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The use of dedicated school money in the City’s Crestpointe funding scheme would be a large step down a dangerous and irresponsible path

Over on the Oak Ridger online forums, there’s been some discussion of the City’s apparent intention to get part of the proposed funding for the Crestpointe (“Target”) shopping center from money collected for the high school rebuild project. (As I explained in an earlier post here, in discussion with Mr. Steve Jenkins of the city staff, I ascertained that the $8 million is in fact the nest egg established in the City’s debt service fund as part of the financing plan for the high-school rebuild project. As I now think I understand it, instead of continuing to invest this money in financial instruments, the City proposes to use it for the Crestpointe project, confident in the expectation that future property taxes from the shopping center will replenish the principal amount and that future sales taxes from the shopping center will replace the interest that the money would otherwise earn, all in time to make payments on the bonds for the school project.)

Pseudonymous forum participant “CrackerNation,” who sometimes represents him/herself as a knowledgable city insider (and who also posts comments here under the alias “Cracker”), has suggested that this is perfectly OK: “Who cares which tax fed money into reserve funds if they are replaced before the money is needed for other purposes?”

It’s not OK. As I pointed out over there, in 2004 Oak Ridgers voted

“…to increase the local option sales tax rate in those portions of the City of Oak Ridge, Tennessee, that lie in Anderson County, Tennessee, from 2.25 percent to 2.75 percent; provided, however, the revenue from such increase shall be appropriated and expended for the purpose of funding and paying for construction, renovation, purchase of capital equipment, and/or retirement of school construction debt service for the Oak Ridge High School…”

Nowhere in that ballot question did it say that the revenue from the tax increase could “be appropriated and expended for some other purpose that city leaders think will probably increase overall city revenue enough to fund and pay for construction, renovation, etc., at such time as the bills come due.”

I believe that if the City Council decides to use this money for the Crestpointe project or another commercial development, the action could be challenged in court — and that legal challenge would have a high probability of success. Furthermore, I am sure that many citizens who voted for that 2004 referendum would conclude that the City had violated the public trust. The tax approved for the high school should not become a slush fund for City officials, and the City’s governing body should not take deliberate actions that subject the City to serious litigation risk.

There are valid reasons for limitations and controls on the expenditure of public money. Without restrictions on investment of public funds, the logical next stop in CrackerNation’s reason would be to say that Oak Ridge citizens should not care if city staff withdraw money from the city treasury and take it to Las Vegas to “invest” at the roulette table, as long as they expect to replace it before the money is needed for other purposes. Subsidizing a private development with money dedicated to a school project is a large step down that dangerous path — let’s not take that step.

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UPDATE on Monday, June 4:

One of our local news outlets (the News Sentinel) has finally picked up the story of the city’s intention to get some of the funding for Crestpointe from money dedicated to the high school rebuild project. Hurray for Bob Fowler! (Hindsight indicates that COR should have gone to Bob Fowler with the story earlier, instead of concentrating on trying to convince The Oak Ridger to run the story.)

It is clear from staff statements in the article that the mysterious “reserve fund” that they would use for Crestpointe is (at least in part) money from the tax increase that voters agreed to accept with the proviso that it be used only for rebuilding the high school. Here are some quotations from the article:

“I am positive you can loan this (debt reserve) money to yourself and pay it back, and that’s what we’re talking about here,” Deputy City Manager Steve Jenkins said.

“Even assuming they’re right, it just changes the mode of financing,” City Attorney Ken Krushenski said. “It’s not a deal-killer.”

City bond counsel Mark Mamantov said the city’s sales tax increase for schools “has been supplanted” by a county sales tax increase approved in a later referendum.

It is interesting that Jenkins said “you can loan money to yourself and pay it back.” Anyone who has ever borrowed money knows that it needs to be paid back with interest. When one city fund borrows from another, the money should be paid back with interest. However, Jenkins has claimed in earlier discussions that this is not really a loan (and therefore need not be paid back with interest).

Krushenski correctly says “it’s not a deal-killer” (presumably meaning that if the bond issue referendum passes, the city could go back to its original plan of borrowing the full $6 million and using it for this project). However, the city continues to promote the idea of a full payback from property tax alone over just 15 years, which depends on (among other questionable premises) the false notion (promulgated by city staff) that the city can borrow $8 million from itself interest-free.

Regarding Mamantov’s comment, back in 2004 it was expected that the county would supersede sooner or later (for example, see my earlier comments at http://www.ellensmith.org/forum/viewtopic.php?t=12), with the result that annual income to the school debt service fund would drop off after the first few years. Unfortunately, the county superseded sooner instead of later… I don’t recall anyone telling the citizenry in 2004 that after the county superseded the tax, the city’s use of the money would no longer be restricted to its dedicated purpose.

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4 Comments

  1. Netmom says:

    Unfortunately, Anderson County voted last June to supersede our half-cent sales tax (which was dedicated via referendum to pay the bonds on the ORHS reconstruction).

    That half-cent is already gone, so they can’t be using the same revenue that we no longer have.

  2. Ellen Smith says:

    The county did supersede the half-cent sales tax, so the city now gets only a fraction (half, if my memory is correct) of that half-cent.

    Back in 2004 it was expected that the county would supersede sooner or later (for example, see my earlier comments at http://www.ellensmith.org/forum/viewtopic.php?t=12), with the result that annual income to the school debt service fund would drop off after the first few years. Unfortunately, the county superseded sooner instead of later…

    I don’t recall anyone telling the citizenry that after the county superseded the tax, the city’s use of the money would no longer be restricted to its dedicated purpose.

  3. Ray Kircher says:

    Does this convolution of sales tax further contribute to the council’s claims that sales tax collection is dropping?

    Would the abatements and school taxes handled like our elected officials handle and explain them inherently project our sales tax as dropping?

    I cannot wait for the next census to show that our leaders have NOT drawn new citizens to Oak Ridge, rather they are living at the outskirts of the city, particularly Knox County border to City of Oak Ridge. I would further assume Oliver Springs and Kingston would be showing growth in the next census while City of Oak Ridge may show its persistent stagnation in everything: education, retail, industrial, and citizenship.

  4. Ray Kircher says:

    My voting precinct during this 1/2 cent increase in sales was different, and thank you for the contact to urge the Vote “NO” come June 5th. No matter, I feel like I have been lied to by our elected officials.

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