published Tuesday, April 15th, 2014

Chattanooga rejects liquor tax deal proposed by Hamilton County Schools

The entrance to the offices of the Hamilton County Department of Education headquarters.
The entrance to the offices of the Hamilton County Department of Education headquarters.
Photo by John Rawlston.
Should the city accept the schools' offer on liquor tax?

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    Superintendent Rick Smith listens during a meeting in this file photo.
    Photo by Doug Strickland.
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After filing a lawsuit on Friday, Hamilton County School officials have countered a city offer to make reparations for years of unpaid liquor taxes.

Within hours the city rejected the offer, with the mayor's chief of staff concluding: "It's time to let the lawyers handle it."

It's the latest back-and-forth in a months-long battle between the county school system and the City of Chattanooga over millions in unpaid liquor-by-the-drink taxes. Monday's counteroffer includes a five-year repayment plan for the $11.7 million -- an idea also included in an earlier proposal from Mayor Andy Berke -- that school officials say is due from unpaid taxes between 1998 and 2014.

The proposal from Superintendent Rick Smith suggests that the city owes at least an additional $3.5 million and asks for transfer of the former Poss Homes public housing site and the North River YMCA swimming pool from the city to the school system as well.

As recently as last month's one-on-one meeting between Berke and Smith, the school system had pointed to an $11.7 million debt, Berke Chief of Staff Travis McDonough said in a news release. And the city says this is the first it is hearing about the additional $3.5 million.

"We are now hearing a new, increased amount -- almost one-third higher than the $11.7 million stated repeatedly over the last twelve months," McDonough said. "When HCDE decides to increase the amount owed by nearly 30 percent, file a lawsuit, and state that the City is not operating in good faith, it's time to let the lawyers handle it."

City and schools officials had been in the midst of a 30-day working period over the back taxes.

But on Friday, spurred by legislation pending in Nashville and talks they said were going nowhere, school officials filed suit seeking the full $11.7 million, interest and attorney fees, plus an unknown amount of taxes believed to have gone unpaid for nearly three decades.

Berke responded that same day with the first solid offer to pay the disputed amount in full. Under that proposal, payments would have been made over the next five years.

But the money came with strings attached, including: Hamilton County would start paying its stormwater fees and the new revenue from the city would benefit "the schools the City's children attend," possibly excluding schools in the outlying parts of the county.

Berke outlined in his letter on Friday that he hoped school officials would accept this offer, otherwise: "We are merely going to spend a significant amount of time at taxpayer expense to resolve this issue."

Smith's counter on Monday went further, suggesting the city owes at least an additional $3.5 million and asking that the city:

• Start paying back the $11.7 million in five annual payments of $2.34 million, beginning July 1.

• Forgive $1.7 million in stormwater fees accrued by the Board of Education.

• Transfer the title of Poss Homes to the school board.

• Forgive any debt and release any lien on the North River YMCA swimming pool.

School officials have long wanted the former Poss site to build a much-needed replacement for Howard School's dilapidated football and track stadium.

"My proposal would do more than merely clear the City's debt, which I presume to be your intention," Smith wrote to Berke on Monday. "By transferring the properties in question, neither of which is of use to the City, the City would be enabling the Board to better the communities in which they are located."

Chattanooga isn't alone in its dispute with the school system, as cities across the state grapple with the prospect of owing millions that mistakenly went unpaid for years.

When Berke took office in April 2013, he had sought to satisfy the debt with cash and the transfer of Poss Homes, though the total amount of that deal wasn't near the $11.7 million school leaders said was owed.

No deal was officially reached, and school board members were bolstered by a February opinion from the Tennessee attorney general that said school boards can't waive any past-due liquor taxes.

School officials said last week's suit was a last resort to overcome a stalemate because they said talks with the city were getting nowhere. And they worried that a bill circulating in Nashville in recent days could threaten the schools' claim to the cash owed.

Contact staff writer Kevin Hardy at or 423-757-6249.

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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