The sales tax agreement

The sales tax agreement

February 9th, 2011 in Opinion Times

The Chattanooga City Council and Mayor Ron Littlefield's administration do have a serious job ahead in deciding whether to negotiate a new city-county sales tax agreement, or to end it, when the 44-year-old agreement expires in May. Whatever they decide, the decision will be integral to the fate of some two dozen vital civic agencies and governmental entities that receive funding under the agreement. And the decision likely will turn on complicated issues of tax equity, or inequities, in the way the city and county split funding both within the sales tax agreement, and outside of it.

Regardless of the complexity of the inherent funding issues, the proposal for the revenue-strapped city government to hire a public relations firm to inform local citizens about the nature and impact of the agreement, and the city's intentions with regard to its future, is unseemly and indefensible. If city officials cannot make a justifiable decision and forthrightly inform the public about the basis for their decision, they probably should reconsider their direction.

The agreement, last amended about 10 years ago, involves about $10.5 million in local option sales tax receipts that are collected within the boundaries of Chattanooga and several other of the county's major municipalities, and that are then distributed by county government to the supported agencies.

The agreement does not cover all the county's total local option sales tax revenue - the gross receipts are estimated at $80 million to $100 million, half of which by law goes to public schools. Rather, the agreement was established as a funding mechanism for bona fide, nonprofit, public service agencies and governmental entities that are considered to be essential to citizens and public services countywide. The agreement effectively shares a portion of the sales tax receipts that all residents pay, regardless of where they live.

The governments of Chattanooga and Hamilton County -- the latter using the agreed $10.5 million - provide joint funding to approximately 10 major entities. These include, for example, the Chattanooga-Hamilton County Health Department, the Fortwood and Joe Johnson Mental Health Centers, the Regional Planning Agency, the Chattanooga-Hamilton County Bicentennial Library, the Children's Home, and the Speech and Hearing Center, and a fixed $3 million in indigent care costs at Erlanger Hospital.

Roughly 20 other agencies - including WTCI Public Television, the Children's Advocacy Centers, the AIM Center, Signal and Bethlehem Centers, Team Evaluation, and Orange Grove - receive funding under the agreement, which is administered by county government.

County officials say that county government generally appropriates $2 million to $3 million more than it receives from the fund to help the supported non-profit, public service agencies that merit public support.

City officials apparently are considering terminating the long-standing agreement, partly because of other tax inequities that seem to work against city taxpayers, and partly because the city's budget has become so tight in the aftermath of the Great Recession and the steep decline in tax revenue.

The question now seems to be whether officials of city government, the largest source of commercial sales taxes and thus the chief contributor to the funds that come under the sales tax agreement, want to continue an agreement that surrenders a large chunk of city revenue when city residents, at the same time, seem to be paying double on other joint investments with the county through property tax revenue.

For example, both Chattanooga city government and county government contributed $23.5 million each for the freeway junction and connector road to the Volkswagen plant, in addition to the state's larger funding. County government's contribution came from its countywide tax base, which Chattanooga residents also pay. Since the city's population is roughly half of the county's total population -- and city residents also pay county property taxes -- city residents effectively paid not just half, but 75 percent of the total city-county investment. They paid half of the $46.6 million investment through their city taxes, and half of the county government's half through their county taxes. In addition, no other municipalities contributed to the city-county investment outside of their countywide property tax.

City taxpayers have a legitimate grievance on tax inequity, but it would be wrong to shut down the current sales-tax agreement, and take the city's portion back, and leave the agencies funded by the agreement without funding. If the county refused to raise taxes to make up the lost funding, as is likely, insufficient funding for these critical agencies would put them in jeopardy.

This community cannot afford for that to happen. The services at risk are simply too critical, and too vital to the community's well-being, to let them vanish. City and county leaders and other municipal governments here must avert that scenario. No public relations firm could paint a happy face on such a crisis.