published Friday, September 6th, 2013

$11 million Hamilton County school oversight raises eyebrows as Chattanooga aims to fix problem


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How do you lose track of $11 million?

That's the question several Hamilton County school board members are asking since their finance director discovered Chattanooga hasn't paid the schools' share of liquor-by-the-drink taxes for nearly a decade.

The shortfall totals $11.4 million -- money that could have funded nearly a whole elementary school, pay raises or some 20 additional teachers each year.

"I would still like to know the answer," said school board member David Testerman. "If this has happened for so long what else is going on?"

Chattanooga Mayor Andy Berke has started to make it up to the Hamilton County Department of Education, though the city doesn't have any plans to repay the lost $11 million. His 2014 budget includes $1 million in liquor-by-the-drink taxes, and he's proposing to donate the site of the former Poss Homes public housing complex to the school system and give the system half a million dollars to start an early childhood education center.

"[We] are confident that we've reached an appropriate solution moving forward," Berke's chief of staff, Travis McDonough, said in a prepared statement.

But some school board members said the shortfall shouldn't have taken years to uncover.

"I don't know why our county didn't catch that mistake," school board member Rhonda Thurman said. "They should have caught that."

Hamilton County Schools Superintendent Rick Smith said school finance officials discovered the error early this year after another municipality called asking about the liquor tax. They spoke to Berke before he was sworn into office.

"There would be no reason for our finance people to know that. It was just a failure on the city's part," Smith said. "And I don't think anyone with the city knew it."

When the former county and city school systems merged in 1998, Chattanooga's local sales tax rate was 2.25 percent, a half-cent higher than the countywide rate. For several years the city gave half the extra money to the county schools, and it also was supposed to give half its annual liquor-by-the drink tax revenue to the school system.

By law, half the sales tax collected at the countywide rate goes to schools. When the county and other cities raised their local sales taxes to match Chattanooga's, the city lost the advantage of that extra half-cent. Along the way, apparently everyone forgot about the liquor tax revenues.

While both sides agree the city is trying to repair the problem, Testerman questions what other errors have yet to be discovered.

"It raises a big question," Testerman said. "I hope there is some type of auditing put in place to make sure what's being reported right now is accurate."

School board members haven't yet budgeted the extra $1 million a year, but Testerman, head of the board's finance committee, said they'll begin discussing it next week.

School Board Chairman Mike Evatt said the school system has wanted the Poss Homes site land behind the Howard School for years. He's satisfied with the city's solution.

"I don't think it was intentional on the city's part. Really, to me, there's nowhere to point fingers," he said. "We got some things we needed. And we also got the tax straightened out."

Contact staff writer Joy Lukachick at or 423-757-6659.

about Kevin Hardy...

Kevin rejoined the Times Free Press in August 2011 as the Southeast Tennessee K-12 education reporter. He worked as an intern in 2009, covering the communities of Signal Mountain, Red Bank, Collegedale and Lookout Mountain, Tenn. A native Kansan, Kevin graduated with bachelor's degrees in journalism and sociology from the University of Kansas. After graduating, he worked as an education reporter in Hutchinson, Kan., for a year before coming back to Chattanooga. Honors include a ...

about Joy Lukachick Smith...

Joy Lukachick Smith is the city government reporter for the Chattanooga Times Free Press. Since 2009, she's covered crime and court systems in North Georgia and rural Tennessee, landed an exclusive in-prison interview with a former cop convicted of killing his wife, exposed impropriety in an FBI-led, child-sex online sting and exposed corruption in government agencies. Earlier this year, Smith won the Malcolm Law Memorial Award for Investigative Reporting. She also won first place in ...

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