Reappraisal Adds Up To Taxpayer Confusion and Higher Tax Bills

Many politicians secretly love reappraisal. It is a time of complicated assessment equations, mind-boggling financial and legal nuances, public confusion about the processes, and, despite rhetoric to the contrary, windfalls for government.

The windfalls of course are not supposed to happen. State law espouses the proposition that there will be none, but the reality is something altogether different. The latest example came in last week’s setting of the tax rate by Shelby County Government.

The Wharton Administration twisted arms hard for the county tax rate to “remain” at $4.04 inside Memphis and $4.09 outside Memphis, and the explanations were so technical and confusing that it would have made Karl Rove proud. One television station even reported that the county voted not to increase its tax rate this year.

Here’s the Cliff’s Notes version of what happens in reappraisal years: all property in Shelby County is reappraised, resulting in an increase in the tax base (this year, the increase averaged about seven percent); state law requires that the tax rate be rolled back so that the total revenue collected does not exceed the total revenue in the previous year and the new tax rate will be set on that amount; local government works with the state comptroller’s office to agree on a new, lower certified rate; and the government must adopt the new certified rate before it can vote on any tax rate increases.

Here’s what the public never hears about. There are ways in the process for a government, if it is skillful in its negotiations with the Tennessee Board of Equalization, to “bury” millions of dollars. The first chance is in setting the rolled back tax rate. The second chance is in negotiating the allowance that is given to offset successful appeals of reappraisals. As announced by the Wharton Administration, this new certified amount (with appeals allowance) is $3.90. Some county financial officials say off the record that the “real” number is closer to $3.72, and if this is the case, the administration did a masterful job of convincing state officials to accept a higher amount, thereby, capturing millions of dollars in new tax revenues.

The administration then convinced the state that 16 cents in the tax rate was needed as the “appeals rate” although historically the amount of appeals is less. With the $3.90 tax rate that it negotiated with the state as the new certified rate, Shelby County Government then voted 8-4 for a 14-cent tax hike.

In a news release, the Administration said the 14-cent increase allows county government to give $20 million more to schools, $20 million to its debt management plan, and $2 million for interest payments. This statement in itself indicates the windfall in the budgets, keeping in mind that each penny of property tax produces about $1.5 million in revenues. In other words, a 14-cent tax increase would translate into about $21 million in revenues, leaving $21 million more that was obviously captured somewhere else along the way. In addition to this amount, a financial administrator said in an email to us that there is likely upwards of $10 million more that was absorbed into the budget to pay for general government costs.

All in all, the vote was a bold stroke for Mayor Wharton, who has now effectively staked his lofty approval ratings on the public forgetting the tax increases by next year’s elections. “It’s not an increase in the sense that when you change your rate, everybody goes up, not merely those whose property values increased as a result of reappraisal,” the mayor was quoted as saying in The Commercial Appeal. It was probably a quote that his aides would like to take back, but clearly, Mayor Wharton is serving notice that he is prepared to defend the climbing tax burden over the past three years.

At the same time, what remained unsaid during the budget debate was deafening. County administration officials said in an email justifying its position that it has a moral obligation to fund education, public health and public safety, suggesting general fund expenditures are down, employment is down, and better operational management are up. But, this begs the question of why county government doesn’t deal as forcefully with the source of the problem – sprawl – rather than its symptoms – budget meltdown. The strongest indication that Shelby County is serious about getting its budgetary house in order will be when it adopts smart growth as its #1 priority.

Meanwhile, the budget makes no mention of changes in policies about tax freezes, which now take $45 million off the table before the board of commissioners even has a chance to look at a budget proposal. The same tough attitude that Mayor Wharton took on the tax increase would serve him well if he would now address sprawl and the entitlement philosophy of tax freezes.

Unfortunately, although Shelby County showed shrewdness in infusing tens of millions of dollars of new revenues into its budgets, it did not reconsider some programs that have already taken a direct hit. For example, only two and a half cents of the property tax rate would have resurrected our once fine city/county library system. About one-half of one cent would have restored full funding for arts and culture, and about the same amount would have restored the money taken from local social and human services agencies last year. Just a penny would be a godsend for Shelby Farms Parks in a year when parks were deemed a “retail” service and dispensable. One penny would even have funded the mayor’s pet literacy program, the “imagination library” (which some members of his administration say is the new name for the Memphis and Shelby County library system after it was dismantled by county government).

It was a gutsy play by Mayor Wharton and his Administration. However, at the end of the day, voters will judge the success of Shelby County Government in one way -- the size of their tax bills. It will be interesting to see how all of this plays out next year, as tax bills for the increases come due just a few months before the county elections.

Hopefully, with some of the budget pressures taken off the Wharton Administration, it can turn its attention to what got the mayor elected – his vision of the future. During his campaign for mayor, this is what defined Wharton. He was seen as the visionary candidate. With a debt that is more than $1.7 billion, if you like the Administration’s numbers, or more than $2.2 billion, if you use the amount in the county trustee’s reports, it is reasonable that the Administration kept its eye on the fiscal ball, but between now and the election, there’s hope that attention will be spent on resuscitating the vision that he had for Shelby County when he ran for office and taking some steps to make it happen.