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Legislature eyeing tax-free towns - including Farragut

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PostPosted: Wed Jul 28, 2004 1:11 pm    Post subject: Legislature eyeing tax-free towns - including Farragut Reply with quote

I noticed this story is in the online edition of the News-Sentinel as a West Knox "neighborhood" story -- it may not have made the print edition that is distributed in Oak Ridge.

Reporter Barbara Womack reports that Ross Loder of the Tennessee Municipal League told the Town of Farragut Board of Mayor and Aldermen that the Tennessee General Assembly is looking into reducing the amount of state shared tax revenues distributed to municipalities that don't levy a sales tax and provide only a limited range of municipal services.

Of the 348 cities and towns in Tennessee, 84 do not assess any property taxes, including Farragut. Farragut's municipal revenues come mainly from state shared revenues. Farragut gets a share of the sales tax, Hall income tax (on dividends), and alcoholic beverage tax collected in the town. The news story says:
"We might see the Legislature look at altering the (tax) distribution formula, or we might see an alternative where towns that have a property tax or provide at least seven services get more benefits," Loder said.

Farragut provides four basic services: planning and zoning, public works, street maintenance, and parks and recreation.
For comparison, Oak Ridge provides all of these plus police, fire and EMS, public schools, a public library, refuse collection, and an animal shelter, not to mention municipal utilities (electric, water, and sewer) that are paid for by ratepayers. (I've probably forgotten a few services Oak Ridge provides.)

Farragut officials quoted in the story are proud that the town is debt-free and operates on a cash basis. They figure they avoid property taxes just by "being efficient."

What the newspaper story doesn't say is that many outside observers believe that Farragut has avoided property tax primarily by being a high-income bedroom suburb. The town keeps a good ratio of revenues to costs by (1) having a high-income population, (2) not providing a full range of services, (3) having no industry (which requires municipalities to have capabilities not needed by residences), and (4) being a new town that does not yet have to face the many problems (such as older streets needing repair and declining property values in older neighborhoods) found in older communities.

If the state changes its revenue-distribution formulas to reduce the cash flow to towns like Farragut that don't have the same needs as more typical municipalities, it could help in "leveling the playing field" between Oak Ridge and Farragut when it comes to attracting new residents. Cool
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PostPosted: Fri Aug 06, 2004 11:50 pm    Post subject: Reply with quote

The Nashville City Paper ran an article about this matter a few weeks ago. Their spin on the story is a little bit different. The article notes that the state reduced state-shared revenue payments to municipalities and counties a couple of years ago when the state was in serious budget trouble. Next year Governor Bredesen and the Tennessee General Assembly are expected to take action to restore some of that money (about $36 million this year) to local governments.

Legislators are looking at reducing the amounts returned to local governments that provide relatively few services. They wouldn't cut the amounts now received by communities like Farragut, but these towns would have less of their lost funding restored.

Some excerpts from the article tell much of the story.
State Rep. Randy Rinks (D-Savannah), the House Majority Caucus leader, said local governments that do not provide adequate services for their citizens shouldn’t receive as much as those localities that do. Some local governments simply provide more for their citizens than others, says Rinks. And state-shared taxes could be used as an incentive in providing more services.

Essentially, some cities depend solely on these state revenues and levy little or no local taxes.

“We ought to reward counties that are putting together their services,” said Rinks. “There may be other ways to do it. But there ought to be some way of doing it to encourage the locals to provide services.”

State Sen. Ron Ramsey (R-Blountville), who has opposed Bredesen’s cuts in state-shared taxes, supports Rinks’ charge. “Some cities are living on state-shared taxes only,” said Ramsey.

Because it would be politically difficult to take away current funding, any future return of the $36 million in cuts would be a good time to examine the distribution, says Rinks.

Tax revenues are shared between the state and local governments in a number of different categories such as alcoholic beverages, the sales tax or the Hall Income Tax, a tax on dividends. Revenues in each category are divided in different percentages depending upon any number of criteria such as land area or population.

A Tennessee Advisory Commission on Intergovernmental Relations (TACIR) report issued in January says in many circumstances the amount of tax revenues shared between the state and local governments has little to do with what services are provided.

The article notes that wealthy and fast-growing communities (Farragut fits both of these descriptions) benefit most from the current arrangement:
The Hall Tax has sparked debate because it benefits mostly wealthier enclaves such as Belle Meade. And each locality receives roughly 25 percent of the tax paid in by its own population. Also areas that are growing rapidly appear to benefit generally from the current distribution of state shared taxes, according Karen Blackburn, manager of Financial Control in the Department of Revenue.

The Tennessee Municipal League (Oak Ridge is a member) probably will oppose changes to the revenue-sharing formulas because the changes probably would mean less money in the treasuries of local governments around the state. State-shared revenues are important to all local governments. (The state could distribute the same total amount of money, but change the formulas that decide how much each town's share will be, but many observers assume that that a change in formulas would mean that less money is shared.)

However, a change in the formulas could benefit some municipalities by increasing financial equity with their neighbors. New formulas could reduce some of the financial advantages that wealthy fast-growing suburbs (such as Farragut) enjoy in comparison with older cities (such as Oak Ridge and Knoxville).
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