Profit and loss: Small local cities fight to keep shared tax dollars

Hamilton County Mayor Jim Coppinger
Hamilton County Mayor Jim Coppinger
photo Hamilton County Mayor Jim Coppinger

The legislative breakfast last week where County Mayor Jim Coppinger asked for a helping of state-shared sales tax money left local small-city mayors with heartburn.

Coppinger told members of the Hamilton County legislative delegation the 100,000 or so residents in the county's unincorporated area should be at the table, not just the 10 municipalities, when state-shared sales taxes are distributed.

But small-city officials say dipping an extra ladle into that sales-tax pot will force cities to either cut services or raise property taxes.

And that's what they told Coppinger when he called them together in July and announced his plans, Collegedale Mayor Katie Lamb said.

"We all told him then, almost to the last person in that room, that was not something we could agree to," Lamb said.

"He indicated if we didn't raise ours, they would have to raise theirs in order to meet their needs, and that was something he didn't want to do."

Boosting budgets

Small-city officials say losing any part of their shared state sales tax will mean cutting services or raising taxes. City / Shared tax revenue Collegedale: $639,885 East Ridge: $1,570,148 Lakesite: $136,673 Lookout Mtn.: $137,122 Red Bank: $872,060 Ridgeside: $29,190 Signal Mtn.: $625,958 Soddy-Daisy: $951,624 Walden: $142,062 Source: Small Cities Coalition/Tennessee Municipal League

Of course not, Coppinger said. County property taxes haven't gone up in eight years, and he has no intention of suggesting such a thing.

"It would be irresponsible of me not to be out trying to protect all the citizens of Hamilton County against any property tax increase," Coppinger said.

So he has asked state lawmakers to see if there's a way the county can get in on a tax-sharing arrangement that's boosted cities' budgets since 1947.

"We don't have the luxury of the additional revenue they have. That's the whole issue, is to be treated fairly and equitably. They've been getting it so long it's become almost an entitlement," Coppinger said.

At the same time, he said, he wants to work with the municipalities for a solution crafted with "fairness and the least hardship possible."

City leaders, in turn, don't say the county doesn't need more money - just that it shouldn't come out of their budgets.

"I wish the cities and the county could work together to get a larger share of the tax revenue collected by the state," Lamb said.

Tennessee residents pay a 7 percent state sales tax on most goods and some services. The state then returns a small portion of that tax revenue - 4.6 percent of 6 percent of the total - to cities based on population. The countywide sales tax of 2.25 percent is not included - local governments keep half of that and the other half is reserved for schools.

Last year the state handed out $270 million. Locally, the sales tax sharing amounts range from $1.5 million in East Ridge to $29,000 for Ridgeside.

Coppinger says the residents in the unincorporated areas also pay that sales tax, and they deserve some of the returns. The county has full responsibility for schools, health care, ambulance service, jails and law enforcement. And it lost $13 million a year when the sales tax agreement with Chattanooga expired under the Littlefield administration.

"We build quite a bit of schools around here. We're going to be building a jail. We've got a lot of expenses coming our way," he said.

Based on the per capita formula, Hamilton County would reap something over $5 million.

But that would come straight out of the budgets of the smaller cities, says Lamb. She's the spokeswoman for the Small Cities Coalition of Hamilton County, which also includes East Ridge, Soddy-Daisy, Red Bank, Lookout Mountain and Lakesite. The mayors of all those cities except Lakesite signed a letter to Coppinger and state Sen. Bo Watson, R-Chattanooga, opposing any redistribution. Not every municipality in Hamilton County is in the coalition.

The mayors say the cities are the county's economic engine, using infrastructure and amenities built by municipal taxes that residents pay in addition to their county taxes.

"If you want to talk about fairness, the citizens that live in Red Bank and Collegedale and the other cities do their part to fund the county services," said Red Bank City Manager Randall Smith.

"If this formula is changed, we're going to have to explain to our citizens either why their property taxes are going up or why we're cutting or reducing services. They're going to want to know who is responsible, what's driving this," Smith said.

The letter says that of the $392 million in state sales tax revenue generated here in the last fiscal year, less than 3 percent came from the unincorporated area.

More than $381 million was collected in the cities, primarily Chattanooga. Mayor Andy Berke last week called Coppinger's proposal a "shortsighted attempt to divert resources from all of our local cities that will harm our resources and ability to provide for our residents."

The letter details what it says are separate concepts by Watson and Coppinger to redistribute the sales-tax share. Cities would lose anywhere from 30 percent to 43 percent of their tax-share revenue.

Making it up would require tax increases up to 20 cents per $100 of assessed value, the letter states.

However, Watson and Coppinger both say their ideas are not as fully formed as the letter depicts.

Watson said he asked the Tennessee Municipal League to recalculate the tax shares in various ways - by statewide or local population for example - as a way to show the impact of any change in the formula.

Watson said he's the right guy to be "at the tip of the spear" on this, since he has most of the small cities as well as the bulk of the unincorporated county in his district.

"We need to try to look at the whole picture, try to find a way to balance it," he said. "I have no interest in doing harm to municipalities, but at the same time, the counties have state functions such as schools and jails.

"There's 106,000 people in the unincorporated area. They pay the sales tax, but they get nothing in return," he said. "The question is, is that the right way to distribute these taxes that everybody - cities and county residents - pays, but only the cities get it when it comes back?"

And, Coppinger and others say, in years past counties could hatch and nurture some tax-generating engine like a grocery store or strip mall, only to have cities annex the properties and gobble up the revenue.

City representatives respond - firmly - that their residents support county schools, jails, health care and law enforcement through their county taxes, and then pay more for the extra services in their towns such as libraries and parks and separate city police forces.

photo Mike Carter

The debate puts state Rep. Mike Carter, R-Ooltewah, in mind of divorced parents arguing over child support.

"The counties don't have any of the fun stuff," Carter said. "The counties have constitutionally delegated, mandated activities. That's the food and the water and the lights for the kids. Then the daddies [the cities] come in and take them to Disney World and buy them a go-kart."

The key to resolving the dilemma may be to change the focus, some of the local leaders say.

Coppinger said Friday he's "moving away from" the TML numbers, "looking at a number of different scenarios that may play out that would be less impactful on municipalities."

The small cities' letter to Coppinger and Watson noted that when the tax-sharing arrangement started in 1947, the cities' share was 20 percent of the total tax take. That's slipped to 9 percent, the letter states.

With state revenues soaring above estimates, it's natural to speculate whether the county might seek to get a percentage point or two restored to the tax-sharing formula and designated for the unincorporated areas in all of Tennessee's 95 counties.

That way, the counties get help and the cities aren't hurt.

Asked about the possibility, Coppinger laughed and said, "I'm not going to comment on that."

But he did note he's been thinking about this for a couple of years, "waiting for the money to come back."

"I think this is a good time to make the argument," he said, adding that he didn't know what the cost would be.

Lamb and Smith said the small cities would happily stand at his side for any such effort.

"I think that should be our focus of working together, rather than having the counties looking to penalize these cities," Lamb said.

Smith added: "We would love to work with Mayor Coppinger and the legislative delegation. We don't want to be adversaries. We want to be partners."

Contact Judy Walton at 423-757-6416 or jwalton@timesfreepress.com with story ideas or tips.

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