Auburn's Center for Governmental Services released a study Sept. 29 which warned local governments to be wary in distributing funds for developments during the recession.
The study also examined the effects on local tax bases of high foreclosure rates in housing and developments.
"With foreclosure there could be a delay or even a non-payment of property taxes," said David Hill, associate director for the Center for Governmental Services. "This is troublesome for states such as Georgia because they had an explosive amount of growth before the recession and housing market bust."
Developers work with a community and ask the city to provide services such as streets and water, Hill said.
If these developments go bust because of various issues such as foreclosure and bankruptcy, there is no source of income to pay back the bonding the city borrowed to invest the money for infrastructure to the developing locations, Hill said.
Local governments find a major source of their income and revenue to disperse to their budgets through property taxes, Hill said.
Wes McCollum, attorney and partner at McCollum, Crutchfield and Wilson P.C., who handles real estate law, said banks want their money back quicker because of the financial markets. This has caused developers to have less money for developing houses and neighborhoods, and even more trouble getting enough people to buy the land lots.
"The city might be involved with putting in some water features, but a lot of times the developer has to share in the costs," McCollum said. "At least here in Auburn, the city does a real good job to make sure that the city gets their money up front and the developer can pay their end."
Oline Price, Lee County Revenue Commissioner, said Lee County has actually seen an increase in tax revenue since last year, despite the recession.
Price predicts the county will see an overall leveling trend in the future.
"In the past 12 years we have never seen a major loss in tax revenue," Price said.
Despite the recession and weak housing market, Auburn has not been hit as hard as some cities, especially some in Georgia.
"Auburn has done pretty well considering what has been done everywhere else," McCollum said. "Here in Auburn, houses are still selling, but are just sitting on the market a little more than they used to."
Alabama wasn't growing quite as rapidly as Georgia, but may be in a better situation after the recession to be able to pick back up with more developments to stimulate growth, according to Auburn University's Center for Governmental Services.
From 2000 to 2008 Georgia added 744,000 housing units, which made it the fourth fastest growing state at a 22.4 percent. Alabama only saw a 9.9 percent growth rate.
The University study was based on research from U.S. Census Bureau data on housing unit growth and found Georgia's foreclosures saw about a $249 million setback to the government.
"Cities are getting hurt on two counts," Hill said. "One is that they are not getting the money to pay for municipals such as police and fire departments and they are not getting paid back the money they borrowed to build these streets, water and sewer systems to these new areas."
Hill said it is difficult to say which factor is most at fault for causing the recession or housing bust, and why houses are foreclosing and developers are going bankrupt.
"Our warning to local governments is if you start noticing a lot of builders or developers coming in to city hall or the county court house with lots of big new development asking you to build infrastructure, sometimes you may need to look closer," Hill said. "Sometimes governments are excited to welcome in new developments because it expand their current tax base, but this current bust taught us that it could turn around and bite you."
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