Local governments face voters, state on sales tax issue

By Thomas Wilson

   If Carter County voters pass the sales tax referendum, the economic fortunes of Elizabethton city government could get a boost after two years of dwindling revenues and slashed budgets.
   "The fixed costs of government are expanding, as well as in the private sector," said Charles Stahl, city manager of Elizabethton. The city government has sliced spending by more than 10 percent the past two years. Budget cuts have denied the city's roughly 200 employees pay raises and forced spending cuts across the board for city departments.
   Carter County voters who went to the polls during the early voting period and plan to vote on Feb. 10 will decide whether to raise the county-wide local option sales tax rate from 9.25 percent to 9.75 percent. Carter County government officials estimate the .5-percent increase would produce approximately $700,000 for the county.
   The city's finance department initially estimated the city stood to receive more than $1 million in new sales tax revenue. City administration has since amended that figure to $533,000. Stahl said the original projection was based on calculations of a city-only local option increase not effective in the county.
   "It has been tougher to provide those services given the rising costs to the public sector, and private sector as well," Stahl said.
   Stahl explained the referendum's possible upside to city employees in a memorandum sent out on Friday. Stahl said Monday that several queries made by city government employees about the sales tax referendum prompted the memo.
   The County Commission voted 15-6 in November to put a sales tax increase to a referendum when local lawmakers informed county governments a raise in the sales tax could be mandated by the state. The Carter County School System would receive $500,000, and Elizabethton City Schools would see an additional $200,000 if the referendum receives approval.
   If the state mandates the raise, revenue generated could go directly into state coffers and out of the county altogether. "The General Assembly could capture that revenue and use it for the state budget process," Stahl said.
   The Tennessee General Assembly voted to raise the state sales tax one percent to 7 percent during the 2003 legislative session. A city or county can have a local option sales tax rate capped at 2.75 percent under state law. The state government captured seven percent of state-shared revenues -- approximately $150,000 -- going to Elizabethton to balance Tennessee's fiscal year 2004 budget.
   City employees have received no step pay raises in two years; open city positions have been effectively frozen, and departments throughout city government have been forced to cut spending.
   Stahl estimates that if the referendum is approved, the new sales tax would factor out to an additional 50 cents in tax money for every $100 spent by consumers in Carter County.
   "Some people may ask why should they vote a tax themselves and, certainly, that is a valid reason," Stahl said. However, he added a sales tax increase ultimately factored out as less of a cost to taxpayers than other county attempts at raising revenues such as the wheel tax plan of four years ago.
   Two referendums placed on the ballot for Elizabethton citizens to raise the city's local option sales tax by a half percent failed during the mid-1990s.
   Washington County voters are also facing a sales tax referendum to up their local option rate from 2.5 percent to 2.75 percent.
   "It is pretty well known," Stahl added, "that people travel to Johnson City and patronize their restaurants and businesses today and are paying a one-quarter percent higher sales tax over there than here."