Beyond the Numbers

City, county budget seasons pose new challenges

By Bill Dries

It’s that time of year again when thick budget books dominate life for those in the Memphis and Shelby County governments.

But this year’s budget season on both sides of the Civic Center Plaza is more than line items and bottom lines on paper. The deliberations that ultimately determine how much you will pay in property taxes and at what rate go beyond the plans in the books of estimates, projections and the recurring and one-time revenue sources.

The budget process leading up to the July 1 start of the new fiscal year includes the shift to only county government as the local funder of the new consolidated public school system that begins with the start of the fiscal year.

Memphis City Council member Myron Lowery in a moment common during budget seasons at City Hall and the County Building. Both governments face revenue loss from lower property values and a shift of services and their expenses between city and county government and funding of a new countywide school system. (Photo: Lance Murphey)

There are also several other shifts that have been playing out over several fiscal years recently. One is a shift in the services provided by either city or county government. And there is a shift in the relationship between the mayors and their legislative bodies.

For the first time in anyone’s memory at City Hall or the County Administration Building, the current property tax rates will produce less revenue after the once-every-four-year property reappraisal.

In the past, the rates have either produced about the same amount of revenue for the governments after a reappraisal or they have produced more revenue requiring a downward adjustment in a new certified rate.

Shelby County Mayor Mark Luttrell’s 33-cent tax request would be a tax rate hike, a straight-up restoration of revenue lost in the countywide property reappraisal.

Not that he is making that distinction too loudly at this point. County Commissioner Terry Roland asked Luttrell if he would agree that raising the tax rate is a tax increase.

“People make compelling arguments on both sides of it,” Luttrell answered. “You will not pay any more in taxes. … If we raise the tax from $4.02 to $4.35, it is indeed an increase in the tax rate.”

Memphis Mayor A C Wharton Jr.’s 28-cent proposal is also a tax rate hike – not a tax hike, according to city finance director Brian Collins, who is more vocal.

“We are not asking for more,” Collins said. “A lot of people don’t understand how this works. I found it very confusing myself.”

This is the first tax season at City Hall for Collins, who was appointed finance director last August. He is the administration’s point man with a City Council that has remained largely the same since the 2007 elections when the nine new members elected were the largest turnover ever in the 46-year history of the mayor-council form of government.

Five years later, the council now has a record of going its own way with the city’s operating budget and property tax rate.

This year the discussion includes differences in the basic numbers. Wharton has said his budget proposal is a decrease from the current fiscal year’s budget. Council budget committee Chairman Jim Strickland disagrees and says the budget proposal is more than the current budget.

Council member Shea Flinn says the estimate of recurring revenues has gone down $6 million.

“This is a complicated year-over-year calculation,” Collins responded. “It was made complicated by the ways we chose to fund this year’s budget.”

Strickland, who voted against every division’s budget on the first day of budget hearings, is reserving judgment on the different numbers that Collins is being asked to explain.

“They are giving us explanations for those differences,” Strickland said. “But we may need that explained to us again because they are very confusing. The administration said some of these numbers are fluid.”

Meanwhile, Flinn has broader concerns about the statement that the tax rate hike means property tax payers will see their rate go up but not their taxes.

“It’s one thing to have the math problem,” he said. “It’s another thing to say there is no aggregate tax increase. That’s incorrect. No one pays their taxes in aggregate. … If that were so and Bill Gates walked in this room, we’d all be billionaires.”

Flinn argues commercial property owners, who pay a higher percentage than homeowners, would almost certainly be paying more in taxes.

Wharton is convinced his budget proposal is a starting point and not an idea of what the city’s budget or even property tax rate will wind up being when the council votes in June on both.

“None of us will recognize it three months from now,” he said.

Wharton made his point by leaving the council chambers immediately after making a very general budget address as required by city charter. He left without taking the usual initial questions and comments from council members. Council member Harold Collins called it “disrespectful.”

Council member Kemp Conrad was dismissive of the proposal.

“I think what we got was a recycled speech that we’ve now heard about three times in three years,” Conrad said. “It wasn’t a budget.”

“It is not a budget meeting. It is a budget presentation,” Wharton responded later. “It is not the place to get into any in-depth discussions. You end up giving out fragmented information.”

Luttrell doesn’t face a commission with the council’s history of overhauling budget proposals.

But Shelby County Commission Chairman Mike Ritz has been aggressive in his view of how the county should take on the role of sole funder of the consolidated school system.

And early on, Ritz said the commission had only a simple majority of seven votes for any kind of tax hike. Any property tax hike of 10 percent or more requires a nine-vote two-thirds majority. And Ritz doesn’t think there are nine votes there.

Luttrell, at least for now, is “riding the fence” on a tax hike proposal that amounts to seven cents on the rate above the 33-cent tax rate hike.

“I am for what it takes to move our community progressively forward,” he said at the opening of budget hearings this month. “And if that takes a tax increase to move our community progressively forward, then I would support it. I’m leaving it up to the elected officials that are asking for this increase to come forward and make a compelling presentation.”

Ritz differs with Luttrell on that approach when it comes to school funding.

“We’ve not typically done that,” Ritz said. “They’re under no obligation to implement anything we suggest. All we do is give them a buck.”

Luttrell sees an opportunity in the schools merger to have input at the outset of the new school system. The opportunity, as Luttrell sees it, is in the setting by the state of a new “maintenance of effort” funding level – the amount of local funding the county is required by the state to provide the school system every year.

“We do have three years to reset the maintenance of effort,” Luttrell said. “This will be the only opportunity that you have to delve into the meat of that schools budget.”

Luttrell and Ritz have disagreed on the timing and conditions for more county funding since last year when Ritz campaigned for a countywide sales tax hike that would have produced an estimated $30 million in new revenue for the school system.

Luttrell opposed the timing, saying it let the school board off the hook for at least taking seriously the most critical recommendations of the consolidation planning commission, including outsourcing custodial and transportation services and closing more schools.

The tax hike failed in the referendum vote among Memphis voters and those in unincorporated areas of Shelby County.

Wharton, Flinn and Strickland are united on a half-percent city sales tax hike that the council will vote on putting on the ballot later this year. If the council approves, that referendum would be in the late summer or early fall.

It would create an estimated $47 million in revenue for the city if voters approve. Of that amount, $27 million would be for a pre-kindergarten expansion in the city in a program independent of the countywide school system. The remaining $20 million would go toward a rollback of the city property tax rate.

The City Council’s 2008 decision to cut funding to Memphis City Schools was the beginning of the realignment in what city and county governments fund and control.

The council and the city lost the court fight with Memphis City Schools. But they won the larger point in a broader move toward one-source local funding of schools. And with the momentum the council has moved into remaking other arrangements between the two governments.

It continued in 2009 when the council cut $14 million in funding to the health department, which had been operated as a countywide agency with funding from both governments and the county administration having direct day-to-day oversight.

Next up is auto emissions testing with the animal shelter on deck.

The council voted last year to end all city funding of auto emissions testing as of July 1, the start of the new fiscal year. That means state government would have to take it over as it has in other Tennessee cities and would likely charge motorists a fee. The other alternative is if county government agrees to take it on or pays the city to continue doing the testing for two more fiscal years.

State officials say two years is the soonest they could take over the inspections, which would still apply to Memphis vehicle owners only but could be expanded as a countywide requirement once the state does take over.

The state is encouraging city and county leaders to work out a two-year arrangement in the interim. But so far the talks have not produced any breakthroughs. And the council has approved a severance package for city employees who work at the testing stations. Last month, Flinn approached the commission about the county taking over Memphis Animal Shelter in return for the city continuing to fund the presence of Memphis police officers in Memphis schools after the schools merger begins.

“It is yet another in a piece of what we see as a regional amenity that is being borne by the citizens of Memphis,” Flinn said of the city facility that takes animals from across the county.

“I think we can get into the animal shelter business quicker than picking up the schools security business,” Ritz replied.