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Posted on Wednesday, March 27, 2024 at 9:10 am

Graham explains Co.’s response to lawsuit


The lawsuit between Shelbyville City and Bedford County Government is causing both a rift between the two entities as well as confusion among residents about school funding.

Essentially, the lawsuit, which looks to end a contract written in 1974, boils down to this: the city thinks the contract should have ended, while the county argues there was no end date written in the original contract.

Sitting down with Bedford County Mayor Chad Graham, he told The Post, “Our position, and we believe – our review to this point says – that we continue to meet all the conditions of that agreement to be able to receive funds from the local option sales tax. The city has taken the position that that wasn’t necessarily going to be in perpetuity.”

Since the original 1974 contract does not specify an end date, Graham said, “That’s something the judge is going to have to resolve.”

Graham continued, “Our position is that it is legally binding and fair and that we continue to meet all of the standards or conditions that were associated with the agreement from the beginning.”

If the contract were to end, a percentage of the sales tax would be rerouted from funding schools in Bedford County back to the city. The city, in a letter sent last May, estimates it would be about $2 million.

Whatever the actual cost, it would a 100% loss to the county, according to Graham, in addition to hundreds of thousands of dollars in legal fees on both sides.

It should be mentioned 17th Judicial District Judge J.B. Cox and Circuit Judge Forest Durand have recused themselves from this lawsuit as the “judge’s impartiality might reasonably be questioned,” according to their Orders of Recusal sent on March 15.

The county has hired Holland & Knight to represent them.

“Our track record, at least for my last term, the city and the county has enjoyed the ability to work together and do some pretty significant things. So it was certainly disappointing that they felt like they had reached that point and were willing to take legal actions against us,” said Graham.

School funding

However, one of the biggest issues Mayor Graham expressed about the city’s response was “misinformation” about school funding.

The city’s latest letter stated that the county will receive more money with the new Tennessee Investment in Student Achievement (TISA) formula, which was enacted this year.

But Graham said this is a misinterpretation.

Schools are funded through federal, state, and local funding. And then there’s this formula called maintenance of effort (MOE).

This is an amount that the county commits to the schools. “And we cannot reduce that amount next year. Those dollars must go on,” said Graham.

Commissioner John Boutwell, who has extensively studied data about the county’s school funding and per pupil spending, explained to The Post, “The required local match is based on the local capacity to fund education as determined by TACIR and UT’s Boyd Center.

“While most systems will budget more than their MOE, it is a given the MOE amount is the floor for their FY 2024 budget,” he said.

The county’s position is if they no longer receive the estimated $2 million from sales tax, this will be a detriment to funding capital projects and the debt incurred on behalf of those projects.

“Basically, the two significant or most significant sources of revenue for a local government are sales tax and property tax,” said Graham.

Locally, half of all sales tax anyway has to go to education, but the other half gets to be retained by whomever collects it (where the purchase was made). Essentially, the city gives up their half of the local option sales tax increase to go to “school purposes,” according to the 1974 agreement.

Graham said he has heard people say the loss the county will see from the breaking of this contract won’t affect day-to-day operations of education.

“Our position on that is that’s not true,” he said. He added that it’s true in the sense that these dollars go toward bricks-and-mortar school building, but there’s a formula (TISA) that dictates how much local dollars must be associated or tied to that budget at the local level.

Basically, no school system can reduce per pupil spending or local contribution.

“The money that is captured through this local option sales tax, because it goes strictly toward schools and it goes for debt of schools, it counts toward our required annual match,” said Graham.

“When it comes to coming up with whatever the maintenance of effort match is for the year that lays at the feet of the taxpayer and their property tax.”

Plus the state has already approved the county’s school budget. That budget has to be met.

Additionally, the county’s position is they also continue to incur debt on behalf of the schools system—which includes schools both in the city limits and county.

“We do not believe we are in violation, in any way, with the agreement that was put forward. We have school debt that we are paying that was based on the understanding that those fees, those dollars, would continue to be there. We would have to find another recurring avenue to recover those funds because it’s paying for debt we still have,” said Graham.

Graham said they have just built the most expensive school in the county’s history, Cartwright Elementary (at $40 million), which falls in city limits.

Graham explained capital projects do not count in the MOE formula. Building a $40 million school does infuse $40 million into the school system, but the MOE doesn’t require the county to continue paying that $40 million every year. Rather, the payments that they’re making, the state allows for credits that go toward that payment each year.

The $18 million the city references in their response letter “has nothing to do with the sales tax,” according to Graham.

“You don’t get any relief from getting $10 million to $11 million, so you don’t have to put any local dollars next year. Here, the reference to MOE is basically what it means,” he said. So, even if Bedford County gets more state funding from the TISA formula, they still have to meet a certain amount of money (MOE).

“I wouldn’t dispute that the city has needs. We have needs. We continue to have needs. That’s what people who are elected do is find solutions. I’ve had to make tough decisions. This commission has had to invest and borrow money to address needs that we have,” he said. “But I’m not balancing a budget on the back of the city.”