Metro Pulse/Insights/Local Sales Tax Increase

Comment
on this story

by Joe Sullivan

This column on July 19 made the case for raising the local sales tax by half a cent to the maximum 2.75 cents permitted by state law. Last week County Commission came close to approving a referendum in November on whether to do so.

As compelling as the case remains, however, it's just as well that Commission ended up aborting plans for a special meeting to schedule the referendum. Until a lot of groundwork is laid, a tax increase referendum would be doomed to failure, and there's simply not enough time to lay it between now and a Nov. 6 election day.

For the 14 (out of 19) commissioners who initially favored holding the referendum this year, now should be the time to start preparing the case for such a vote next year. And these preparations by no means involve commissioners alone. The school system has a crucial role to play in justifying the $16 million in additional revenue it would receive from a half-cent increase. But it's still in the formative stage of shaping plans for what's come to be called a "World Class School System."

The preliminary version of these plans that was presented to the school board last month seemed to place almost all the emphasis on raising teacher compensation in one way or another. But lots of luck to any school official who attempts to make the case for raising taxes to support higher teacher pay alone. Moreover, the one element of the contemplated compensation package that holds the most appeal is also the most problematic. This involves incentive pay for teachers in high performing schools or schools that show a lot of improvement. But the Knox County Education Association has long opposed incentive pay, and any such pay plan would have to be incorporated into its negotiated contract with the school system.

We have a lot of confidence in Assistant Superintendent for Instruction Sarah Simpson, who is chairing the World Class School System task force. So we're hopeful that its final report to the school board, which is Due Oct. 1, will incorporate curriculum or instructional enhancements that will hold appeal to the public at large and not just the "school family," as Superintendent Charles Lindsey likes to refer to it.

To gain credibility, Lindsey must also come forward with long-awaited plans for acting on the recommendations of a school performance audit completed early this year by a Houston-based consulting firm. These, too, are expected in October. Particular importance attaches to the audit's stress on the need for strengthened financial management to control the school system's $282 million budget.

At the same time, Lindsey and County Commission have got to break out of the confrontational mode that has characterized their relationship and start collaborating. The imminent prospect of the school system and Commission suing each other over their respective prerogatives isn't conducive to getting anything accomplished. While other issues are involved, their dispute centers on whether Commission is entitled to approve any school expenditure in excess of $50,000. This is a close legal question that probably requires judicial determination. But the school board didn't have to retain high-priced outside counsel to obtain it in contraversion of a County Charter requirement that any such retention must be approved by Commission. (The validity of this requirement is also in dispute.)

As someone who has sat through numerous Commission meetings for two or three hours awaiting consideration of the one agenda item that's pertinent to me, I'm sympathetic to Lindsey's complaint that he spends an inordinate amount of time attending Commission meetings. And then there are the Education Committee and Finance Committee meetings leading up to them at which the superintendent must also make his case for spending money that Commission has already appropriated.

Tell that to Finance Committee Chairman Frank Leuthold, though, and he fumes that, "They are trying to do things without the skills and ability to do them. The record keeping is not there, and there is a need for checks and balances."

Yet it was Leuthold, spurred on by Commissioner John Griess, who led the effort to advance a sales tax increase, which can only be approved by referendum. According to Griess, County Commission's executive director, Ray Hill, managed to derail the effort by convincing two key commissioners, Chairman Leo Cooper and Vice Chairman Billy Tindell, that it could be political suicide to hold such a vote just months in advance of next year's county elections. Deferring a referendum until November 2002 will allow commissioners to put those elections behind them.

If it weren't for Leuthold's long track record of high-mindedness and support for education, one might suspect his motives. Letting a sales tax referendum go down to defeat would serve to send Lindsey a message that the public isn't prepared to pay to meet his demands for additional school funding. But Leuthold recognizes that, especially given the economic slowdown, some form of county tax increase is inevitable.

Leuthold is also mindful of a key reason why a sales tax increase is the way to go—and the sooner the better. Prospects are that the state Legislature is going to abolish local option sales tax, whose rates vary widely across the state, within the next few years. The reason is that a uniform statewide rate is needed to meet prospective Congressional prerequisites for allowing states to start collecting sales taxes on catalogue, Internet, and other "remote" sales that presently go untaxed. UT's Center for Business and Economic Research has estimated that by 2003 the state will be missing out on $500 million in annual revenue due to its inability to tax these rapidly growing sales.

To protect local governments from financial calamity, however, any abolition of local sales taxes will almost certainly be coupled with "hold harmless" provisions. These would reimburse localities for foregone revenues. But in order to maximize its reimbursements, Knox County needs to stake a claim to the maximum 2.75 cent rate while the staking is good. The half-cent increase would yield about $32 million countywide, and by state law half of it must go to schools. The city of Knoxville would collect most of the balance.

As a rule, I'm opposed to any increase in the sales tax, which is already too high and too regressive in this state. But given the prospective abolition, County Commission would be remiss to leave $32 million in local revenue on the table.