LOUDON, Tenn. — Rapid population growth and limited ability or potential unwillingness to raise taxes could compromise the future of many of the state’s counties, a University of Tennessee report says.
Loudon County’s population growth and tax base are an example of what other small Tennessee counties may face now or in the near future, UT economist Matt Murray said Tuesday.
“The bottom line for many counties like Loudon is the pressure to become more efficient, cut services or raise taxes,” said Murray, who directed the study for Loudon County’s office of planning and community development.
“For many communities, the alternative is not a pretty one. If they don’t raise taxes, they’ll not be able to provide critical services that will keep people in the community,” Murray said.
“New residents provide local governments with additional money through the property and sales taxes, but they also impose significant new public sector costs for services such as schools, roads, police and fire protection.
“Communities foster economic growth in order to create new jobs, raise incomes and expand tax bases, but there are growing pains associated with the process.”
Because residential property taxes do not fully fund the amount of services households receive from local government, increased business taxes are necessary to balance the county’s budget, Murray’s report says.
The population of Loudon County, one of the state’s fastest growing counties, grew 22.9 percent from 1980 to 1994 and 12.2 percent between 1990 and 1994.
“This rapid growth will place increased pressure on local governments in the county as they try to provide public services to existing and new residents,” Murray said.
Because much of the population growth has occurred outside the cities of Lenoir City and Loudon, costs of local government may rise substantially, the report says.
“It is more cost-effective to provide many public services such as roads, schools and bus transportation, water and sewer to a city than it is in a county where the population is more dispersed,” Murray said.
“High-income individuals tend to live in the unincorporated area of the county. This places additional burdens on the cities as they seek to maintain a balanced tax system and provide public services.”
Commuting and earnings patterns work against the Loudon County economy and against local governments,” the report says. “While Loudon County jobs are paying more, many of these jobs go to non-residents of the community. These same individuals pay property taxes and make most sales-taxable purchases in their home communities rather than in Loudon County.”
A significant number of Loudon County residents, whose earnings are higher than the average for those who live and work within the county, work outside the county, the report says. Since many work in adjacent Knox County, it is likely they pay a substantial amount of sales tax in Knox County rather than in Loudon, the report says.
“Enrollments in the Loudon County (school) system jumped 15.4 percent between 1990 and 1994…45 percent higher than the growth in any other system in the area,” the report says.
Loudon County is dominated by manufacturing activity, which means its economy will benefit when the state and national economies are growing.
However, the report says, “when the overall economy weakens, manufacturing bears a disproportionate share of the cost, causing unemployment to rise substantially.”
The study was conducted by the UT-Knoxville Center for Business and Economic Research.
Contact: Matt Murray (423-974-5441)