By Jeff Keeling
Johnson City school and government leaders are trying to get clarity on how Washington County may deploy a new “capital fund” that’s set to accrue about $9 million a year following June’s county property tax increase. At stake is a potential change to the county’s allocation of money for school capital projects, and a possible pullback in nearly 50/50 revenue sharing that has traditionally helped the city pay for its own school capital needs.
Johnson City Board of Education Chairman Tim Belisle’s takeaway from the Sept. 5 city school board meeting is that Washington County Mayor Dan Eldridge appears set to rely on a recent court case to fund some county school projects through cash – and in so doing, avoid a requirement to give the city schools a nearly equal share of money.
That plan – and Eldridge didn’t give any indication just how much of $40 million-plus in upcoming school projects might be paid for through cash – has a secondary wrinkle. When Washington County does issue bonds for school projects, Eldridge told the board he wanted to allocate shared funds to the city on an annual basis in the amount equal to that share of a bond payment, instead of in a lump sum. That secondary plan would require an interlocal agreement signed by the city and county.
Belisle and fellow board member Kathy Hall are unsure what benefit the city would enjoy from the annual versus lump sum allocation, and gravely concerned about the pay as you go prospect. City property owners account for more than 60 percent of county property tax revenues, Belisle said, and circumventing the student population split, even for a portion of capital projects, would be unfair.
“The concern that I have with the approach of the county taking the tax money and accruing it into this capital account is that that cash will not be available to the city for use with its schools or any other purpose,” Belisle said last week. “We inquired of the mayor as to whether the city schools could request any of those funds, and he was very clear that those would not be funds that the city schools could request an allocation from.”
Where it started
Johnson City school and government leaders watched with understandable interest last spring as Washington County commissioners debated and then approved a 40-cent property tax increase. One concern was that the county might attempt to depart from the longstanding revenue sharing protocol in which counties, when they undertake school capital projects, allocate a proportionate amount of funds for cities that run their own school systems.
City schoolchildren account for nearly half (47.22 percent) of the total K-12 school enrollment countywide, so for every $10 million needed for county capital needs, the county would traditionally be expected to borrow an extra $8.95 million and give it to the city.
A recent court case in McMinn County saw that county’s two municipal school systems, Athens and Etowah, on the losing end of a lawsuit they filed due to McMinn County’s failure to follow the pro-rated split there on capital projects. (Counties must also share any school operating funds derived from county property tax in a similar manner each year, and no county has challenged that requirement.)
Johnson City Schools Finance Director Pam Cox said the property tax revenue sharing is part of an overall protocol overseen by the state governing K-12 funding. In counties with just one school system, the protocol, which also involves collection and then redistribution of sales taxes, is fairly straightforward.
Counties with municipal systems or special school districts, though, can fall prone to the inevitable perception – from either side – that the allocation system is unfair. Johnson City’s dominant collection of sales tax has contributed to that feeling on Washington County’s part through the years, and Eldridge has at times been unabashed in his criticism of the protocol.
Cox said half of local option sales tax collections (the rate is 2.5 percent in Johnson City) are split proportionally, with Washington County getting its 52.78 percent. It’s the other half, over which the collecting locale has sole discretion, that at least allows for the imbalance Eldridge has long decried.
Outcome far from clear
Eldridge and his budget director, Mitch Meredith, answered questions about their plans for the capital fund at the Sept. 5 meeting. Belisle said board members probably haven’t asked enough questions about the less dramatic change – the proposed annual layout of capital to the city when the county bonds school projects as opposed to bonding enough at one time to give the city a lump sum.
“I still don’t have clarity on why a local agreement makes more sense for the city than simply getting a lump sum,” Belisle said.
He felt Eldridge was loud and clear on what the city’s prospects are when the county funds some of its school capital through a cash approach. “We will get nothing out of that account when they spend it,” Belisle said. Ultimately, according to the county’s capital projects fund policy, the full county commission must approve any expenditures from the fund. That policy document also mentions among its purposes facilitating “a ‘pay-as-you-go’ strategy to minimize the need for future debt obligations.”
An early draft of the county’s capital plan did not show significant pullbacks in revenue sharing, though. For potential new school construction in Boones Creek, for instance, the document showed borrowing of $26.5 million in fiscal 2017 and $27.8 million in fiscal 2018, and allocations to Johnson City of $14 million in FY17 and $17.2 million in FY18. Cash, meanwhile, accounted for just $6.7 million of the $61 million total (which included the $31 million to the city).
Belisle said the county’s use of cash for school projects, if significant and combined with a lack of revenue sharing, could really put the city in a bind when its own school capital needs roll around. Hall, Belisle’s predecessor as board chair, said she believes any amounts the county funds through cash will be unfair to city taxpayers.
Using the current property tax collection data, for every $1 million the county spends on a school project, about $620,000 to $630,000 is collected from property owners in the city, either commercial or residential. Under the standard split, $472,000 of that would go to the city schools, leaving city taxpayers even then shouldering a disproportionate share.
“Traditionally, if the county needs to do a roof they’ll bond $1 million and then they’ll share with us, and therefore the city needs get met also. They have said out loud that they will be doing a lot of smaller projects just using cash, and that’s why they’re building up this fund,” Hall said.
“We need roofs, we need paving, we need everything that the county needs, and the majority of those dollars come from within the city limits. So the question is, how fair is it to continue to do either large or small projects using money paid by city residents when they see no benefit from it.”