Since 1968, the City of Smithville, by agreement with the county, has given two thirds of it's local option sales tax collections to the county's education local purpose tax fund to help pay for construction and other school capital outlay projects. But with the sales tax set to increase from 1.5% to 2.75% effective July 1st, city officials are balking at a request from the county to extend that agreement for another thirty years.
County Mayor Mike Foster and members of the county commission met with Mayor Taft Hendrixson and all five city aldermen Monday night during an informal workshop meeting at city hall to discuss the issue.
The city is legally obligated to turn over to the county 50% of it's local option sales tax collections for education purposes, but for almost 40 years, the city has been contributing more than it's share at 66 and 2/3%.
County officials want to keep it that way, but city leaders say they are opposed to signing any extended long term agreement giving the county two thirds of the city's sales tax collections, because Smithville, in spite of a large general fund surplus now, might need that extra money in years to come for needs that are, as of now, unforeseen.
Last summer, before the first sales tax referendum, the city council adopted a resolution pledging a continuation of the agreement to turn over to the county two thirds of it's sales tax collections if the county voters approved an increase in the sales tax from 1.5% to 2.75%. But the first referendum, held last August, failed at the polls.
Since the resolution agreement had no termination date, County officials assumed that it would be valid for the second referendum, held last month, which was approved by county voters
However, city officials insist that the first resolution pertained only to the first referendum, and since county officials did not seek approval of a new resolution for the second referendum, they are no longer obligated to honor it.
Since the sales tax referendum was adopted in May, city leaders have given serious consideration to keeping fifty percent of the local option sales tax collections for city government, rather than turning over two thirds of the revenue to the county government.
County Mayor Foster told the Mayor and Aldermen Monday night that if they do that, then the county commissioners will not be able to cut the property tax rate to county tax payers by 19.5 to 20 cents as they have pledged to do, now that the sales tax referendum has been adopted by the voters.
City leaders now say they may continue the agreement turning over two thirds of the sales tax collections to the county, but they do not support signing a 30 year agreement, as the county has proposed.
Alderman Aaron Meeks suggested that the city act on the agreement on a year to year basis.
Steve Bates, the county's financial advisor, warned that the county could not do any long range planning with only a yearly commitment from the city. He says new schools will have to be built in the coming years and the county must count on that extra sales tax revenue coming in from the city to support such projects. Plus, he says, the county must meet state maintenance of effort requirements, meaning that schools have to be funded by the county, at least with the same amount of local dollars from year to year. In other words, the county may increase funding each year for schools, but it cannot cut funding.
Bates says the county is considering reducing the local property tax rate for schools by 16 cents from 73 cents to 57 cents in the new budget, but giving them back the same of amount of dollars from the increase in the local option sales tax funds.
County Mayor Foster said, even by turning over two thirds of it's sales tax collections to the county, the city would still gain about $361,000 every year, plus growth, whereas the county, during the first three or four years, would not gain because of the reduction in the property tax rate, as promised to the voters.
Concerned because city leaders wouldn't commit to a thirty year agreement, Foster told the mayor and aldermen that \"without an agreement, in hind sight, we would have been better off it (referendum) had failed.\"
The mayor and alderman could take no action on the issue Monday night, because it was not scheduled for the regular city council meeting.