Hamilton County Schools Superintendent Jim Scales and School Board attorney Scott Bennett are warning county officials that they will be committing an "illegal" act if they withhold tax money from schools.
School district leaders disagree with the county about who should ultimately decide how the money generated from payment in lieu of taxes agreements is spent, Scales said. The county wants to use the millions generated from such agreements, known as PILOTs, to pay for school construction, but the school system wants to put the money in its general budget.
Such agreements are given to new businesses such as Volkswagen and Amazon to lure them to the area. Under the agreements, businesses don't have to pay full property taxes for a certain number of years, but they must pay the share of property tax that is slated for schools.
Results of future meetings between Board of Education members and county commissioners could determine whether the disagreement over who controls this money ends up in court, Scales said.
"I would think at some point cooler heads are going to prevail and the County Commission and the county school board will come to an agreement based upon the law," Scales said.
Scales last week wrote Patrick Smith, the acting commissioner of education for Tennessee, Commission Chairman Larry Henry and County Mayor Jim Coppinger about the PILOT money.
"In our opinion, this decision is illegal since it both deprives the Board of Education of its rightful revenue and invades the Board of Education's statutory authority to establish fiscal goals for the school system," Scales wrote.
Bennett also wrote Hamilton County Trustee Bill Hullander, according to copies of the letters obtained by the Chattanooga Times Free Press. Bennett warned Hullander that the school board would report any failure to turn over the tax funds to the state Comptroller of the Treasury as an "unlawful and unauthorized taking of public money."
Hullander has said he will abide by the County Commission's decision to keep the money for new schools and will turn the funds over to county general government.
County officials believe they are on solid legal footing. Henry said Bennett's interpretation of the law is incorrect.
"This money is going to be distributed to the Department of Education," Henry said. "We just want it to be earmarked. They want to put it into their general fund and use it for other purposes."
County Attorney Rheubin Taylor also said the county has the right to set aside the money.
"The money is earmarked for education, and right now the county is wanting to withhold it for capital improvements to education," Taylor said.
Scales and Bennett sent their letters at the end of last week, following a Feb. 14 meeting between county commissioners and school officials about who will control the millions generated by PILOT agreements.
Scales said losing the PILOT money would gash a $7.5 million hole in the next school budget and would require reducing school services, though he didn't say what those would be.
Earlier this month, commissioners decided to keep the money so it could be earmarked for school construction, an idea first proposed by Commissioner Joe Graham. He produced a letter from the University of Tennessee's County Technical Assistance, which said the county could earmark the money.
"The local governing body must provide funding for school budgets," wrote Stephen Austin, a County Technical Assistance legal consultant. "Accordingly, it is the entity that decides what revenue sources will be used to fund a school budget."
Austin also attached a state attorney general opinion from June 2004 which he said supports this position.
Graham said he had not seen the letters sent by Bennett and Scales.
School board Chairman Everett Fairchild said Bennett has asked for an attorney general opinion on the issue.