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Kingsport weighing all options to solve budget shortfall

Matthew Lane • Apr 22, 2018 at 4:30 PM

KINGSPORT — Going into this year’s budget season, Kingsport is facing a challenge. It has to figure out a way to offset a $644,000 shortfall in school funding.

Do your taxes go up? Will you see an increase in fees? Can you expect city services to be cut?

All of these options and more are apparently on the table as Kingsport dives deeper into the budget process next month, according to recent comments made by city and elected officials.

HOW WE GOT HERE

The Sullivan County Commission issued $140 million in bonds in December 2016 to fund a countywide school facilities plan, a plan approved by Bristol, Kingsport and Sullivan County. 

Kingsport’s portion was $45.7 million, which went toward the purchase of Sullivan North High School and the construction of the new science and technology center on the Dobyns-Bennett campus.

Then in August 2017, in order to balance the budget, the commission approved an 8.5 cent property tax hike and shifted around the tax rates of several county funds. As a result, here’s what happened:

— The general fund (which includes the sheriff’s office) increased by $2 million.

— The school fund dropped from $52 million to $50 million.

— Debt service rose from $4.9 million to $8.17 million.

— All money in the capital project fund for schools was eliminated.

UNINTENDED CONSEQUENCES

What these shifts ultimately meant for Kingsport was a loss of $644,000 in operating funds and $1.13 million in capital funds last year. Kingsport City Schools made adjustments to its spending soon after to offset this loss. The city of Kingsport did not pitch in any new money.

By state law, schools have to be funded at the same level as the previous year unless enrollment declines, which is what happened in the Sullivan County school system.

“The state does not view county or city money any differently. They look at it as all local money, so if the county reduces (the amount it gives), that pulls the cities in to fill the void,” said Kingsport City Manager Jeff Fleming.

City and county residents pay county property taxes, and a portion of the county tax rate allocated for schools goes to the school systems based on  student population. Though Kingsport generates 46 percent of county property taxes, Kingsport City Schools receives only 33 percent back.

“I don’t think the county did this intentionally,” Fleming said. “They were trying to resolve their budget issue with their school system, but it had consequences for both city systems.”

BALANCING THE BUDGET

Sullivan County Mayor Richard Venable said the reduction in the school fund was done purely to fund the debt on the $140 million in bonds and not to settle the $2 million lawsuit with Sullivan County Sheriff Wayne Anderson. That money came out of the general fund, Venable said.

“We issued $140 million in bonds and the debt service on that is $7 million a year. That’s about 18 to 19 cents on the tax rate,” Venable said. “We gave it our best shot, took every source of revenue we could find to apply to that potential debt service and ... came up with nine cents.”

Right now, Sullivan County officials don’t know how next year’s budget is going to look, but Venable did say he doesn’t believe there’s going to be a property tax hike. The tax rate allocated for schools — both operating and capital funds — is likely to stay the same “for some time,” he said.

MOVING FORWARD

Kingsport Mayor John Clark has described this budget season as “a challenging time” and Alderwoman Colette George recently said Sullivan County put Kingsport in a situation where cuts are going to have to be made.

Options mentioned at recent Board of Mayor and Aldermen meetings include raising taxes, reducing services and cutting spending. Fleming said the city might also look at employee pay and special programs and partnerships.

If you just looked at a city property tax hike, then 3.6 cents would be needed to offset the $644,000, Fleming added.

One positive note is that Kingsport’s sales tax collections for the current year are running about 4.5 percent higher than last year, about $450,000. Regardless, some kind of proposal to balance the budget is going to be pitched to the BMA on May 8.

“I’m more worried about the need to stay in close communication because we’re making decisions right now that’ll affect next year’s budget,” Fleming said.

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