Sales Tax, Sharing, and the High School Debt

The following was submitted to our local newspapers for publication.  It’s already up on the Observer’s website, and will likely appear in the Oak Ridger at some point.

In recent weeks, several guest columns by a City Council candidate or former Council member have alleged that the School Board is “holding the city hostage” or “failing to comply with the voters’ wishes” per the 2004 sales tax referendum.

Neither claim is true.

The fact of the matter is that the City developed the financial model for the new high school financing, and there was concern even before the referendum that if the County superseded the tax rate before five years elapsed, there would be insufficient income from sales tax to make the bond payments.  After five years, it was said to be a non-issue because the City could retire other debt.  Because of that risk, there was an unwritten agreement that the schools would contribute their share in the event that the County superseded the tax rate within five years.

The County did so after just two, on a petition-driven referendum spearheaded by the former Superintendent of Anderson County Schools.  Naturally, the Oak Ridge School Board understood that we had to help out for at least the next three years; payments were actually made for the next five years.

After five years, the payments were called into question, and the School Board was advised by our attorney that such payments were not legal without some written agreement approved by both the Board of Education and City Council.  Thus, payments were suspended.  The money was set aside until such time as an acceptable written agreement could be developed and passed by both.

In the process of developing such a resolution, it came to light that for the last five years, the schools have paid the City not just the half-cent collected in Oak Ridge (as explicitly called for in the referendum), but the schools’ share of the half-cent collected countywide.  Historically this wouldn’t have been a big deal, but over the last decade, retail in Oak Ridge has been stagnant or declining, while retail sales in other parts of the county have been on the rise.

The net result of that discrepancy is that the schools have actually overpaid the City by $1,373,696, simply by transferring the half cent of the schools’ share of countywide taxes instead of just those collected within our city.

A resolution has been drawn up specifically allocating the half-cent collected within the city limits of Oak Ridge – exactly what the 2004 referendum specified – to be voted on by the Board of Education on April 30, and by the City Council shortly thereafter.  This year’s funds, held in reserve, will be transmitted to the City immediately following ratification by both governmental bodies.

However, the problem remains that sales tax collections are not at the levels projected in the City’s 2004 financial plan.  The schools’ share of the half-cent collected in Oak Ridge will not make the bond payments at this point in time. It is unlikely that anyone could have foreseen the recession that began in 2008, so it’s not a matter of a bad plan – just that it didn’t work out as expected.

Some would like for the schools to continue making payments at the previous level, but those are funds designated by the State for the operation of schools.  And, in case no one has noticed, the City’s annual contribution to the school budget has not been keeping pace with the cost of living (not to mention various other costs imposed by the State or Federal governments).

Although the vote has yet to be taken and I can speak for no one but myself, it is my sense that your Board of Education is willing and ready to work with the City Council to establish this tax sharing process, in a way that is legal and properly approved.

Neither side will get everything they want.  The School Board was told that this was a five-year commitment (ending in 2009) at most, and would prefer to pay nothing; City Council would like to have enough revenue to cover the bonds for several decades, regardless of the fact that sales within our city are not generating that amount.  Abiding by the explicit terms of the 2004 referendum is the best compromise.

That is what is contained in the resolution.  Clearly, the best path forward is approval of this resolution, and for City Council to redouble efforts to revitalize retail in Oak Ridge, benefiting both the City and the schools.

2 Responses to “Sales Tax, Sharing, and the High School Debt”

  1. on 25 Apr 2012 at 7:45 am girlfriend

    Thank you for a rational look at the situation. Negotiations 101 teaches you to not go to the table if you think you are going to get everything you want. Negotiations take compromise. The last thing that needs to happen is paying a group of lawyers. Thank you for working hard for this not to happen. Now let’s see if everyone can put in the same effort without name calling and egos.


  2. […] the Sales Tax Fight It has become apparent to me (and others) in the last couple of weeks since my column ran that many people — maybe most people — don’t really understand how the sales […]

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