Construction tax revenues might decline more than 40% off yearly goal

Wednesday, April 1, 2009

Revenue from Marshall County's adequate facilities tax on each square foot of new construction is down dramatically now and, even with a projection based on construction last spring and early summer, collections could be 40 percent below what's to subsidize the county water service.

A reduction isn't surprising, given the housing slump, but it's a serious problem for the Marshall County Board of Public Utilities (MCBPU) as recognized by members of the county water board during their most recent meeting when the subject was raised by County Commission Chairwoman Mary Ann Neill.

Without March collection figures, Neill concluded that given "only four more months to collect... we'll be hurting."

MCBU is to receive the first $300,000 generated by the adequate facilities tax. The balance is to go into the county treasury. Although collections exceeded $300,000 by $25,258 in 2006-07, revenue was $257,279 during the fiscal year that ended June 30, 2008. So far this year, only $113,012 have come in. At that rate, only $150,682 will be received. That projection and the previous numbers come from records maintained by County Accounts and Budgets Director Freda Terry.

Construction picks up in the spring, according to Codes and Zoning Director Don Nelson. The county is entering its fourth quarter now. If construction is about the same as it was last spring and early summer, then the county might realize adequate facilities tax revenues in the next three months of some $68,000 which would increase that revenue stream to $181,000 for the fiscal ear ending June 30.

That projected revenue is nearly 30 percent less than last year.

"November is the start of the down time because of the holidays and construction slows because of that," Nelson said.

If the new construction is an addition, families don't want construction going on when guests come to visit, he said. The weather is also less likely to cooperate with builders.

"Now, we're expecting a pretty steady increase, and we are seeing that," the codes director said.

To reach the $300,000 goal, the county budget director's figures show that the county would have to collect $187,000 in the next three months to reach the $300,000 goal.

Still, in rounded numbers, that $180,000 (collections so far plus revenue received at last year's rate during the last three months of the fiscal year) is only 60 percent of the $300,000 county commissioners planned to funnel to the Board of Public Utilities which, in recent months, has begun a 57-mile pipeline extension project to make water service available to more people.

"I only anticipated $300,000," Terry said.

Could the county reach the amount anticipated for revenue?

"It's doubtful," Nelson said. "If a big business came in, or a big development, it could be possible."

The amount, $300,000, was put in the budget because it's what's to be appropriated to the MCBPU.

At the time the budget was being assembled, she said, "Gas was $4 or $3.86 a gallon, so we knew it (adequate facilities tax revenue) was going to be less."

Many Tennessee counties collect taxes per square foot of new construction - usually referred to as an adequate facilities tax - that state lawmakers passed a bill several years ago to control increases in the tax. Counties with fast-growing populations are allowed to raise the tax more frequently than others. Those counties include Williamson and Rutherford, but not Marshall.

Taxes on new construction is called adequate facilities tax because its purpose is to raise money so local government services can be increased to serve larger populations.

Marshall County's adequate facilities tax is charged at a rate of:

* 70 cents per square foot of heated new construction for a residential building, and;

* 30 cents per square foot of business property such as commercial retail, industrial and other such business purposes.

Agriculture and institutions such as churches and public schools are exempt.

Commissioners attempted to create an adequate facilities tax in 1991.

Long-time observers may well remember that builders and real estate industry officials objected, arguing that it would be detrimental to their businesses.

The University of Tennessee County Technical Advisory Service had recommended that the commission include a $5 per square foot limit on the tax so that the law wouldn't have to be changed if, years later, it had to be raised further than anticipated.

That $5 cap proved to be the death of the attempt to create the tax in the early 1990s.

Technically, such a tax can only be crated by a county with permission of the state legislature.

But on Nov. 27, 2000, it was adopted after state lawmakers passed a private act for the county so it would have the authority to charge the tax. The cap was then set at $1 per square foot.

Collections started in 2001. In 2003, commissioners voted to appropriate up to $300,000 of the adequate facilities tax revenue to the county-owned water utility.

Here's the revenue from the tax for the fiscal years as indicated.

* $144,596 in 2001-02.

* $171,155 in 2002-03.

* $288,965 in 2003-04.

* $284,438 in 2004-05.

* $376,559 in 2005-06.

* $325,258 in 2006-07.

* $257,279 in 2007-08.

In the summer of 2006, the county's budget set $376,000 as the dollar amount of adequate facilities taxes anticipated by June 30, 2007. That estimate was high by nearly $51,000.

The actual revenue collected from the tax by June 30, 2007 ($325,258) was used as the figure for the up coming budget for the fiscal year of 2007-08, but actual revenue by the end of that year was almost $68,000 short of the amount projected as revenue.