Fiscal Sinkhole

Knox County must find a solution to its budget shortfalls—and soon

Even niggardly County Commissioner Paul Pinkston knows Knox County needs to raise more revenues to cover a $6 million annual sheriff's pension plan liability that's draining county reserve funds to the point where there won't be anything left for new schools or roads or any other capital projects within a year or so.

Yet when the moment of truth came at commission's recent budget meeting, Pinkston failed to even offer his much-touted plan for a property tax increase, partially offset by a repeal of the county's wheel tax, that would have raised enough to stop much of the bleeding. Commissioner Craig Leuthold valiantly but vainly proposed a property tax increase that would have dedicated $4.8 million toward covering the pension funding shortfall and $3.2 million toward easing the school system's distressing budgetary plight.

The one remaining hope for any fiscal sustenance anytime soon rests with Commissioner Mike Hammond's plan for raising the 2.25 percent Knox local option sales tax rate by enough to meet both school and debt-service needs. Any such increase would require approval by the voters in a referendum. And the much-respected Hammond is in the process of shaping a proposal to submit for commission approval in July or August that's a prerequisite for placing it on the November ballot.

As Hammond well knows, any chance for voter approval depends on identifying exactly how the revenues generated will be spent and making a compelling case why they are needed. A half-cent increase in the sales tax rate (to 2.75 percent) would generate about $40 million countywide; a more nearly realistic quarter-cent increase (to 2.5 percent), $20 million.

Per state law, at least half the increased revenue must be dedicated to schools. And the school system has pressing needs that total well in excess of $10 million. Consider:

• The $370 million school budget recommended by County Mayor Mike Ragsdale and approved by County Commission leaves no room for a pay raise for the school system's 7,000-plus employees. At a time when all other county employees are getting a 2 percent raise, this is totally unacceptable. Yet even after making numerous other budget cuts, the school board simply doesn't have the $5.6 million needed to match it.

• One casualty of the cuts is $2.6 million sought for expansion of a successful literacy initiative that lifted reading proficiency of deficient high schoolers by as much as two grade levels during its first year. This initiative is integral to the school system's overarching goals for increasing high school graduation rates and college preparedness.

• The school system faces a state mandate to provide differentiated pay for teachers at so-called "hard to staff" schools mostly in the center city. The preferred vehicle for doing so is a program known as TAP, which is presently in place on a pilot basis at four schools. Teachers at these schools get bonuses totaling $2.2 million based on their evaluations and student test-score gains, which have been encouraging. Extension of TAP to a dozen other identified schools would cost an additional $5 million.

• Until capital outlay (debt service) funds are replenished, there's no money for building the four new elementary schools that Ragsdale called for a year ago or even the more modest plans of school administrators for two elementary school additions.

For all of that, shaping a plan for requested dedication of incremental sales tax revenues is fraught with complications. For one thing, 80 percent of sales tax collections occurs within the city of Knoxville, and it's entitled to keep half of them—which begs the question of what the city would do with the other half for which there's no clearly identified need. The flip side of this is that very little of the money would flow into the county's general fund where it could be applied to covering the sheriff's pension fund obligation. This could mean that some of the increased sales tax revenues flowing to schools would have to be partially offset by a reallocation of property tax revenues from schools to the county's general fund, thus muddying the waters.

Both the city and the county, by agreement, presently contribute 72 percent of their respective sales tax revenues to schools. Mayor Bill Haslam says it's "premature" to talk about extending that agreement to any increase. Yet time is of the essence in preparing for a November referendum and marshaling all the support from school stakeholders that would be needed to give it any chance.

The timing is poor in other ways as well. New School Superintendent James McIntyre takes office on July 7, and he could be an effective champion of increased school funding. But he will need more time to shape his own agenda (with his board) before appealing to the public. Moreover, a sales tax increase couldn't take effect until January at the earliest, which is too late to meet current fiscal/school year needs.

Still, I commend Mike Hammond for his efforts and wish him well with them.