By ZOË WATKINS
zwatkins@bedfordcountypost.com
It might be a bumpy road for the City of Shelbyville and Bedford County in the upcoming months. The two government entities have entered a law suit against each other regarding the dissolving of a 1974 sales tax contract.
Last week, the City of Shelbyville issued a statement explaining some of their reasoning for wanting to break the contract that has the potential of rerouting an estimated $2 million in sales tax from the county to the city.
The city’s most recent response from last Thursday starts out, “Shelbyville has been limited in providing improved or needed services due to an almost fifty-year agreement with Bedford County in which the City relinquished a portion of the local option sales tax to the County to retire bonds incurred by the School Building Program in 1974. The City has continued to relinquish its portion of that tax long after the bonds were retired.”
Background
The “tax at issue,” as it is described in previous letters, is the local sales tax governed by the 1963 Local Option Revenue Act, which gives local governments the authority to levy an additional sales tax percentage on top of the State’s sales tax amount (the maximum amount allowed is 2.75%).
Bedford County originally passed a 1% local option sales tax around 1966. One-half of that 1% automatically went to fund education in the county, while the other half went to the general fund of whichever jurisdiction that sales transaction occurred (municipal or county).
But in 1974, a referendum was held by the county to increase the local option sales tax from 1% to 1.75% as part of a new school building program as proposed by the Bedford County School Board.
In 1968, the city and county had agreed for the county to take over operation of all schools, with the two governing bodies entering into Lease and Lease-Purchase Agreements for city school buildings.
As a part of this plan, the city agreed to relinquish its statutory share of the 0.75% increase and entered into the contract.
Therefore, the city would still receive from the one-half of the 1% but not from the 0.75%.
Bad blood
Since the proposition to dissolve this 1974 contract was raised in May of 2023, the city aims to secure themselves in the right.
The city’s most recent response states, “The City’s good faith efforts to meet with the County to discuss this issue went unheeded and no information was received from the Bedford County government until the City received a September 27, 2023, letter from the County’s outside counsel. Excerpts from the letter include language such as ‘your proposal to “amend” the Contract is entirely unacceptable,’ and a heading that reads ‘The City’s proposed amendment to the contract is unacceptable and irresponsible.’”
The city’s statement describes the County’s response as “puzzling” and with a “harsh and vitriolic tone…”
With the rerouted sales tax money, the city explains they would like to renovate the “1960’s era buildings” that house the Police Department, Fire Department, and City Hall. They also say the city is “understaffed in several key departments,” notably police and fire.
The response states, “The City would rather have productive discussions with the County about changes to the 1974 Sales Tax Agreement, rather than litigate it in court. To Bedford County officials, the City of Shelbyville says: Let’s talk.”
But the county is not satisfied.
In a response to the March 7 statement, Bedford County Mayor Chad Graham released this statement, saying, “I, and the commissioners with whom I’ve spoken, are disappointed with the city’s latest public statements. They say, ‘let’s talk,’ and yet they’re the ones who have initiated legal action.”
Addressing the city’s suggestion, Graham pointed out how Bedford County must still “contribute as much or more money to school operations” under the new State of Tennessee funding formula, Tennessee Investment in Student Achievement (TISA).
Money TISA is “not intended to replace any local funding, and in fact it can’t replace any local funding…” Graham said.
“If that sales tax revenue were not available to schools, the county would have to get the money from a property tax increase – one which would penalize both rural and urban residents and which would not be felt by tourists at all,” said Graham.
“We in county government aren’t the ones trying to take this to court, although we’ve had to prepare to defend the current system against the city’s lawsuit.”
This contract issue also comes in the wake of the City of Shelbyville lowering their property tax rate last year.
See The Post’s March 20 edition for more information on this issue.
