Sales tax repeal spells disaster

By Thomas Wilson
star staff
twilson@starhq.com

  While Carter County Commissioners grapple with funding the county's 2005 fiscal year budget, a petition intent on abolishing the county's local option sales tax and threatening to cripple the operations of the county and the city of Elizabethton governments could find its way to the Nov. 2 election ballot.
  Two Roan Mountain residents have submitted a petition bearing more than 4,000 names to the Carter County Election Commission requesting a referendum on the November ballot allowing citizens to vote on repealing the county's 2.25 percent local option sales tax. The ramifications of the referendum could eviscerate county and city government operations resulting in employee layoffs and discontinuation of government services including fire and police protection according to local government officials.
  "We are looking at about 3 million dollars lost for the county, most of it going toward the schools," said county Finance Director Jason Cody Tuesday.
  Cody said abolition of the local option tax translated to a $2.4 million loss in revenue to the Carter County School System and a $700,000 loss to the county government's general fund. The scenario meant an equivalent property tax hike of 63 cents would be needed to cover the county's revenue shortfall. The 63-cent raise would be over and above the property tax raise being debated by the commission to fund the Carter County Jail's expansion, which is now under federal mandate as part of a class-action lawsuit settlement.
  "Nobody likes to pay taxes, but there are services expected by the citizens from the county," said County Mayor Dale Fair of the referendum. "I am trying to understand the rationale behind it."
  The sales tax repeal would be devastating to the city of Elizabethton where the local option sales tax brought just under $2.5 million into the city's general fund for the 2004 fiscal year.
  "This has a potential major effect on the city budget," said Brad Moffitt, city director of finance. "If you take away all the sales tax you either make up with other revenues or you reduce services."
  Moffitt said loss of the local option sales tax would cost the city of Elizabethton $3 million in revenue and force a massive property tax increase on city residents who haven't seen one in 14 years. The city government has absorbed two consecutive years of cuts to the city's general fund budget in the 2003 and 2004 fiscal years.
  "There is the possibility it would reduce our revenues by 3 million dollars, and there is no place left to cut," Moffitt said.
  To get the referendum on the ballot, the petition must have valid signatures of 10 percent of registered voters who voted in the last gubernatorial election - approximately 3,016 citizens - validated by Sept. 3. County Administrator of Elections Tracy Harris confirmed that over 1,300 signatures had been validated through Tuesday. Only county residents who are registered voters qualify as legitimate signers of the petition.
  The city property tax rate has not been increased by the Elizabethton City Council since 1992. Moffitt said replacing the sales tax lost to the city would involve a $1.78 property tax increase that would nearly double the existing rate from $2.30 per $100 of assessed value to $4.08. When factoring in the 72 cents of shared revenue allocated to the Elizabethton City School system through the city's local option, Elizabethton residents face a property tax increase of $2.49 bringing the total rate to $4.79 per $100 of assessed value.
  "That increase is more than the existing tax rate right now," said Moffitt.
  Without a property tax increase passed by the City Council, Moffitt said the city would be unable to fully fund public safety services such as fire and police protection. The city's 2005 budget saw a 4 percent increase in the general fund. The city has not funded a step-pay raise for city employees in three years.
  Moffitt said he was shocked by the rationale behind a referendum that would eliminate a local sales tax and essentially force a massive increase in the property tax for the city and county. He said anyone who signed the petition who might have been told the abolition of the local option sales tax would not affect their property tax rate had been grossly misled.
  "If you believe in Santa Claus and that you will never get in bills after Christmas, that is a good story to believe," said Moffitt.
  The city received nearly $2.5 million in local option sales tax revenue for the 2004 fiscal year. Moffitt said the city was optimistic that sales tax revenues generated from the new Wal-Mart and Lowe's superstores could restore budget cuts sustained by the city in recent years.
  "We were counting on Wal-Mart and Lowe's to be the light at the end of the tunnel," Moffitt said.
  The Carter County Commission is already faced with upping the county property tax rate from $2.22 per $100 of assessed value to at least $2.52 in order to fund a federal court-mandated expansion of the county jail.
  "The key point is it would really provoke minimum funding of schools," said Cody. "If it gets repealed there really is no option other than to figure out which revenue stream to raise to recover it."
  Fair pointed out that while most cities such as Elizabethton had not been forced to increase property taxes, many surrounding counties without commercial development are dependent on property tax revenue. He said regardless of the petition's validity or a possible referendum's outcome, the settlement to expand the jail gave the county no option but to come up with the funding.
  "We can't put it in jeopardy," Fair said of the lawsuit settlement. "We have to get temporary housing and get a permanent solution by 2007."