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Municipal Technical Advisory Service (MTAS)

Original Author: Huffer, Dennis
Date of Material: 11/23/2004

Finance--Local government
Revenue sharing
County government--Finance

Education Revenues

Reviewed Date: 06/21/2021
MTAS was asked to research the sharing by county of certain education funds.

November 23, 2004

Re: Education Revenues

Dear Mayor:

You have asked the following questions about distribution of revenues between the county and city school systems:

1. Must the county share local revenues for school transportation with the city school system?

It is my understanding that the cities do not have a transportation system for their schools. Tennessee Code Annotated, § 49-3-315, answers this question. It provides in pertinent part as follows:

[A]ny county in which only one (1) pupil transportation system is operated, and which has within its borders a city or special district operating a system of public schools and which county in the current school year operates a system of public school transportation, may levy a special tax to cover that portion of the total cost of such public school transportation system as is in excess of the state funds generated for student transportation of such county. The proceeds of such special transportation tax levy shall be set up in a special account hereinafter to be known as the “public school pupil transportation fund” and shall be disbursed on order of the county board for public school transportation services only. Any county which elects to operate a public transportation fund may elect to apportion transportation funds for public school transportation service to a city or special district operating a system of public schools within the county. This election must be approved by the county legislative body and shall remain in effect until specifically rescinded.

This section goes on to provide that “All school funds for current operation and maintenance purposes collected by any county, except the funds raised by any local special student transportation tax levy as authorized in this subsection, shall be apportioned by the county trustee among the LEAs therein on the basis of WFTEADA maintained by each, during the current school year.”
The clear intent here is that funds for school transportation raised by a county with only one(1) transportation system through a special levy are to be shared only at the discretion of the county legislative body. All other state and local funds for current operation and maintenance are to be shared. The City, of course, could raise questions about the county’s technical compliance with the requirements of this statute. Arguments could be made that a special levy was never actually enacted and that the funds have not been placed in a separate transportation fund. The argument would be that this places these revenues in the “All school funds for current operation and maintenance” category for which sharing is required, rather than in the transportation fund category. Whether these arguments would work depends upon negotiations between the City and county or court decision if it goes that far.

2. Must TVA in lieu of tax funds received by the county and used for school purposes be shared with city school systems in the county?

This question was raised and answered in the negative in the case of Oak Ridge City Schools v. Anderson County, 677 S.W.2d 468 (Tenn. App. 1984). The court relied on the reasoning from a case that decided this same question about federal revenue sharing funds, Conger v. Madison County, 581 S.W.2d 632 (Tenn. 1979). These cases limit the sharing requirement in present T.C.A. § 49-3-315 to only state and local funds. The court agreed with the trial court that “the payments made to the State of Tennessee and distributed in accordance with T.C.A. 67-24-101 are not the same as those generated by our local taxing authorities.” 677 S.W.2d at 469. You should note that former section 67-24-101 is now codified as 67-9-101. According to the court, “since the funds in question are not ‘received from the state, county, or political subdivision,’ but instead are received from a federal entity (T.V.A.)” the funds need not be shared. The court goes on to say that the city’s prayer for relief should be addressed to the General Assembly. The state Attorney General has recently ruled similarly on this issue. See Op. Tenn. Atty. Gen. 03-080 (June 20, 2003).

3. Must funds used to pay workers’ compensation claims or insurance premiums for county school employees be shared with city school systems in the county?

Funds in the county school fund should be used to pay these claims or premiums and these funds are subject to sharing. See Op. Tenn. Atty. Gen. 94-125 (October 14, 1994). This is based upon the sharing requirement in T.C.A. § 49-3-315 mentioned in the previous answers. I am not sure what statute of limitations would apply here, but it could be the six (6) year statute in T.C.A. § 28-3-109 ( See, for example, State to Use of Cardin v. McClellan, 85 S.W. 267 (Tenn. 1905), or the ten (10) year statute in § 28-3-109.

4. When the county uses funds for education that are derived from the portion of local sales tax revenues that are not required by state law to be used for education, must those revenues be shared with city school systems in the county?

T.C.A. § 67-6-712 (a) provides that one-half the revenues derived from a county local sales tax must be expended for education purposes. The other half is distributed according to where it was collected. For collections in unincorporated areas, the revenues may accrue to any fund or funds the county governing body directs. Your question is whether these funds must be shared with the city school systems if the county decides to use them in the county school fund. The case of City of Harriman v. Roane County, 533 S.W.2d 904 (Tenn. 1977), held that these funds must be shared with the city school systems. Again, this holding was based upon present section 49-3-315 and its requirement that all funds derived from state and local sources, except transportation funds, must be shared.

I hope this answers your questions. If we may be of further assistance on any matter, please feel free to call.


Dennis Huffer
Legal Consultant