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Vote to delay school lawsuit decision could cost taxpayers

County commissioners strayed from their standard practice during the March 23 meeting and made a decision regarding a pending lawsuit that may end up costing the taxpayers more in the long run.
While the agenda included an executive session under the county attorney’s report, the commission did not recess for the discussion with Jim Logan who is representing the Board of Education in its lawsuit seeking a share of the liquor-by-the-drink taxes from Johnson City and Jonesborough.
According to Tennessee Code Annotated 57-4-306, half of the liquor tax revenue goes to the state to be earmarked for educational purposes. The second half goes to the local government entity where the tax was collected.
The law directs the local portion to be divided between the entity’s general fund and the school system. The method to determine the dollar amount is based on average daily attendance. In cases where the municipality does not operate its own school system, those funds are supposed to go to the county school fund.
This argument would apply to Jonesborough, which does not have its own school system and is currently in the process of settling the $33,000 the BOE says it is owed.
In addition, county school boards across the state are claiming the liquor-by-the-drink taxes should be shared even when the cities are operating their own systems. Because the law does not spell out directions in those cases, the distribution has become an argument of interpretation.
During last week’s meeting, Logan requested the county commission become a nominal party to the litigation that is pending with Johnson City, which the lawsuit claims owes $3.4 million.
He said the municipality is offering two defenses. The first is that a referendum would be required in order for the taxes to be shared.
“This defense has nothing to do with what I’m asking the commission, and I’m not asking you to make a motion to intervene in the Jonesborough case,” Logan said.
Rather, he was seeking the county’s support toward the second defense, which argues a school board does not have the legal authority to sue for taxes it believes are owed to the county. By becoming a nominal party, the county’s association would hopefully prevent the suit from being thrown out of court on such a technicality.
“So nine months into this, you’re coming back and asking us to be part of this?” Commissioner Joe Grandy asked.
Logan said a recent ruling, in which the judge agreed the Coffee County School Board did not have the authority to sue the City of Manchester for liquor-by-the-drink taxes, led him to seek an additional plaintiff.
“I’m asking for the commission to support a decision by the court rather than the municipality’s adoption of a process,” he said. “A motion for summary judgement to dismiss has been filed by Johnson City.”
When Commissioner Joe Wise asked to go into executive session to receive advice from counsel on the matter, Logan explained he was the counsel employed for this case.
Grandy said while Logan may be representing the BOE, he was not a representative for the county commission.
Chair Greg Matherly said County Attorney Tom Seeley was unavailable due to a conflict of interest because his firm is representing Jonesborough in the lawsuit with the school board, and that case is still open.
Commissioner Robbie McGuire asked the additional cost to complete the preparation for the $3.4 million claim from Johnson City, and Logan estimated the county could be added as a nominal party for approximately $250.
“It would be an additional $5,000 to $7,000 if we have to appeal,” Logan added.
Commissioner Skip Oldham made a motion to place the issue on the table until the next meeting because the commission lacked the benefit of counsel. The motion was seconded by Wise.
Matherly tried to point out Seeley may still be unavailable next month, but Wise reminded him a motion and a second to table were on the floor.
Commissioner David Tomita said the commission has a process in place that works well, and the issue should go through a committee for a recommendation to the full board. “A decision of this magnitude should not be made without more information,” he said.
While it’s true the commission operates on a committee structure, that is not its practice for handling litigation. As listed on the agenda, those discussions are held with commissioners and counsel in executive session during the meeting, and appropriate action is taken by board members upon reconvening.
The motion to table passed in a 15-10 vote, with Matherly, McGuire and Commissioners Rick Storey, Lynn Hodge, Mitch Meredith, Bryan Davenport, Mike Ford, Mark Larkey, Steve Light and Danny Edens opposed.
Wise then made a motion to refer the issue to the Health, Education and Welfare Committee for discussion and a recommendation. Commissioner Gary McAllister seconded the motion, which passed with a unanimous voice vote.
Mayor Dan Eldridge said the discussion became much more complicated than necessary. “It wasn’t a matter of voting whether to sue Johnson City,” he said, noting the BOE is moving forward with that action regardless of the commission’s decision.
Rather, he said, it was an effort to help ensure the case is heard by the court and not thrown out on a technicality, which would resolve the issue faster and save taxpayers the cost of repeated appeals.