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VOL. 10 | NO. 16 | Saturday, April 15, 2017

Setting New Tax Rate After Reappraisal Becomes ‘Moving Target’

By Bill Dries

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For local government leaders, the 2017 countywide property reappraisal is about resetting the property tax rate for Shelby County government and all seven of the cities and towns within the county.

Revenue from those tax rates determines what local governments can do. A reappraisal is also the most volatile political barometer for local elected leaders.

The county tax rate is currently at $4.37 per $100 of assessed value at a rate of 25 percent of that value for residential property and 40 percent for commercial property. The city of Memphis property tax rate is $3.40

By state law, the reappraisal of property values for taxation purposes cannot result in a revenue windfall for local governments.

That means if property values go up in a reappraisal, as they are with the 2017 reappraisal, the property tax rates are expected to go down in a new recertified rate because that new rate must produce the same amount of revenue as before the reappraisal.

But projecting revenues to be generated by the new tax rate makes it a moving target.

“It’s like a three dimensional moving target,” said city of Memphis Chief Financial Officer Brian Collins. “I always get the question, ‘What is the tax rate going to be?’ And I’m going to have to make a calculation ahead of time that assumes a lot of things.”

Shelby County Trustee David Lenoir calls it a “multiple-variable equation.”

“It’s not just what do we think the growth rate will be that we captured in the 2013 reappraisal. What will our collection rate be?” he said. “We had a windfall several years ago in part because of the collection forecast. If we forecast 94 percent and taxpayers pay at 96 percent, again, that 2 percent differential equates to $16 million.”

Collins said it is “nearly an impossible thing to calculate.”

“It doesn’t really help us to be wrong, let me tell you,” he said. “What that number is really has implications for the discussions during the budget process. It’s not only frustrating for the administration but also for the members of the city council and the county commission.”

Shelby County Commissioner Steve Basar says the recertified Shelby County property tax rate of $4.37 currently could go to $4.15 or $4.20 by some early “guesstimates.”

But Basar, who is chairman of the commission’s budget committee, acknowledges that could change once the commercial property reappraisals, the last to be mailed, go out on April 20.

Those last notices, which Shelby County Property Assessor Cheyenne Johnson estimates will be appealed by 75 percent of the commercial property owners, are followed closely by formal budget presentations from Memphis Mayor Jim Strickland April 25 and Shelby County Mayor Mark Luttrell on April 28, with a county budget “summit” set for May 6.

The new fiscal year for local governments starts July 1.

Lenoir, who is running for Shelby County mayor in 2018, has said there should be some county property tax reduction beyond the drop in the new certified tax rate.

“If we don’t get that, personally I’m going to be disappointed,” he said. “Professionally, I’m going to be disappointed.”

Basar is among those on the commission who will also be looking to roll back the recertified rate.

“I am going to work hard to get a tax cut above and beyond the certified rate,” Basar said. “It won’t be anything heroic.”

The 2017 reappraisal follows what was a precedent-setting 2013 reappraisal that reflected the depths of the worst national economic downturn since the Great Depression.

The 2013 reappraisal reflected a dramatic drop in property values two years earlier. As a result, for the first time in anyone’s memory in local government, there was a drop in revenues from the property tax rate, causing the recertified property tax rates to be increased instead of lowered. Before that 2013 reappraisal, revenues from property taxes had at least remained stable for decades.

And the 2009 reappraisal in Shelby County reflected the height of the national real estate bubble just before it burst.

“The downfall in the real estate market actually started at the end of 2008,” Johnson said. “When we released the 2009 reappraisal notices, those numbers were really up in value.”

RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 57 280 1,209
MORTGAGES 55 244 916
FORECLOSURE NOTICES 8 52 151
BUILDING PERMITS 158 699 2,751
BANKRUPTCIES 37 157 618
BUSINESS LICENSES 12 77 276
UTILITY CONNECTIONS 0 0 0
MARRIAGE LICENSES 0 0 0