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IntroductionWhat This Study DoesSummary of FindingsDemand for County Government ServicesExpenditures by Rutherford CountyStructure of ExpendituresAccording to the Tennessee Department of Education, operating expenditures per average daily attendance (ADA) by the Rutherford County schools were $5,748 in 2002, approximately 91 percent of the state average of $6,349 per ADA. Spending per ADA grew Current Sources of Revenue for Rutherford CountyProperty TaxLocal Option Sales TaxWheel TaxSummary of Rutherford County TaxesSpending and Revenue in the FuturePotential Sources of New RevenueEconomic Effects of New Taxes and FeesLocal Option Sales TaxRecent Revenue GrowthLocal Gasoline TaxPrevalence of Local Taxes on GasolineImplementationPotential RevenueLocal Experience with Impact FeesImplementation IssuesPotential Sources of New Revenue for Rutherford County Business and Economic Research Center Jennings A. Jones College of Business Middle Tennessee State University December 2003Potential Sources of New Revenue for Rutherford County Business and Economic Research Center Middle Tennessee State University Introduction Rutherford County is between a rock and a hard place: the county has added more population in the past two years than have four states;1 school enrollment continues to increase rapidly, with future annual increases expected in the range of 4 percent to 5 percent; additional capital expenditures required by schools are large; state-shared taxes were cut this year with more cuts likely in the future; the costs of providing existing levels of service are rising; taxes that grow most rapidly flow to the state instead of to the county; property owners are increasingly unhappy about larger property tax bills; and developers feel that the benefits of growth are under-appreciated. What This Study Does This study examines potential sources of new revenue for Rutherford County. A number of options are considered; we believe these options are the most promising alternatives in terms of revenue potential and the ability to implement. This study does not make recommendations about which of the options to choose. We make no judgments about growth—whether it does or should pay for new schools and other capital improvements. We merely provide options for the question, “How can we diversify our sources of revenue and at the same time generate funds sufficient for rapidly growing demand for public services?” The study first briefly outlines the demand for public services in Rutherford County, with overviews of expenditure patterns and current sources of revenue. The study then turns to an analysis of several potential sources of new revenue. 1 Rutherford County added more population than did Vermont, Montana, South Dakota, and Wyoming from 2000 to 2002. 2Summary of Findings • The outlook is beginning to improve: o Local option sales tax revenue is on the rebound; o Climbing mortgage rates will eventually reduce the growth of demand for new housing; • Diversity of revenue sources is desirable because sales tax revenues fluctuate, requiring periodic spending cuts or property tax increases, or both. • Substantial revenues can be generated by many of the options discussed below. • All of the options will raise costs for businesses and reduce disposable incomes for households. • Few of the options are easy to implement. Demand for County Government Services Rapid population growth increases the demand for public services including education, streets and roads, law enforcement, parks and recreation, water, storm drainage, and so on. The growth of education demand is closely linked with population increases in Rutherford County. Combined average daily attendance (ADA) for public schools in Rutherford County (including Murfreesboro city schools and Rutherford County schools) increased from 25,761 in 1996 to 31,069 in 2002, a gain of 20.6 percent.2 Population increased by 23.5 percent during the same period for Rutherford County. Average daily attendance in Tennessee public schools is not rising nearly as quickly as population. Tennessee ADA increased 28,677, a gain of just 3.5 percent from 1996 to 2002, much slower than the 7.0 percent increase in the state’s population. Remarkably, 18.5 percent of the total state increase in ADA during the period occurred in Rutherford County, even though the county comprises just 3.7 percent of the state’s school attendance. 2 Figures obtained online from the Tennessee Department of Education: http://www.state.tn.us/education/mreport.htm. 3Expenditures by Rutherford County The growth of county expenditures is driven both by rising demand for services and rising costs of providing those services. During the five-year period 1997-2002, operating expenditures increased at an annual average rate of 8.0 percent, driven by increasing school attendance, increased spending for law enforcement, and rising payroll and benefits expenses. Increases in the local option sales tax, the wheel tax, and the development tax boosted revenue in 2001 but local tax revenue slowed considerably thereafter due, in part, to the lingering effects of the economic slowdown on household and business expenditures. Structure of Expenditures Major responsibilities for Rutherford County government include education, public safety, courts and the administration of justice, roads and bridges, and health and welfare. By far the largest component of county government spending is education, accounting for 62.9 percent of recurring expenditures in fiscal year 2002. In all, approximately nine of every ten dollars spent (excluding capital expenditures) are in the largest five categories: education, debt service, public safety, health and welfare, and highway and bridge maintenance (Table 1). Education 138,682 Debt service 26,607 Public safety 19,927 Health and welfare 9,504 Highway and bridge maintenance 5,555 General government 4,647 Finance 4,393 Administration of justice 4,267 All other 6,991 Total 220,573 Source: Comprehensive Annual Financial Report, Rutherford County, for the yearended June 30, 2002.Table 1: Rutherford County Expenditures by Category for Fiscal Year 2002 (Thousand $)The distribution of expenditures shifted somewhat from 1998 to 2002, particularly regarding education and public safety; the share of total recurring spending for education dropped from 64.3 percent to


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