City budget hit hard by state law

Wednesday, April 30, 2014

A change in state law dealing with the mixed drink tax will result in some decrease in revenue for Shelbyville.

It does not mean that taxes will be going up, instead, cuts will have to be made to the budget, the city manger said.

In the early 1980s, a state law provided that mixed drink tax proceeds collected where liquor by the drink is allowed would be distributed 50 percent to the city or county and the other half to local schools.

Local exemption

However, Shelbyville and Bedford County was specifically exempted from that requirement -- allowing the full tax proceeds to remain with the city.

The figure amounts to about $180,000 a year.

This has been in place for more than 25 years, and the tax is collected only within the city limits of Shelbyville, since liquor by the drink is the only place in the county where it is allowed.

However, on the last day of the recent state General Assembly, an amendment was added to a bill revising how the tax proceeds were distributed in some jurisdictions.

That bill, as amended and approved, eliminated the exemption of Shelbyville/Bedford County.

Decision ahead

City manager Jay Johnson said state officials have advised it will be a decision at the local level whether they continue with the current arrangement with a written agreement. If an agreement is not made on the local level, the city will be required to comply with the new state law.

Johnson said Shelbyville is going to lose just over $91,000 annually, or the equivalent of $0.03 on the property tax rate.

Any new local agreement will have to be approved and submitted to the state comptroller's office prior to Aug. 31. The bill goes into effect July 1.

Councilman Thomas Landers asked why the city was originally exempt. He questioned if it was because the city gives the school system 14 percent more in sales tax revenue than other counties do.

"Well, yes and no," Johnson replied. "I'm told that was the reason, but we have been unable to find any documentation."

"I'm told it was made by the state representative serving during the time the exemption was made.

"I've been told that at the time, the county was very upset about it," Johnson said.

Sharing expected

Johnson said he's had discussions with representatives of both the county and the school system, asking if they wanted to sit down and talk about it.

"The feeling is that they think we should have been sharing this money all along," the city manager said.

Johnson said he thought the school system and the county have gained $91,000

This means the city will have to find a way to rebound from that loss of revenue.

"(The) people sitting around this table are going to have to say no, and cut the budget by around $90,000," he said. "We're going to have to say 'no' to other people because of this."

Councilman Jamie Williams asked if there was some way to get back the 14 percent, but city recorder Vickie Haskins said that agreement has no sunset provision.

'No' to be heard

"This is a matter of cutting the budget, this is not a matter of raising taxes," Johnson said, adding the council will have to say no to some things that they haven't in the past.

With increases in the city's health insurance plan of about $150,000, and changes to accounting standard related to the pension system will cost another $112,000 plus other expenses.

"Some of the things we've done in the past, we just can't do anymore," Johnson said.

That may start next Monday night, when the council will hear from nonprofit agencies and other groups.