Read My Lips – No New Taxes!

We all remember Bush the Elder’s infamous pledge. Well, what did we learn that we didn’t already know? Essentially, that politicians are going to say what you want to hear and then do what they want to do.

Now we have a cabal of insiders promoting the same hooey: “No new taxes even though a city resident is also a Cobb county resident.” Were it only so, The reality is that not only will taxes go up, they must go up. Here’s why.

Read the feasibility study closely and you’ll see that raising taxes isn’t an option, it’s a necessity. First, look at the revenue projections versus expenses. In the best case, revenues will exceed expenses by only $2.8 million, not even a one-month cushion. So when revenues come in below projection, how are they going to make up the shortfall?

Another glossed-over detail is the uncertainty about who’s responsible for maintaining the roads. State law says it’s the city’s obligation. The feasibility study says, essentially, the city and the county will work it out somehow. What makes you think the county is going to bend over backwards to accommodate a renegade city? So where’s the money for road maintenance going to come from?

Then there’s the $8 million start-up costs. The feasibility study says the proposed city will be able to raise the money through Tax Anticipation Notes. What investor is going to want to buy TANs from a city that doesn’t even exist? What would you buy – United States Treasury Bills or City of East Cobb TANs?

Well, investors will buy anything if the return is high enough. This means that the proposed TANs will have to sell at a bigger discount to provide a higher yield to offset their risk. When you look at the feasibility study’s figures, it claims the cost to the city will be 2.1 percent. In other words, investors are going to pay a premium for shaky small city bonds over Treasuries?

Not only that, but the rate on which they base their calculations, the LIBOR, is nearly 25% higher as of this writing than the rate in the feasibility study. There’s a rat’s nest to unpack here, but the bottom line is that the city’s borrowing costs are going to be much higher than the report claims. This means debt service will be higher, so expenses will be higher. How do they propose to make up the difference? They ain’t sayin’.

What’s more, the feasibility study explicitly states that it makes no allowance for economic “shocks, such as unanticipated capital expenses or a major economic downturn.” We’ve already seen the first warning of an impending recession, an inversion of the “yield curve,” which has correctly predicted nine of the last ten recessions. When the storm clouds roll in and revenues decline, how does the city make up the difference?

The answer, of course, is to raise taxes, because that’s the only tool in any government’s toolbox. Well, how will they do it? We simply don’t know, because the swindlers haven’t drafted a city charter that describes how and under what circumstances they can raise taxes. But it’s not a matter of if, it’s a matter of when, and it’ll be sooner than you think.