published Wednesday, March 26th, 2014

Facing lawsuit, Chattanooga agrees to talks with Hamilton County Schools

The entrance to the offices of the Hamilton County Department of Education headquarters.
The entrance to the offices of the Hamilton County Department of Education headquarters.
Photo by John Rawlston.

A Hamilton County Schools lawsuit demanding nearly $12 million from the city of Chattanooga in unpaid liquor taxes won't be filed just yet, as the two sides have agreed to meet over the dispute.

School officials say they are owed more than $11 million in liquor-by-the-drink taxes that went unpaid between 1998 and 2012 -- a span of three mayoral administrations. Mayor Andy Berke was made aware of the issue before taking office in April 2013 and his administration sought to work out a deal with the school system, using pieces of property and some cash to repay the debt.

But no deal was ever officially approved. And since taking office, records show, Berke's team has withheld more than a half-million dollars from its payments as it worked to find an alternative to paying the full bill. For months, the two agencies were at a standstill. But in the days since Board of Education members voted to sue the city, Berke's staff has sought to reconvene talks.

School leaders were bolstered by a Feb. 26 opinion from Tennessee's attorney general that said school boards can't waive any past-due liquor taxes. Attorney General Robert Cooper said there is no statute of limitations on the fees, and municipalities can't offset the costs with local-option sales tax revenue. But, Cooper wrote, municipalities don't have to pay it back all at once -- they may agree on a payment plan.

The school board voted 8-1 on Thursday to sue the city for the $11.7 million it says is owed. Previously, Superintendent Rick Smith had sought to meet with Berke personally, but only made contact with his staff.

School board attorney Scott Bennett wrote City Attorney Wade Hinton on March 6 asking how the city intended to pay its back taxes. But Hinton did not respond until Thursday evening, about three hours after the board's vote.

"I saw that the school board is taking action. Let's chat in the morning about what this looks like going forward," he wrote.

Hinton wouldn't comment on the timing of the emails. But he said the mayor is willing to meet with the superintendent.

Previously, Berke's Chief of Staff Travis McDonough maintained that school officials were to blame for walking away from an agreement that would have eliminated much of the city's debt. City officials have also claimed the excess $56 million in sales taxes paid to the schools between 1998 and 2004 far exceed the liquor tax bill, though the attorney general's opinion said cities' liquor tax obligations are independent of their local option sales tax obligations.

Berke spokeswoman Lacie Stone wouldn't say whether the mayor intends to pay back the full $11.7 million.

"Our stance is the same it has been throughout this process, that Mayor Berke looks forward to discussing how the City and HCDE can collaborate going forward to resolve this issue," she said.

Bennett says the lawsuit will wait to see how those talks go.

"I had the papers ready to file in Chancery Court Monday afternoon," he said, "but we have delayed filing suit because the city has reached out to discuss this issue further."

Smith says he only wants to meet with Berke one-on-one. School board members are willing to consider a repayment plan or using assets like property to repay the debt, he said, but they won't agree to reducing the city's obligation.

"I'm not interested in negotiating it down," Smith said. "I'm interested in talking to the mayor about some of the things we could explore in terms of how the city begins the process of dealing with that rather large, longstanding situation."

Contact staff writer Kevin Hardy at khardy@timesfreepress.com or 423-757-6249.

about Kevin Hardy...

Kevin rejoined the Times Free Press in August 2011 as the Southeast Tennessee K-12 education reporter. He worked as an intern in 2009, covering the communities of Signal Mountain, Red Bank, Collegedale and Lookout Mountain, Tenn. A native Kansan, Kevin graduated with bachelor's degrees in journalism and sociology from the University of Kansas. After graduating, he worked as an education reporter in Hutchinson, Kan., for a year before coming back to Chattanooga. Honors include a ...

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