City to county: Clear up liquor funds ‘misconception’
by BRIAN GRAVES Banner Staff Writer
Dec 26, 2013 | 1625 views | 0 0 comments | 27 27 recommendations | email to a friend | print
The Cleveland City Council voted unanimously Monday to “respectfully request” both the Bradley County Commission and Bradley County Board of Education “clear up the misconception” that the city owes the county revenue from liquor taxes.

It is a move that solidifies, on the record, the city’s belief it has properly dispersed those funds according to state law, and is not in arrears to the county education system.

Council members are also standing firm, believing they have all the reinforcements required to prove their case.

The subject came to the table when City Manager Janice Casteel presented the Council with a letter from the county school board requesting a meeting and asking “if the Council would like to discuss that in the future.”

Councilman Richard Banks made his motion to request the statement from the county entities after Casteel reported a communication from the Tennessee Department of Revenue that was emailed to her as the Council meeting was in progress.

The email is from Lindsey Wolfenbarger, assistant director of the Revenue Department’s financial control office.

“According to state law, cities that do not operate their own school systems separate from the county are required to pay half of the liquor by the drink funds from the state to the county school fund,” Wolfenbarger wrote.

Wolfenbarger’s email does mirror the 2010 Tennessee Code Annotated 57-4-306 which states in part: “Any proceeds expended and distributed to municipalities which do not operate their own school systems separate from the county are required to remit one-half of their proceeds of the gross receipts liquor by the drink tax to the county school fund.” [Italics were added for emphasis.]

City officials note their argument is they are a municipality that does operate their own school system and the law applies to those that do not.

“I just spoke with Lindsay [Wolfenbarger] at the Department of Revenue and she said, in her opinion, the city of Cleveland has correctly distributed the tax,” Casteel said.

“When I discussed it with [County School Superintendent] Johnny McDaniel, I told him from everything I had found, the city has shared it correctly from the time the referendum passed in 2002 and that I would continue to research. I told him if I found our formula was incorrect, I’d be glad to contact him and let him know that.”

Cleveland Mayor Tom Rowland noted “everyone that has entered this discussion believes we have properly divided our money.”

He said there was a list of cities believed not to be in compliance presented at a recent meeting of the Tennessee Municipal League.

“We were not on that list and that has been substantiated,” Rowland said.

According to state law, a city which operates a school system independent from the county sends its liquor tax receipts to the state.

The state keeps 50 percent for education, then returns 50 percent of those funds to the city. The city is required to place half of those returned funds (25 percent of the total revenue) into its education program.

That law and formula have been in effect since 1982.

It has been the confusion and misunderstanding over just who is responsible to ensure the proper disbursement of those funds — the cities or the state — that has caused a re-evaluation of the situation statewide.

Much of the controversy surrounding the distribution of liquor taxes has come from recent situations where cities across the state which do not operate their own school system — believing it has been the state’s responsibility to disperse the funds — have found it was actually the cities’ responsibility to make those payments to the school systems and are now having to make up those costs.

The assumption it was the state’s role to mete out the funds became widespread because it is the state that performs the action of splitting and appropriating moneys on shared taxes. The liquor taxes for education, for reasons unknown, are the exception to the rule.

To further reinforce the city’s argument, Casteel showed Council members a recent story from the Nashville Tennessean which quotes Dennis Huffler, director of the Tennessee Municipal Attorneys Association, as saying cities that operated their own systems “are not affected” by the law that would require sharing with a county system.

“We’re a member of TML. Should we not bring [Huffler] on board?” asked Councilman David May. “It might put it to rest and I think that would be an option we would have.”

A question from Banks brought up a complication in using the services of Chris Cagle, the attorney representing both school boards.

Banks asked Casteel if Cagle had an opinion on the matter and Casteel said he does, “but he has not been allowed to give it to us in writing.”

Because of the shared clients, Cagle could only give a written opinion if both boards voted to allow him to do so.

Cleveland Board of Education member Dawn Robinson affirmed Casteel’s statement.

“Once the county waives the conflict to allow Cagle to offer us an opinion in writing, he can,” Robinson said.

When it was suggested the city board might make the move waiving the attorney’s conflict first, Robinson repeated, “The county also has to waive the conflict.”

She suggested Cagle may be looking at the option of getting an attorney with no ties to either system that could provide an opinion.

Councilman Bill Estes said he believed the law is “in black and white” favoring the city’s stance.

“Why don’t we just let it ride and do nothing, then if they want to pursue it ...,” Estes said before being interrupted by May who said “the truth is a good defense.

“We need to make public what we have received here by email,” Estes said. “We were on defense because everything was put out by others ahead of time. You let Bradley County Schools, Mr. McDaniel and the County Commission see this and they are going to see they don’t really have a dog in this hunt.”

Estes also requested the information be placed on the city’s website.

Banks said all cities cannot be lumped together.

“Just to lump Cleveland in with other cities [without their own school system] and say city taxpayers suddenly owe $700,000, and our staff has done something wrong, is very unfair to our staff and our city,” Banks said. “It certainly does no good as far as working with the county on many, many projects.”

Rowland said the request for an opinion had gone as high as the state revenue commissioner, who “gave an opinion we were in compliance.”

At that point, Banks formally made his motion.

“I make a motion we respectfully request the Bradley County Commission and the Bradley County school board put out a press release that clears up the misconception that the city of Cleveland owes anything because, based upon [the email from Wolfenbarger] and other information we have, we don’t,” Banks said.

There was no discussion on the motion and the vote was unanimous.

Rowland also announced that although City Hall will be closed Tuesday, Dec. 31, for the New Year’s holiday, the city clerk’s office would be open for normal hours on that day to receive property tax payments.