By Gary Gray
Editor’s Note: This is the first in a three-part serious focused on the direction of Johnson City’s Board of Commissioners. A new mayor, vice mayor and two new members of the board are in the process of charting the city’s path into the future. The first installment addresses sales tax revenue, the quest to fuel economic growth and efforts to retain talent.
Johnson City’s retail sales tax revenues have been flat for years and young graduates and professionals are migrating to bigger cities to invest and start their careers. To address these trends, city leaders are developing a strategic plan they feel will help stimulate growth and retain young entrepreneurs.
The past three fiscal years show a roughly 2-percent average increase in local option sales tax revenues, with the 2019 take estimated at about $22 million. That number traditionally is between 3 percent to 5 percent.
“There’s not a lot of growth, but we’re not losing ground,” said City Manager Pete Peterson. “As part of a strategic process, we’ve been looking at sales tax data, and many other types of data over the last year, and we’ve found that, yes, this area is really flat. We also are in the process of meeting with large employers and small business owners, including ETSU, Ballad Health, the VA and others to see what they’re experiencing.
“We’ve also talked with economic developers and businesses looking to expand or relocate — those who have a very significant interest in quality of life. We’re trying to leverage what we’ve got, and we’re looking at why college graduates are leaving here.”
Mayor Jenny Brock said the City Commission and city staff are trying to find ways to retain graduating students, but she acknowledged the national trend to migrate to bigger cities.
“We know we’re going to have to be laser-focused,” Brock said about the strategic plan. “We can’t wait to see what happens, we have to make something happen. You can be pessimistic and scared, but we’re not. That’s not an option. This commission is very innovative. We want to give younger people a reason to stay. Technology is changing everything quickly, and I think one of our challenges is how we stay ahead and keep our eyes and ears open.”
The sales tax base for state and local government is shrinking in large part because of the expanded use of services which have been legislatively exempted from sales tax. Consumers ordering online from out-of-state retailers are legally required to pay the tax to the Tennessee Department of Revenue, but very few do.
Last year, a U.S. Supreme Court ruling allowed states to require out-of-state retailers to collect online sales tax. But the court did not define how revenues would be collected and distributed. Tennessee has the requirement in place, but the General Assembly has not legislatively made the collections enforceable because of multiple legal challenges.
“We’re losing that sales tax revenue, and the internet is undermining the bricks and mortar businesses,” Peterson said. “It’s going to take legislation at the state level to determine how the money will be distributed — there is no law that lays that out. It’s much bigger than sales tax. Local businesses’ payroll allows its employees to go out and support the United Way and Boys Scouts, for example. So there goes the money used for contributions within the community.”
Vice Mayor Joe Wise said simply that the City Commission is in the process of reviewing and prioritizing its strategies.
“Sales tax generation is an area of critical importance,” he said. “We are meeting with various business leaders through this process to identify opportunities to protect and grow our sales tax generating capacity.”
While Johnson City is experiencing a net increase in population, there is a big drop-off after the age of 25. The 45-and-older demographic, however, is rising, and Peterson attributed that to people coming here to retire.
“We do know the economy in Northeast Tennessee is stagnant, and studies show the rural areas are going to be in a state of atrophy from this mass migration to the bigger markets,” he said.
Peterson said large industry is no longer a main focus and that more value is being realized in small business startups and investments by venture capitalists. Many at ETSU, Milligan College, Northeast State Community College, as well as people who work with Eastman and Ballad Health, have “an entrepreneurial nature,” and a connection between them and someone to provide financial support can play a big role in smaller business startups, he added.
So, what about the continuation of tax increment financing and payment in lieu of taxes incentives that is a tool to allow startups, relocations and expansions?
“It has been a very effective way for us to develop the private sector,” he said. “With careful consideration and monitoring, property tax abatement allows a business or industry to gain a foothold, and the payback to the city is full. We also can make gains in the long run on sales tax. It’s also a job creator. But yes, you’ve got to carefully consider the proposal and monitor progress.”
Peterson said TIF and PILOT agreements have helped transform downtown Johnson City. About $15 million has been invested in downtown redevelopment and revitalization over the last decade, and the result has been a property value increase of around $82 million, he said.
Brock said in today’s market the programs offer an avenue for viable incentives.
“Property values have gone up 53 percent since the first TIF project, which was University Edge (apartments),” she said. “It’s not like we’re writing people a check. It’s definitely a way to improve property value.”
Brock said city leaders are looking more closely at infrastructure projects to invest in that provide a more immediate return.
“We have to find elements that are internet resistant, and some of that is with small business and entrepreneurs,” she said. “I think one of the big messages we’re getting is that we are getting back to pre-recession numbers — back to 2008. We’ve been stabilizing, but we’re not gaining enough. We’ve got great students and great programs, ETSU’s digital media field, for example. But those kinds of jobs are currently found in California or other places. We’re trying to find a way to keep folks like this from moving away.”
Next week’s installment will deal with building codes and their effect on economic development in Johnson City.
