NASHVILLE — Tennessee counties and cities also are suffering from what may be the nation’s worst economic downturn since 1982, officials say.
Sales tax revenues already are down, property tax delinquencies are expected to rise and costs in areas from education to asphalt are growing.
“I think, not unlike the state, the economic conditions that exist — the market, gas taxes, our gas prices, sales taxes, the price of homes, the foreclosures — all of those are having an impact on revenue,” said Chad Jenkins, deputy director of the Tennessee Municipal League, which represents towns and cities. “It’s kind of the perfect storm.”
Mr. Jenkins was one of several officials last week who described local governments’ increasing problems to members of the General Assembly’s Fiscal Review Committee and House Finance Committee.
Local governments’ plight comes as Tennessee Gov. Phil Bredesen readies plans to slash as much as 10 percent from spending next year to deal with a shortfall that could hit $800 million. The governor began open budget hearings on Monday.
David Connor, executive director of the Tennessee Association of County Commissioners, said the state’s 95 counties also are feeling the pain.
Twenty-two counties in the fiscal year ending June 30 saw a decrease in sales tax revenue, Mr. Connor said. This year, the number is about 37, he said, noting the affected counties make up nearly 60 percent of the state’s sales tax base.
Among them is Hamilton County which, according to figures provided by Mr. Connor, had a $1,039,669 million shortfall in sales tax collections during the first quarter of the fiscal year — July, August and September.
Mr. Connor said counties’ gross receipts taxes on auto dealers and lumber companies are expected to decline since both segments have been hard hit by the international credit crisis and subprime loan mess.
But Hamilton County Finance Administrator Louis Wright said the shortfall for that three-month period was closer to $100,000. The county took in about $3.14 million from July to August 2007 and got about $3.04 million from July to August 2008, he said.
Mr. Wright said officials were expecting sales tax revenues to be down but anticipated a turnaround.
County Mayor Claude Ramsey said sales tax revenues so far “are a little bit below projections, but we’re not as dependent upon sales tax as the state or cities.”
County officials built the current budget anticipating no increase in sales taxes. Sales taxes account for about 7 percent of the county’s budget.
In the meantime, Mr. Ramsey said, county officials are “being very careful” about spending and finding ways to reduce spending.
“If we have somebody leave, we’re trying to see if, in fact, there’s a way to share those duties,” Mr. Ramsey said. “I’ve said to staff repeatedly we need to make sure that we’re doing the very best we can to take care of what money we got. Times are tough, and we don’t know what the future holds.”
Daisy Madison, chief financial officer for the city of Chattanooga, said sales revenue has started dropping.
“The city has also seen a shortfall,” she said.
She said state sales tax collections — the portion that goes to the state, then divvied up between all counties and municipalities — have lagged all year, she said. Now the local option sales tax the city gets directly from local retailers has waned, too, she said. But with gasoline prices dropping, the city is hoping for a boost in sales tax since gas isn’t carving out so large of chunk of peoples’ incomes.
Still, she said, “we have asked all city departments to be conservative.”
Mayor Ron Littlefield said the city would prepare itself for a worsening economy, but he thought Chattanooga was better off than other similarly sized cities.
Right now, the city is preparing contingency plans in case things get worse. Without getting into details, he said most of those type plans mean spending reductions and freezes.
“We don’t want to scare anybody with draconian-type reductions, which is not appropriate at this time,” he said.
And as home prices fall and families cut back on spending, property tax delinquencies also can be expected to rise, Mr. Connor said.
Mr. Jenkins with the Tennessee Municipal League said when “you have a situation such as you do today with the economic conditions, and people have to make choices where they give their paycheck, they’re going to protect their home, put food on their plate first, and the property tax doesn’t rank real high in that hierarchy of need.
“We have seen and expect that people will not pay property tax or not pay all of it or pay it late, and that creates cash flow problems,” he said.
Officials said local problems with property tax collection likely will be aggravated in the next few years as counties conduct required property reappraisals. Hamilton County is due to conduct its property reappraisal in 2009.
“It’ll affect the property tax increase through delinquencies,” Mr. Connor said. “Over time, as people go through reappraisals — and Hamilton County is expected to go through reappraisal next year — that could bring their property values down for a while.”
Hamilton County Trustee Carl Levi said property tax notices went out in October and the deadline for payment is not until February. It is too soon to tell what the impact of the troubled economy will be, he said.
Mr. Connor with the county commissioners’ group said that as counties seek to trim their budgets, “there’s a lot of state laws and mandates that prevent you from reducing funding in certain areas.”
For example, the state’s Basic Education Program funding formula prevents local governments from trimming their share of education funding year over year.
“Everybody’s working to preserve K-12 funding as best they can, both at the state and local levels, but that’s such a huge percentage,” Mr. Connor said. “To the average county, that’s 65 to 70 percent” of a county’s budget.
“If there’s that big a chunk of your budget you can’t reduce, it’s hard to make cuts out of the rest,” he said.
County highway departments also face problems, Mr. Connor said, noting counties must maintain a five-year average for funding. If a county government cuts spending, state officials “will cut you on your state gas tax, dollar for dollar.”
Staff writers Matt Wilson and Cliff Hightower contributed to this story.
