impose the SPLOST. SPLOST receipts can be used to make payments on such financing because the payments are for the use and acquisition of the capital outlay project.

There are restrictions on the use of lease-purchase financing that may make it unsuitable for some SPLOST projects. Because of additional risks in lease-purchase financing, lenders may charge more for it and may only make it available for projects providing essential governmental services. For example recreational and cultural facilities may have difficulty in obtaining this type of financing. Also, although SPLOST can be applied to facility improvements and enhancements, lease-purchase arrangements generally are suitable only for discrete facilities to be 100% financed. For example, SPLOST can be authorized for renovations to a historic courthouse but such renovations alone cannot be the subject of a lease-purchase financing. Similarly, SPLOST can be used to build an administrative building on land then owned by the county, but special obstacles are encountered in trying to finance a building but not the land through lease-purchase. All of these obstacles can be overcome in some cases, and bond counsel should be consulted.


SPLOST is an important and attractive tool for funding local government projects. It can be combined with general obligation debt, lease-purchase financing and certificates of participation to leverage its power and build projects for use and enjoyment sooner. This relatively painless funding device often proves popular with voters and government officials alike.

However, the difficult and convoluted SPLOST statute contains traps for the unwary and careful consideration and consultation with knowledgeable counsel is advisable early in the process of considering SPLOST funding and financing. This Overview touches on the more important issues, but many details have been omitted. Additional information is available from the writer.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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