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VOL. 131 | NO. 55 | Thursday, March 17, 2016

Potential Revenue Loss Stirs Deannexation Options

By Bill Dries

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As a potentially damaging deannexation bill moves to the state Senate for a possible vote soon, city officials are considering options to combat the expected loss of revenue should the bill pass.

Memphis Mayor Jim Strickland estimates the state deannexation law could cost City Hall $27.7 million on the low end but as much as $80 million if all Memphis annexations dating back to 1998 were negated by voters in those areas.


The Tennessee House approved its version of the proposal Monday, March 14.

The $27 million figure is the one cited by state Rep. Mike Carter of Ooltewah, the House sponsor of the bill. Carter was critical of city leaders for citing a higher dollar figure, $80 million, that he insists is inaccurate.

But Strickland said the bill began to morph in recent weeks from a proposal that originally would have affected only the city’s two most recent annexations – Southwind and south Cordova – into one that would affect 18 annexations dating back to 1998.

“There’s been little due diligence done on this bill,” Strickland said of what he termed the “range of loss.”

Strickland said the low end of the range is the property tax loss from all of the residential property in the areas covered by the proposal. That includes some parts of the city that were annexed 18 years ago.

Carter said the city is counting lost revenue from the deannexation of commercial and industrial property, which is not covered by the proposal.

City government would still have the final say over deannexation of nonresidential areas. But Strickland said it’s not clear which of those areas the city would choose to keep and which it might agree to deannex.

He also said replacing the lost revenue could mean a 30-cent to 70-cent property tax hike.

City Council attorney Allan Wade was more dramatic, saying the city could consider turning over law enforcement duties within the city to the Shelby County Sheriff’s Office or selling Memphis Light Gas and Water Division.


“There are a number of things you would be forced to do if they shrank your footprint to such an extent that you couldn’t afford to do all the things you do now,” he said.

But Wade was cautious in other remarks on the topic because the fine print of the proposal is so fluid.

He cited the legislature’s history of listening carefully as city leaders have discussed their legal strategy in several high-profile disputes with the legislature.

“They change legislation to cut off our avenues,” he said.

He also disputed the bill’s characterization of the Memphis annexations as “egregious” – a legal term that Memphis legislators tried to take out of the bill. Without the term, Carter said the bill could be declared unconstitutional.

Wade said the annexations described as egregious include actions that weren’t seriously contested in court and involved agreements between the city and those annexed to be taken into the city.

One of the largest and one of the earliest Memphis annexations covered by the bill, Hickory Hill – at the end of 1998 – was negotiated in a consent decree, as was the Southwind annexation a decade later.

Wade also cited a 10-year absence of legal action by plaintiffs in the south Cordova annexation and a 15-year absence in the Getwell West annexation of 2004. He said the 2002 Countrywood annexation was granted by a court after the court ruled the plaintiffs contesting the annexation did so after the statute of limitations had expired.

“I don’t think you can put that on us,” Wade said. “There’s no factual foundation for it. I think the General Assembly knows that.”

While Carter touted a provision in the bill that holds those who deannex responsible for paying a proportional share of general obligation bond debt for city improvements in their areas, Wade said that doesn’t go far enough.

“Just limiting them to be responsible for what is spent in their area does not take into consideration that we issue bonds to build amenities that serve the whole county,” he said. “They need to take some responsibility for that.”

If that’s not included, Wade said bond holders could begin to have problems with the bonds and that could affect the city’s bond rating.

“When we do a (general obligation) bond issue, we do a lump-sum bond and then we allocate it in a specific use,” he added. “The bond holders don’t look at that. They look at future revenues and how much are revenues going to be constant over the years.”

During the City Council’s executive session on Tuesday, March 15, council member Berlin Boyd summed up City Hall’s attitude on deannexation and other financial challenges the city is facing.

“Today is the day of bad news,” he said. “We’ve got to figure something out. This is very disheartening.”

Council member Frank Colvett agreed.

“We’re getting thrown up against the wall pretty hard here,” he said.

Boyd was among those who said the House vote is a pattern of conduct aimed at taking advantage of the city’s problems to “get us one way or the other.”

“We’re all one state and we are considered worse than red-headed stepchildren,” he said.

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