BY DAVID FISHER
A resolution supporting restoring the historic revenue sharing relationship between the State of Tennessee and its local governments and to return to the local share of the single article cap to local governments was approved by unanimous vote at Monday night’s Dresden City Board meeting.
The resolution notes that 92 percent of the state’s total sales tax collections are generated within municipal boundaries.
It points out that economic growth is financed largely through city taxes for police, fire, streets, water and sewer, schools, parks, libraries and other amenities that attract and retain businesses and make Tennessee’s communities desirable places for people to raise a family, start a business, and visit.
According to the resolution, in 1947, the state began sharing 4.6 percent of each year’s total state sales tax collections with cities for the purposes of recognizing the collective contributions of cities as the state’s economic engine: thereby acknowledging that city residents incur a local tax burden that is directly attributable to financing, developing, and maintaining an economic environment that continues to generate a healthy portion of the sales tax revenue accruing to the state.
When confronting serious fiscal challenges in 2002, the state of Tennessee increased the state sales tax rate from 6.0 percent to 7.0 percent. However, the state chose not to share a portion of the sales tax revenues generated by the 1.0 percent increase.
As a result of this change, the state broke a 55-year relationship of sharing 4.6 percent of all sales tax revenue designated for the state’s general fund with municipalities.
At the same time, in 2002, the state also doubled from $1,600 to $3,200 the amount of the purchase price any single item that is subject to a combined state and local option sales tax of 9.75 percent.
In addition to the single article cap increase from $1,600 to $3,200, the state also captured and continues to capture 100 percent of the state’s 7.0 percent levy, as well as the 2.75 percent portion of the sales tax levy that is customarily reserved for local government on the added sale of items with a purchase price above $1,600.
In the 20 years since these provisions took effect, these two changes have combined to result in the state realizing nearly $2 billion in additional sales tax collections. This is $2 billion that would have benefitted local taxpayers had the historic revenue sharing relationship and single cap article cap not been altered in 2002.
Also, in the 20 years since these provisions took effect, Tennessee’s state leaders have managed the budget with great care and a strong fiscally conservative approach to create a dynamic and growing economy with eight consecutive years of surplus revenues. The state’s sustained economic and fiscal performance has erased the conditions which led to these austerity measures in 2002.
There is expected to be a surplus of recurring revenues produced by the economic engines of the state and managed by its leaders.
As a result of the accolades bestowed upon the state for its economic success, its fiscally conservative policies and strong leadership, the state has garnered an enviable reputation as the state in which to live, work and play.
A consequence of this reputation has led to continued and substantial economic growth and an increase and realignment of the state’s population, thereby increasing the fiscal pressures on municipal governments to meet demands to expand and maintain infrastructure, to deliver essential services, to provide the amenities that allow for continued quality of life for Tennessee citizens, and to promote an economic environment that allows Tennessee’s businesses and communities to prosper.
These fiscal pressures create the need for recurring dollars to keep pace with this demand and to counteract the effects of inflation.
Correcting the provisions which took effect in 2002 will help to offset these fiscal pressures and provide relief to local taxpayers shouldering the burden of meeting this demand, which is associated with generating the sales tax revenues accruing to the state.
For all of these reasons, the Dresden City Board, on behalf of its residents, formerly supports the restoration of the historic revenue sharing relationship of recurring state shared sales taxes, in order for cities to, once again, receive 4.6 percent of all state general fund sales tax revenue.
The resolution states the Board of Aldermen also supports the state allowing local governments to receive the local share of sales tax revenues realized by increasing the single article cap in 2002 to collect on items with a purchase price between $1,600 and $3,200.”
Mayor Maddox noted the state is in a lot better shape now than it was 20 years ago. He added, “The resolution was brought by the Tennessee Municipal League and cities across the state.”
Based on sales tax revenues, Branscum estimated Dresden would receive approximately $56,000 annually, based on the city’s sales tax revenue in 2002.