The Tennessee General Assembly passed a bill addressing liquor-by-the-drink tax distribution on Thursday, the final day of the legislative session.
However, both Bradley and Hamilton counties have been exempted from the bill’s reach due to recent lawsuits between their respective school systems and city governments.
State Sen. Mike Bell, R-Riceville who represents the 9th Senatorial District which includes part of Bradley County, said he suggested Bradley County be exempt after discussions with fellow state Sen. Todd Gardenhire, R-Chattanooga representing the 10th Senatorial District which also includes parts of Bradley, and the state Comptroller’s Office.
“Because they are involved in litigation, we thought it was best to just leave that up to the court,” Bell said.
Bradley and Hamilton counties are the only counties in the state that have entered litigation.
The suggestion became Amendment 5 to the bill and was passed on Thursday. The bill has not yet been signed by Gov. Bill Haslam.
“This [exemption] will be in the best interest of the students of Bradley County,” said Bradley County Board of Education chair Vicki Beaty. “We hope we can reach a resolution before the declaratory judgment.”
In a statement released Tuesday, Beaty and Bradley Director of Schools Johnny McDaniel said, “We merely ask that the City of Cleveland follow the law as it is stated. If they will do so, the complaint for declaratory judgment will be dismissed immediately.”
Cleveland City Manager Janice Casteel said she was “disappointed that we were removed from the bill.”
Bell said the legislation does not provide a statewide fix; rather, it outlines how the funds should be handled for the 2014-15 fiscal year and encourages cities and counties to reach agreements on how the funds should be distributed in the future.
As written and forwarded for the governor’s signature, the bill reads:
“For the 2014-15 school year, the proceeds that are directed to the appropriate local official generally must be distributed as follows:
n One half for the school system that is located where the tax was collected, to be adjusted based on average daily attendance in cases where multiple school systems are located in the same jurisdiction or where a school system is located in more than one jurisdiction; and
n One half to the county general fund for proceeds collected in unincorporated areas or to the city or town for proceeds collected in incorporated areas.”
These distribution requirements will not apply to Bradley County.
Bradley County “will maintain the present method of distribution,” according to the bill.
“The way that the tax is being distributed for this year [2014-15 fiscal year] is the way the city has done it for years, which would seem to indicate the city has distributed the liquor-by-the-drink tax correctly,” Casteel told the Cleveland Daily Banner early today.
Bell said after 2014-15, things “go back to the status quo.”
“For the following school years the distribution method reverts to the method in the present law for all political subdivisions, except that the present law exception for Bedford County will not be reinstated,” the bill summary states.
“What we hope to do through the legislation is bring both sides to the table [to come to an agreement]” Bell said.
The senator said the solution could look different for municipalities and counties across the state.
The legislation only deals with future revenue and does not address what should be done with funds potentially owed by municipalities or counties from past collection.
Bradley County has attempted to pay $39,101 it deemed should have been given to the city of Cleveland in past years. City officials returned the funds. Casteel said in a letter accompanying the funds that the city did not agree with the county on how the funds should be distributed.
Bradley County Schools and attorney James Logan have said the city owes the school system funds from previous years’ collections. Logan estimated the amount at more than $700,000.
County Technical Advisory Service representative Gary Hayes listed the amount claimed to be owed as $725,000 during a Bradley County Board of Education meeting on Feb 6. The Cleveland City Council had requested that the school board wait 120 days to see if any other counties pursued a lawsuit. The school board voted to pursue legal action on the issue in a March 14 meeting. Cleveland City officials received notification of the lawsuit on Tuesday.