At-Large Councilmen Richard Banks and George Poe, and 5th District Councilman Dale Hughes voted against appealing the ruling handed down Feb. 29 by Chancellor Jerri Bryant.
Voting in favor of the motion were Charlie McKenzie, 1st District; Bill Estes, 2nd District; Avery Johnson, 3rd District; and David May, 4th District.
Mayor Tom Rowland said he would not veto the 4-3 decision.
Poe said during discussion he was concerned about wasting city and county taxpayers’ money.
“I pay both,” he said. “It means suing yourself. I think this is a no-win situation to keep going back and paying attorney fees, court costs, and the way I understand it, this could go on for years.”
He recommended the city take what it has been awarded, move forward and “try to heal the sore places between the city and county.”
Banks said it was important to note the city was named as a defendant by the county in 2009 and the city had to defend itself after the 2009 tax increase.
“If the county does nothing and we do nothing, the sales tax dispute is over,” Banks said.
May said it would not be over. “Our hands are tied by a contract no other city in Tennessee has got.”
Banks said he was hesitant to continue a three-year battle with only a 5 to 10 percent chance it would be heard by the Tennessee Supreme Court.
May said county commissioners are doing what they believe is correct and he was going to do what he thought he should do.
“Anytime we have a jointly funded project with the county, we’re going to have to negotiate. It’ll never be just go-along, get-along,” May said. “Every time we have something jointly funded, we’ll have disagreements and we’ll have to negotiate. I just hate to see us tie the hands of our future replacements.”
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.
Banks asked what would happen if the city won the appeal. How would the county make up for its loss?
“If they raise the property tax, it’s taking money out of one pocket and putting it in another,” Banks said.
May said the county has a windfall coming in 2014, referring to when Wacker Chemie begins paying more than $4 million a year in property taxes. That is money that will belong only to the county.
“They don’t have to worry about taxes,” May said. “That’s another agreement we entered into with the county. We funded an industrial park that was outside the city, which is great. We brought jobs, but on the other hand, when they start getting their tax dollars, we get none of it.”
Vice Mayor Avery Johnson said when he was elected in 1993, it took about six months to see the tax agreement tied the city’s hands.
“This is where our hands were tied by the previous administration,” he said. “We’ve got an opportunity to untie the hands of the future Council.”
Hughes said he is concerned about the perception the city and county do not work together on many issues and the two bodies are always fighting.
“We’ve had two meetings recently with the County Commission and the county mayor trying to mend those fences and I think we made some progress, but I just don’t see us suing them again,” Hughes said.
Casteel reminded Council members Monday’s vote would be the last time the 1967 sales tax agreement could be reviewed.
“To clarify that the agreement truly has no termination clause, this appeal would be required,” she said. “Otherwise, the local agreement would never be the same as other cities with a school system. The 1967 agreement does not have a termination clause, but merely changes the distribution formula should the city and county school populations become equal.”
She said the 1982 sales tax increase of .75 percent is not a continuation of the failed 1980 referendum. New city commissioners were elected in 1981, Brad Evans became the city finance commissioner and there was no agreement signed before the 1982 referendum. Correcting that one item would give the city an additional $750,000 annually and solve the 2014 budget problem.
“There is time to get this answer before you’re faced with a shortfall and the need for a property tax increase,” Casteel said.
Casteel said the sales tax agreement is a legal issue that deserves a decision from the highest court possible. The deadline is March 30.
“This agreement has been in place 44 years and will bind you and all future generations if you vote ‘No’ today,” the city manager said.
Improved sales tax collections helped balance the 2013 budget, but officials say a property tax increase will be needed without an additional revenue source if and when sales tax revenue declines.
“You’ve challenged me to make budget cuts, which I’ve done — and to find new revenue sources, and here is one,” Casteel said.
Casteel said if the Council did not appeal, the 1967, 1972 and 1982 agreements would remain in effect, and in her opinion, the .5 percent increase from the 2009 referendum would continue to be collected at the point of sale.
“The 2009 money belongs to the city of Cleveland. An appeal would be your opportunity to check the 1982 money that could even go back to the ’72 and ’67 agreements saying you can’t have a contract without a termination clause,” she said.
The Bradley County Trustee is holding $1 million in trust until the issue is settled. That money has been budgeted for capital improvement projects, but will continue to be held until the appeal is heard. Casteel said the money could be replaced with money from the general fund.
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.
