The sale of Murfreesboro Electric Department (MED) had an unexpected effect on the county school system – the loss of $934,000 in the district’s budget for this fiscal year, a school district official said.
Doug Bodary, assistant superintendent for budget and finance for Rutherford County Schools, made the announcement at the school board’s meeting last week. RCS had budgeted $970,000 this fiscal year for payments-in-lieu-of-taxes (PILOT) from Nashville Electric and Murfreesboro Electric departments’ assets in Rutherford County. The district has received zero funds from MED for this fiscal year, he said.
He said the city did not warn RCS. The loss of this decades-long revenue stream could lead to additional lost revenues, namely from the state-issued Basic Education Program (BEP), a formula used to funnel tax dollars to school districts.
Bodary said the City of Murfreesboro’s Resolution 20-R-05, dated Feb. 27, 2020, established a PILOT payment for MED funds for the fiscal year ending June 30,2020, to the city in the amount of $3,335,458.66 and to Rutherford County for $968,358.63.
However, those payments were for the fiscal year ending June 30, 2020, and no payments have been received in this fiscal year, Bodary said. Nashville Electric pays at the end of the fiscal year, but MED has always paid throughout the year, he said.
In July, the sale was finalized and the utility stopped paying the county, and presumably, Murfreesboro City Schools, Bodary said.
“We did not receive notice,” he said.
Bodary said he checked with the county finance director and trustee, who were not aware of the situation.
“I wish they had at least been able to tell us that was going to end,” Bodary told the board. He said he watched the video recording of the Murfreesboro City Council meeting when they approved the resolution, and no mention was made that the PILOT would end.
The loss of $934,000 represents the loss of more than a penny on the property tax dollar, Bodary said, adding that a penny from the tax is about $850,000.
“That’s over a penny on the property tax that is coming out of our budget in the middle of a pandemic,” he said.
The loss of the PILOT payments this year could affect the BEP formula because government entities are required to conduct “maintenance of effort,” or a minimum level of ongoing funding, Bodary said.
Bodary said he is working on a plan to ask the RCS School Board to approach the city council to request a one-time payment to meet maintenance of effort. He said he believes the council could approve a budget amendment from its general fund balance “to make us whole to get our BEP payments.”
If the city council refuses to do that, Bodary said, he will then ask the school board to approach the Rutherford County Commission to request additional revenues.
Maintenance of effort requires the county to not reduce the maintenance from the previous year, Bodary told the Murfreesboro Post.
Bodary told the Post that if he had received warning, he could have adjusted the budget for this year.
“I understand it was a city-only deal,” Bodary said, adding this has been a recurring payment for decades. “We knew they were negotiating to sell the electric department, but there was no communication from them.”
Middle Tennessee Electric Membership Corp. (MTE), which bought the city’s electric department, will eventually take possession of MED’s assets and revenue from sales. Bodary said he spoke to a state official involved in assessing electric cooperatives who told him that MTE’s new assets should be assessable in the 2021-2022 fiscal year that starts on July 1. This current fiscal year is basically a “lag year.”
“I’m hoping the city will make us whole,” Bodary said.
The assistant superintendent said he is obligated to tell the Tennessee Department of Education about the budget shortfall. If the maintenance of effort is not maintained, the state would likely impound funds from the school district’s BEP funding.
Lisa Trail, communications director for Murfreesboro City Schools, said the district has budgeted $175,000 for MED’s PILOT, but she said she did not immediately have access to data indicating if those funds were being paid.
City Councilman Ronnie Martin, who had voted against selling MED, said this was news to him. He reached out to the county finance director and city’s financial director. He said he does not recall the county’s PILOT payment being discussed at the time of the sales negotiations.
While MED’s assets were not directly taxable by the city (as a city-owned utility), those properties will be going onto the tax rolls, Martin said. The problem is, however, that the assets have to be assessed, and they did not get onto the tax rolls for the 2020 fiscal year. He said they should be on the rolls in the upcoming fiscal year.
He said it would not be unreasonable for the county to ask the city for the funds. He said he would rather pay that shortfall from the MED proceeds than from his city or county taxes.
“By liquidating that asset, and receiving all of the proceeds … it is not unreasonable at all for them to ask,” Martin said. “I don’t know how councilmembers will respond to that.”