VOL. 122 | NO. 156 | Monday, August 20, 2007
Trends & Analysis
New Slate of Public Officials Faces Unpopular Choice
By Andy Meek
Late last year, Memphis mayor Willie Herenton floated the idea of a property tax increase to pay for putting 500 new police officers on the city's streets.
This year, the mayor's budget approved by the Memphis City Council included money to hire more than 100 new cops. Property owners in the city also got a breather. City finance officials said higher-than-expected revenue collections made a tax increase this year unnecessary.
That doesn't appear likely to happen starting next year.
In 2008, the city council will welcome the addition of more first-time members at one time than it's done in almost 40 years. And a gathering financial storm, some of the effects of which are visible already, is increasing the likelihood that those new council members, many likely swept into office by voter discontent and a desire for change, will almost immediately have to make some unpopular choices.
One of those likely will be whether to approve a property tax hike.
What might be ahead
Shelby County Trustee Bob Patterson is forecasting that growth in the county's tax base will be minimal - in the city proper, essentially flat - after the 2009 county-wide reappraisal of property. Reasons for that static growth partly have to do with increasingly visible trends: a tight financial market and stricter lending standards, he said.
Patterson has already shared his projections with the Shelby County Commission, including his forecast that the county will see about a 1 percent growth in the tax base in 2009.
"We haven't put anything on paper yet, but most of the commissioners, based on what they've been seeing in the media, believed it anyway," he said.
Shelby County Property Assessor Rita Clark said it's still too soon for her office to peer down the road and make any judgments.
"We're not even in the analytic mode right now because we're still gathering data on sales," she said. "We won't be in that analytic mode until January of next year."
But even if Patterson's forecast is slightly off, it doesn't bode well for cash-strapped property owners.
A tax base that's not growing and property values that are either flat or falling mean municipal governments - which depend heavily on property tax revenue - have to rely all the more on tax increases.
To put that in perspective, after the 2005 county reappraisal, a mixture of rising home values and an explosion of building activity in the suburbs helped boost the county's tax base by about 12 percent. The County Commission used those reappraisal values to set its tax rate, which the commission chose to keep at $4.04 per $100 of assessed value.
Doing that essentially represented a 14-cent tax increase. Tennessee state law requires that, following reappraisals, tax rates must be re-set to whatever value would bring the same amount of money the government was taking in before the reappraisal.
After the boost in the tax base that year, county officials calculated that lowering the tax rate 14 cents, to $3.90, would generate the same amount of money they were getting before the reappraisal. The final rate they approved, though, was $4.04 - which was the original tax rate but which also represented a 14-cent increase.
Without that growth in the tax base, however, boosting the tax rate is all but impossible to avoid. That's why local municipal governments should be considering the effect of and need for a tax increase in 2009 now.
"There are some people who are running (in this fall's elections) who have come to sit down to talk about that," Patterson said. "They're interested in the overall city, they're asking how it's growing - a lot of 'what ifs.'"
The great 'what if'
One of those "what ifs" has to do with how the current state of the housing market will play into the belt-tightening that appears all but certain to occur once the new Memphis City Council and mayor collaborate on their first city budget next spring.
The average home sales price in the Memphis market dipped slightly last month, falling from $170,934 to $164,872 between June and July, according to real estate information company Chandler Reports, www.chandlerreports.com.
That may represent only a momentary blip, but it's an important trend to watch in Memphis, where - over the past few years - more and more of the tax burden has been shifted onto homeowners.
A review of the certified tax rolls from 2005 through 2007 shows that while annexations helped the number of residential parcels in the city increase each year - while total residential assessments also rose each year - the number of commercial and industrial properties on the local tax rolls dropped each year.
Patterson, meanwhile, cautioned that even a 1 percent boost in the county's property tax base after the next reappraisal isn't necessarily bad news.
"Obviously, we're having a lot of new construction in the city, but if you'll notice, a lot of that's exempt property - stuff that's not going on the tax rolls," he said. "Certainly, from the trustee's standpoint, I'd like to see strong growth.
"I will say, though, this is really a buyer's market, and 1 percent is actually pretty good. If I was going to buy a house, I'd do it right now."