City Lawsuit Leads to Funding Uncertainty and Rising Legal Fees

Bedford County Post

By: Staff Reports

Summer vacation is often a time of relaxation before the stress and anxiety of a new school year begins. It’s a time to unplug and unwind and enjoy a couple of months of carefree fun. However, this summer a lingering cloud of uncertainty hangs over a portion of tax revenue that has been used to fund public education in Bedford County for the last 50 years. Due to the ongoing litigation between Bedford County and the city of Shelbyville, an expensive waiting game is set to drag along through the summer and beyond.

As has been previously reported, the roots of this issue can be traced back to a 1974 agreement between the city and county following the passage of a 0.75 percent sales tax increase. In an effort to consolidate the school system, the city of Shelbyville surrendered a portion of the new tax revenue to the county with the understanding that 100 percent of those funds would be allocated towards school construction, maintenance and upkeep.

“It’s actually turned into a great arrangement that has paid huge dividends for both the city and the county,” said Greg Vick, a Bedford County Commissioner representing District 2. “Since it’s a sales tax, we’re able to generate revenue from visitors and tourists, not just property owners. As Bedford County has grown over the last 50 years, that revenue has really added up and has been designated exclusively toward building and maintaining our schools so we can successfully educate our local children.”

Since the agreement was put into place, that tax revenue has been collected by the State of Tennessee and directed back to the county’s school building fund. That small increase in the local tax rate now translates into roughly $2 million annually that is handed over by the city to the county and earmarked explicitly for local education.

When the agreement was made in 1974, no end date was included. The county contends that it has upheld its end of the bargain by complying with the terms of the agreement and passing numerous audits administered by the state. The city believes that 50 years is long enough and has requested an end to the agreement and the ability to retain the revenue stream effective July 1, 2024. Under the new conditions, those funds would be routed to the city’s general fund where they could be allocated at the discretion of the city government.

“It’s not a matter of simply surrendering the funds back to the city,” explained Vick. “Due to the State of Tennessee’s requirements regarding Maintenance of Effort, we cannot decrease our local funding amount for education.”

According to the Tennessee Comptroller’s Office, “maintenance of effort laws ensure that local funds budgeted for schools do not decrease as state funding for schools increases. County commissions, city councils, and special school districts must budget at least the same total dollars for schools that they did the previous year to comply with maintenance of effort laws.” “So, if we incur a $2 million financial shortfall in our education funding, due to the loss of this sales tax revenue, we can’t simply say ‘OK, we’ll just cut education spending by $2 million and call it a day.’ If the city is successful in the lawsuit, then the taxpayers will have to replace that dollar amount.

“This single action by the city, in filing this lawsuit, will force all property owners to pay a higher property tax,” said Vick. “Several of the Shelbyville City Council members campaigned on a platform of cutting taxes, and now, because of their actions, these individuals are going to force a tax increase on the backs of all property owners, BOTH in Shelbyville and everyone else in Bedford County.”

The city informed the county of their intention to amend or terminate the long-standing agreement in May 2023, and when no solution could be reached, the city elected to sue the county in order to capture the designated educational funds for use in their General Fund.

‘The meter continues to run’

The request for a declarative judgement now sits in the 17th District Chancery Court where it awaits review by Special Judge Don Ash who will preside after Judge J.B. Cox recused himself given the unique circumstances of the suit and the fact that his “impartiality might reasonably be questioned.” No date has been set for a hearing, and both sides have retained legal counsel out of Nashville. Holland & Knight represents Bedford County, and Bass, Berry & Sims represents the city of Shelbyville. The process is expected to last long into the fall with ample amounts of research and fact finding being conducted by both parties- all of which will incur massive legal fees.

“Meanwhile, the meter continues to run on the property owners,” added Vick. “In fact, for residents of Shelbyville, this is a prime example of double taxation as they are footing the legal bills for both sides of the dispute.

“We had an agreement in place for 50 years that benefited every student in Bedford County, including our students in Shelbyville as well as our students in the county. Now we

may be forced to divert desperately needed funds designated for educating our students and paying our teachers, in order to pay the massive legal bills caused by this lawsuit.”

Opportunity to Compromise

While there have been other attempts over the last half century to pull this funding back to the city, a compromise and continuance of the agreement was always reached. This latest instance does not seem to be headed towards a similar outcome.

“This will create more problems than it solves,” said David Coffey, Chairman of A Better Bedford. “The agreement between the city and county has served the students and residents of our community for years.” A Better Bedford, a local political action committee (PAC), recently announced its formation in an effort to support innovative and civic-minded candidates and elected leaders who are dedicated to constructive collaboration and partnership across all levels of government and the private sector in Shelbyville and Bedford County.

“The funds at the heart of this matter have been managed in an effective way for 50 years,” said Coffey. “Pulling them out of our schools and applying them elsewhere will only lead to increased taxes for all of Bedford County.”

As the summer drags on, the lawsuit continues to linger with potentially devastating long-term ramifications regarding the stability of school funding.

“We have made attempts to compromise over the last year,” said Vick. “We have many areas where we [the city and county] are attempting to work together, such as the Scenic River Overlook, High Speed Broadband and Greenway Projects as well as funding for several new athletic fields. However, we seem to be at a stalemate because of this lawsuit.”

Vick concluded by adding, “It’s a shame they are seeking to overturn this agreement when both sides operated in good faith for 50 years. However, the last two years have been a challenging time as there seems to be little effort given towards working together. The agreement we put into place in 1974 was agreed upon by both parties and specifically included no end date, because our commitment to local public education has no end date.”