City to now reap sales tax revenues, school funding shouldn't change
Knox County will lose control of millions of dollars in annual sales tax revenue to the city in the coming years, including roughly $600,000 this year, because of annexations that occurred more than a decade ago under then-Knoxville Mayor Victor Ashe.
Ashe, who served between 1987 and 2003, claimed more than 26 square miles of county property through forced annexations that allowed the city to acquire new property whether the people or businesses there wanted to join or not.
Sales tax revenues from the businesses that were located on the property at the time of annexation would still go to the county for the next 15 years under a "sunset" rule.
That clause, however, has run its course.
Starting next fiscal year, which begins July 1, the county will lose $600,000 in annual sales tax revenue, county officials said. Then, during the next three years, it's expected to lose another $1.4 million annually.
"It's unfair and it's not right, but it's what we have to live under," said Knox County Mayor Tim Burchett. "It's going to be a big hit."
Burchett said he thinks the county can make up the loss through natural growth in overall revenues.
However, county Finance Director Chris Caldwell said the reduction means the county's engineering department, which relies mostly on gasoline tax and sales tax revenues to operate, will have to dip into its own reserve fund for the upcoming year to cover the loss.
Caldwell said the move won't lead to a reduction in services or staffing, but that "in future years we will have to look for different (revenue) sources."
The change shouldn't affect funding for the school system. The city, like the county, gives the schools 72 percent of the sales tax revenue it gets.
Ashe, during his reign, was pretty much the poster child for annexation.
Officials in recent years, however, have curtailed the practice.
Neither Ashe's immediate successor, Bill Haslam, nor the current mayor, Madeline Rogero, have secured land through forced annexation.
"There haven't been any involuntary annexations in more than a decade. The city is focused on economic redevelopment from the urban core outward, and we are seeing great results from that approach," said city spokesman Jesse Mayshark. "A good example is the soon-to-open University Commons development on a former brownfield site along Cumberland Avenue."
State leaders this year also passed a law that requires a referendum in which people who live within the proposed annexation area vote in favor of joining a city.
Business districts that want to join a city for access to services can still do so without a referendum.