A square of asphalt on the public tennis courts in Lookout Mountain, Tenn., will be repaired with funds from a recent tax increase.

Lookout Mountain, Tenn., recently raised property taxes to pay for such expenses as fire and police officers' raises and much-needed repairs to crumbling municipal tennis courts.

Now, city officials are concerned that a state-level effort to make Tennessee more retiree-friendly could slice 20 percent from the city's budget and possibly lead to another property tax hike.

Gov. Bill Haslam and the Legislature have discussed doing away with the Hall Tax, a state tax on interest and dividends, a portion of which is passed on to communities in which the residents live. That proposal makes Town Consultant Dwight Montague nervous.

"We hate to see the Hall Tax go away, but it sure looks like that's where the choo-choo train's going," he said.

Cities get three-eighths of the Hall Tax and the state keeps a the rest, he said, and that three-eighths tax accounts for about 20 percent of Lookout Mountain's budget, Montague said. The tax brought in $609,000 during the city's most recent fiscal year.

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"Some wealthy people happen to live on Lookout Mountain," he said. "If we were to lose [the Hall Tax], the only place we could replace it would be property tax. It's going to mean everybody's property tax goes up."

Eight bills were introduced during the Tennessee Legislature's 2011 session to reduce or completely eliminate the Hall Tax. Only one bill passed to increase the income exemptions for persons over 65.

Depending on how many people take advantage of the changes, it could cut the state's revenue by about $1 million and local governments' take by $650,000.

Late last year, Senate Speaker Ron Ramsey, R-Blountville, told The Associated Press that it is "very likely" that lawmakers will cut the Hall tax more in the upcoming session, with a goal of eventually phasing out the tax for seniors.

But House Speaker Beth Harwell, R-Nashville, said she's hesitant about cutting the Hall tax more since so much of its revenues are sent back to the governments of the counties and cities where those who paid the tax live.

"That's a legitimate reason why we are not moving forward quickly on reducing the Hall income tax, because our local governments do rely on that," she told the AP.

Montague can see why the state would want to attract retirees.

"They don't use schools," Montague said. "The police aren't having to worry about gangs in retirement centers."