EES taxes put new burden on city

By Thomas Wilson
STAR STAFF
twilson@starhq.com

  
A small piece of good financial news for the Elizabethton Electric System does not translate to economic happiness for Elizabethton's city government.
   The system will pay $634,333.95 to Elizabethton city government for the 2004 fiscal year -- a decrease of roughly $49,500 from last year. A figure that comes as unwelcome news to a city that has absorbed two consecutive years of double-digit budget cuts affecting requested funding for its fire and police departments as well as putting a hiring freeze on vacant city positions.
   "The equalization ratio is done by the state and we are nearing the end of the appraisal period," said Andie Talbert, finance director with EES. "After the equalization ratio comes in, they set that and it comes in to us and that's what we use."
   Rather than paying property taxes, utility service systems mostly comprised of electric systems make payment-in-lieu-of-taxes, typically called PILOTs or tax equivalents. Tax equivalent payments are typically an amount equal to the equalized property tax rate of a city or other taxing jurisdiction multiplied by the net plant value of the electric plant, plus the book value of materials and supplies located within the boundaries of the city.
   Tax equivalent payments are usually in the form of a fixed percentage of gross revenues from sales of utility services. The payments, made primarily by municipal electric systems, are partly shared with county governments (22.5 percent).
   Total tax equivalent payments to be made by EES in FY 2004 are $835,840 -- a $51,000 decrease from last year. The city received more than $683,000 from EES last year. Carter County will receive $194,000 -- down just over $1,000 -- in tax equivalent payments from the EES this fiscal year. Sullivan, Unicoi and Washington counties also pay to a few hundred dollar to less than $2,000 in tax equivalency payments to EES. The EES makes quarterly PILOTs to each government. The payments go into the city's general fund.
   The three-member Tennessee Valley Authority Board of Directors approved on Nov. 5 a record $329.4 million in tax equivalent payments for the 2003 fiscal year, an increase of $1 million over last year.
   TVA makes tax equivalent payments to eight states and to counties within those states. The tax equivalent payments are based on TVA's power sales revenue in 2002 and TVA-owned power property in each state. During the fiscal year, TVA makes monthly payments based on preliminary forecasts. Most of the money is paid directly to state governments. However, all or part of the amount paid by TVA is redistributed to local governments according to formulas in each state. TVA payments to Tennessee state government and counties exceeded $200 million.
   The payment is a bright spot for the Electric System, which has seen declining revenues and rising expenses on most ledger entries during the past fiscal year. The city government has seen its general fund budget cut 13 percent for the 2003 fiscal year and 11 percent for 2004 as the result of stagnated local sales tax revenues and declining state-shared revenues.