City owes schools $3.3M, but state legislation may reduce back pay due from liquor-by-the-drink sales

Jackson Sun


Written by Jordan Buie

The upcoming fiscal year could be tough for the city of Jackson and better for the Jackson-Madison County School System, but much still hangs in the balance.

Jackson is one of 42 Tennessee cities, according to Mayor Jerry Gist, that will be required to pay their local school system money received from past liquor sales.

This would mean the city of Jackson owes Jackson-Madison County Schools about $3.3 million, $2 million of which Gist said the city had intended to pay to the schools in the next fiscal year.

But, Gist said, an amendment to the bill has been filed in the office of the State Comptroller that perhaps would only require cities to pay the tax revenue collected back to July 1, 1999. In the case of the city of Jackson, this would reduce the amount the city owes the local school system from $3.3 million to about $2.2 million.

Gist said the other thing the bill suggests is that the repayment period would extend over 10 years. Gist said the city is waiting to see what happens in the state legislature this week before moving forward but that there is no question the school system will receive its due money.

The law

State law (Tennessee Code Annotated Section 57-4-306) requires the Department of Revenue to distribute half of liquor drink tax receipts to Tennessee’s general fund for educational purposes. The law also requires the department to send the other half of the liquor-by-the-drink money to the municipalities where the taxes were collected.

(2)  Fifty percent (50%) to the local political subdivision as follows:

(A)  One half (½) of the proceeds shall be expended and distributed in the same manner as the county property tax for schools is expended and distributed; provided, however, that except in counties having a population of not less than twenty-seven thousand nine hundred (27,900) nor more than twenty-seven thousand nine hundred twenty (27,920), according to the 1980 federal census or any subsequent federal census, 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 (½) of their proceeds of the gross receipts liquor-by-the-drink tax to the county school fund; and

The law says that 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.

Gist said the law went completely undetected by local governments and school systems across the state until schools in East Tennessee learned of the law and learned how much money was due to them. Gist said the city of Chattanooga owes Hamilton County Schools more than $11 million.

Gist said he expects a decision before the close of the legislative session this week on how far back the cities will be required to repay the schools.

(Question: Is ignorance of the law justification for one to steal?)

“We are waiting for final action by the General Assembly on a bill from the Comptroller’s Office, which is expected to pass the Senate and the House, that says the money the cities must repay goes back to 1999,” Gist said on Friday.

Gist said he expects the bill to pass based on previous legislation that has restricted back pay to 15 years.

If the bill passes, he said, it will mean about $1.1 million less the city must pay the schools and that the city will only be required to pay it over a 10-year period.

If this were the case, Gist said, the local school system would be paid between $225,000 to $250,000 annually, depending on liquor sales, and, for the next 10 years, an additional roughly $220,000 in back pay for money previously owed to the school system.

By the end of this fiscal year, Gist said, the Jackson-Madison County School System should receive at least about $500,000.

Gist said there is no doubt the money paid to the schools will cost the city.

“There will be across-the-board cuts to all the departments, with exception of the police department,” he said. “We have plans for six new officers.”

He said there are four existing resource officers in the school system the city might no longer pay for, and the city would only be required to pay for two additional officers to monitor public housing.

“We are roughly a million in the red, so we have asked these departments to cut back 1.6 percent,” he said.

As far as what will be cut, Gist said he would leave that to the department heads.

“There may be some cuts to part-time workers, none in full-time workers,” he said.

The City Council will approve next fiscal year’s budget in June.

The county’s role

According to Madison County Attorney Steve Maroney, the money from the city will not go directly to the school system, but will pass first through the Madison County Commission.

“There’s an attorney general opinion that was released within the last 60 days that basically said that money goes to the (County Commission’s) county school fund,” he said. “ It doesn’t belong to the School Board per se. It belongs to the county, which appropriates the money for the School Board’s uses.”

Nevertheless, Maroney said, no matter how the school system gets the money, the law is pretty simple that money is to be used strictly for educational purposes.

Commissioner Larry Lowrance made a comment during the last County Commission meeting, after the commission allocated more than $1 million for education spending for technology and learning and teaching, that he hoped the school system would remember the commission if or when it receives money from the city of Jackson.

“With the tightness of the county budget this year, I would be happy if the school system paid for the technology from the $3.3 million instead of taking out of debt service,” he said. “I think it’s kind of a consensus. I think everybody is saying, ‘Let’s give it to the school system.’ I had hoped they would use some of that for technology.”

Maroney said he foresees that any efforts to delay or reduce the money that is due to the school systems would cause “a run to the courthouse” as schools sought almost certain litigation.

Jackson-Madison County Schools Superintendent Verna Ruffin said she was excited when she learned of the money the school system would receive.

“This is potential for us to really have some of the funding we are missing to get some quality things done in the district,” she said. “It’s a really great opportunity to really put together a comprehensive plan.”

Ruffin said there are already ideas in place on how the money would be spent, as part of a long-range, not short-range, plan.

She said the school system has received no money as of yet, but the city has been completely cooperative.

Ruffin said she hopes the money that is due to the school system is not reduced in any way and that payment of the money is not delayed, but that she believes the payment can be a result of a good partnership.

“If it is delayed, it delays our ability to move forward,” she said. “It needs to be such that it provides us with the economic resource to make some bold moves toward the future. When there are errors like this that are found, it is incumbent on the bodies to find out how it can be mutually beneficial.”

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