In a 4-3 decision, the Council voted to continue the appeal of the latest court ruling in an effort to break the 1967 sales tax agreement with Bradley County. Under parliamentary rules, this was the last opportunity to rescind the Council’s March 26 decision. None of the councilmen changed positions. At-Large Councilmen Richard Banks and George Poe, and 5th District Councilman Dale Hughes voted to halt the appeal process. Charlie McKenzie, 1st District; Bill Estes, 2nd District; Avery Johnson, 3rd District; and David May, 4th District; voted to continue the appeal of the ruling handed down Feb. 29 by Chancellor Jerri Bryant. Much of the reasoning expressed by Council members was the same.
Poe said, “I don’t like suing other people and I don’t like raising taxes.”
Banks, who authored the failed motion, pointed out that the original agreement included “other monies,” such as payment-in-lieu-of-taxes paid to Bradley County by Cleveland Utilities. The utility pays the city about $1.8 million each year. If the agreement is voided, Bradley County could receive about 25 percent ($450,000) of that annual payment.
“Bradley County gave up that money. When they were negotiating this 45 years and four days ago, that was part of the deal,” Banks said. “If we ask the Tennessee Supreme Court to tear up this contract, that goes out the window.”
CU General Manager Tom Wheeler, who attended the meeting, said he didn’t know how much the county would get. “We’ve never figured it up because we’ve never had to, but it would be something.”
Cleveland Mayor Tom Rowland said, “It looks like back then there was some give-and-take.”
City Manager Janice Casteel said the amount of annual sales tax collections in question equals $2.25 million.
City Clerk Mike Keith said the agreement with Cleveland Utilities has been considered in staff recommendations to continue with the appeal.
Casteel has said the 1967 agreement does not have a termination clause, but merely changes the distribution formula should the city and county school populations become equal. The city has lost an appeal of that portion of the agreement. But, the 1982 sales tax increase of .75 percent has not.
“Much of this appeal is about 1982,” Estes said. After the vote, Rowland said after hearing the debate on Monday, he was leaning toward dropping the appeal, “but that’s all immaterial now because I don’t have a vote and don’t have a veto, but I really think both sides are correct.”
Casteel said, “We should pledge to work with Bradley County, and I do, and we will continue to work with them.”
She said the city was professional when the county decided to build its own fire department.
“It was a business decision and so is this. It’s just a legal matter.”Rowland said the reason he has changed his mind is public perception.
City Attorney John Kimball said it would take about one year to get an answer from the appellate court and another year to get a decision from the Tennessee Supreme Court, but there is only a 5 to 10 percent chance the highest state court would accept the case. So far, the city has paid $77,316 in legal fees. Kimball said most of the work is already done, so an appeal would cost between 25 to 33 percent more. At stake for the city is an additional $2.2 million annually in the general fund. That amount would offset the $1.8 million the city will lose when the fire contract with the county expires June 30, 2013.
Casteel said improved sales tax collections helped balance the 2013 budget, but a property tax increase will be needed without an additional revenue source if and when sales tax revenue declines. If the Council does not appeal, the 1967, 1972 and 1982 agreements remain in effect. The .5 percent increase from the 2009 referendum would probably be collected at the point of sale as it is now. The Bradley County Trustee is holding about $1.5 million in an interest bearing account until the issue is settled.
The dispute over sales tax distribution began at a joint city and county work session Oct. 21, 2008, in which discussion concerning the need to fund capital projects and the possibility of a referendum allowing the voters to decide to raise the sales tax by .5 percent was discussed. The City Council approved an ordinance for a referendum on Nov. 24, 2008. County commissioners voted not to participate in a countywide referendum as they had on three previous occasions in 1967, 1972, and a failed referendum in 1980, which was presented again to voters and approved in 1982.
Cleveland voters approved increasing the city sales tax rate by .5 percent. The March 10, 2009, ballot referenced the ordinance, which limited the funds for capital needs of the city and Cleveland City Schools. Bradley County commissioners changed their position and voted 9-5 to approve a referendum for voters residing outside the city of Cleveland on May 14, 2009. The referendum passed by county voters did not restrict the use of funds solely for capital needs.