Sunday, September 16, 2007

Memphians Pay A Surcharge For So Many Students

It could be called the Memphis Surcharge.

It’s the extra taxes Memphians pay as a result of the disproportionate percentage of children who live here.

It’s largely the reason that the tax rate in Memphis and Shelby County is so much higher than Nashville/Davidson County.

The Difference

While it might not look like much of a difference on a comparison of school aged population on a list of Memphis and comparable cities, that demographic bulge of a few percentage points ripples throughout the budgets of Memphis and Shelby County governments, increasing costs, budgets and the tax rate.

In a listing with Birmingham, Charlotte, Chattanooga, Cincinnati, Knoxville, Little Rock, Louisville, Nashville and Orlando, Memphis and Shelby County are #1 in the percentage of its school-aged population – 23.2 percent in the city and 23.4 percent in the county.

That percentage is about 10 percent higher than the second place city and roughly 20 percent higher than our regional rival, Nashville. As point of reference, 18.8 percent of the population in Nashville/Davidson is school-aged.

The Ripple Effect

The effect of this difference ripples through the city and county budgets, largely in the money required for education. In Nashville, that’s 28.4 percent of the tax rate. Here, it’s 42.03 percent here.

Put another way, $1.21 of the combined Memphis/Shelby County tax rate is directly caused by this bulge in students, and this is the Memphis Surcharge.

Without this bulge in the number of students, the combined city-county tax rate here would be $5.24 compared to the enviable Nashville/Davidson tax rate of $4.69.

The Bottom Line

Most of us are familiar with the property tax comparisons trotted out by developers and homebuilders every time a tax increase is discussed. It’s purpose is to suggest that local governments here out of control.

One such list, widely circulated in 2005, showed the combined city-county tax rate here as $7.47, compared to $4.69 in Nashville/Davidson, $5.10 in Chattanooga, and $5.50 in Knoxville. The conclusion: Memphis and Shelby County governments are spending like drunken sailors.

While there’s always room for more efficiency in city and county governments, unmentioned in discussions about our tax rates is the real culprit: We have more kids.

The Number Worth Remembering

Here’s the most important number in this barrage of statistics -- $175.3 million. That’s how much additional public costs result here from these additional students.

It’s clear that fewer subjects are as ripe for political posturing and manipulation as our onerous local tax rate, but it’s a shallow explanation that focuses solely on public performance.

All of this is the gospel according to Marlin Mosby, managing director of Public Financial Management and finance director for the City of Memphis from 1975 to 1984. It’s his persuasive contention that the public sector back then were no smarter or more creative than today. His point is that mayors and directors in the “good old days” weren’t trapped beneath a demographic wave of young people, robbing them of options for innovations seen in other cities that have greater flexibility precisely because they have a much percentage of students.

A Taxing Situation

These days, Mr. Mosby is a man on a mission – to clear up the misunderstanding of the nuances of public budgeting, and his always frenetic, ever opinionated and constantly fascinating presentation is a yearly favorite of Leadership Memphis classes.

The students alone would be problem enough for Memphis, but there’s also the fact that we have one of the most regressive tax structures in the U.S.

In a studied 51-city analysis by the Office of Revenue Analysis for the District of Columbia Government, Memphis was among the worst three cities for its regressive tax structure. In the meticulously documented report, the analysts looked at the tax burden for the largest city in each of the 50 states and the District of Columbia.

Too Few Options

Our city’s taxes are regressive at their core, meaning that low-income families pay a larger share of their incomes in taxes than high-income families. That’s because local government has an overreliance on property taxes and sales taxes, when compared to other governments across the U.S.

With no real options except the two primary tax sources allowed by state law, city and county governments are left with two inequitable places to go for more revenues – the regressive sales tax or the regressive property tax.

While local efforts to expand tax sources are well-intended, in the end, the current tax structure is so badly flawed that even new sources are just stopgap answers that don’t address the real inequities in the system.

Tale Of The Tape

The study analyzed the tax burden for families with average incomes of $25,000, $50,000, $75,000, $100,000 and $150,000. The assumptions for the study were that each family has four members and owns a single family home within the city limits.

The average tax burden for the 51 cities across the U.S. was 7.3 percent for families earning $25,000; 8.3 percent for families earning $50,000; 9.1 percent earning $75,000; and 9.2 percent at the $100,000 and $150,000 levels.

In other words, most cities have a tax structure that responds to a person’s “ability to pay.” Memphis does just the opposite. The more a family earns, the less it pays. The family earning $25,000 pays 7.0 percent, right in line with the average for the 51 cities.

More Is Less

But, the family earning $50,000 doesn’t pay more; it pays less – 6.2 percent. A family earning $75,000 pays 6.3 percent, one-third less than the national average; and the $100,000 income family pays 5.9 percent and the family earning $150,000 pays 5.6 percent.

O.K., if you know anything about this blog, it is our obsession with statistics. So, let’s boil it down: In the higher income brackets, Memphis taxpayers pay a smaller percentage of their income in taxes than families making one-fourth as much. In fact, these Memphis high-income families are paying roughly 40 per cent less than the average of 51 cities.

Birth Control = Tax Control

But Mr. Mosby would add one more factor driving out tax rates higher. It’s his contention that the final nail in the local fiscal coffin comes with the Tennessee law that requires rollbacks of the tax rate to offset property values increased from appraisals. As a result, public revenues don’t grow to keep pace with inflation while expenses do.

The more that we look at statistics regarding students, the regressivity of our tax structure and the mandated restrictions put on local governments by state politicians, the clearer it is that they pose a constant challenge for Memphis and Shelby County in the competition for economic growth.

While Memphis Fast Forward may suggest that the answer is greater efficiency in city and county government, the truth is that we can never achieve that goal in its truest sense as long there's the Memphis Surcharge to contend with.


Santo said...

I assume you knew this one would generate some controversy, so I’ll bite. This is probably the first time I’ve been offended by something I’ve read on this blog. (I’ll get over it.) It sounds like you’ve got a bit of a modest proposal going here.

You correctly indicate that Memphis/Shelby’s tax structure is screwed up, resulting in high regressivity with burdensome rates that don’t generate enough revenue. But after correctly identifying the main source of the regressivity (lack of a progressive income tax as part of the structure) and a major reason for the lack of revenue (Tennessee law that requires rollbacks of the tax rate to offset property values increased from appraisals), you go back to blaming the problem on children, calling children “the real culprit,” and concluding that “we can never achieve the goal of lowering tax rates unless we first lower birth rates.”

Why not first address those root policy problems?

Maybe the fact that Memphis is a family-affordable city is one of the “small advantages” to build on that you were looking for in your question of the week post last Wednesday. (If we could only find a way to get the healthy families to stay in the city instead of fleeing for the suburbs when the kids enter middle school, maybe we could have a healthy and sustainable community.) If there is a problem related to children in Memphis it is that we have so many who are in poverty (who require more expensive services and generate less public revenue). Of the top 50 metro areas in the US, Memphis ranks 49th in the percentage of families with children that are below the poverty line (19.5%). Which is the appropriate answer: remove the children, or address the poverty?

Maybe, like Swift, you were just trying to get the conversation started?

- An Unrepentant Breeder

Anonymous said...

Hold on folks, let me get my popcorn buttered first...

Smart City Consulting said...


Actually, we thought this one was pretty benign.

Children and poverty in Memphis are too often interlocking problems, and it is the demographic bulge in children that causes the tax rate to be higher. If we resolved the poverty problem and if we solved the policy problems, the bulge in school-aged kids would still result in the surcharge for Memphians that we mentioned.

We would contend that the bulge isn't the result of a family-affordable, family-friendly city, but the result of poor sex education, too little aggressive birth control and focus on long-term contraception, not condoms or daily pills. There's where the policy shift is most needed.

Smart City Consulting said...


We agree with you about the need to make cities attractive for children, but that's a different question than the one we're raising. But on that point, it's critical that once we work to attract young professionals, we give them the infrastructure and the encouragement to raise their children in the urban environment that attracts the parents in the first place.

We hope you've read the CEOs For Cities' report on this subject, Kids In Cities.

Here's information about that report (

Attracting and retaining talent is top-of-mind for urban leaders today. Yet, many cities are at risk of losing talented workers as they start families and have children.
CEOs for Cities commissioned researchers at the Institute of Design to get beyond the obvious to help us understand what can cities do to retain these workers and their families. And since 25-34 year-olds are 30 percent more likely than other Americans to live within a 3-mile radius of the CBD, there is an important market that will go missing if they leave when the kids come.
After nine months of research and development, ID researchers have completed their concept papers for our network.
The final report can be downloaded by clicking here.
We are working now with urban leaders from Chicago, Portland and Akron to develop and test concepts to support and scale the behaviors of urban families as part of CEOs for Cities' first-ever Learning Network. Their work will be documented over the next 18 months and will provide general insights for urban leaders from all cities to address this opportunity.
Learning Networks are a new initiative developed by CEOs for Cities that bring a small number of member cities together to collaborate on a particular project over an 18-month engagement. Topics of the Learning Networks are driven by members’ interests. Learning Networks focus on a single pressing theme and are aimed explicitly at converting the insights produced from our research into action in local communities.
The Kids in Cities Learning Network is an exciting opportunity to take groundbreaking, first-look research and translate it to on-the-ground action that will produce big wins for cities.

Anonymous said...

If the bulge is in both the city and the county, how do we account for the enormous tax difference in the two entities? School costs alone do not create the problem for Memphis. Some are arguing that the problem is the county wide services provided tax free by Memphis residents; I don't know if that is truly the problem or not.

However, I do believe that the answer is linked to the Poverty issue raise by Charlie. The low income, and hence cheaper housing costs, in the city result in a lower tax base. If all the middle class houses were in the city with a higher appraisal value the city revenue base would be increased. However, the county might then be suffering.

The answer appears to be to reduce the poverty base as Charlie suggests; limiting births won't do it alone. Too bad everyone has selective amnesia; otherwise they would realize the war on poverty was being won until the rise of neoliberalism and the move to the right by the democratic party.

"Those who forget history...." and all that...

Santo said...

I appreciate the clarification of what really is a nuanced argument. And I applaud the CEOs for Cities’ Kids in Cities focus. We’re on the same page there. I’m sure you know I’ve got a soft spot for kids (and we’ve got plenty in Memphis that need a hand).

I certainly agree with the need for sex education and other means that help ensure that children are born only into loving and stable families that want them. That could help a lot. I just wonder whether there should be some strategy for policy action other than trying to control what people do with their bodies – if for no other reason than that it’s really difficult to do. Assuming the policy issues identified previously are windmills not worth tilting at, I wonder if there is some flaw in the system related to state and federal aid for public education that needs to be addressed. Since Memphis has more school-aged kids than Nashville, we get more of that money, right? Is it not enough, or are we not using it efficiently? Or is that irrelevant?

(Sorry for the polemical “breeder” tagline – I just thought it was fun.)


Smart City Consulting said...


We're not sure what you mean when you refer to the large difference in taxes between city and county governments. They are essentially the same and together, because of the bulge in school aged population, they create the highest combined city/county tax rate in Tennessee.

We've written often about the doable way that the disincentive for living in Memphis can be removed and the tax rate within the city would be comparable to Germantown and Collierville, so we won't belabor that point again. But suffice it to say that even moving those expenses to the county tax base where they belong will not reduce the tax rate so that it is in line with Nashville, Chattanooga or Knoxville, and that is because of the cost of education caused by the kids.

Smart City Consulting said...

Oh, by the way, most challenges in Memphis would be cured by attention to poverty. We're not arguing that isn't the case. We're just saying that the cause of the higher tax rate here isn't poverty; it's the larger percentage of kids.

If all of these kids in poverty were suddenly middle class kids, the tax burden remains unchanged.

We all believe that poverty is the anchor around Memphis' future, and the sad reality is that because of the demographic profile of Memphis, most of the school-aged population here is indeed living in poverty.

If we didn't have that bulge in kids, we'd have $150 million to spend on the causes of poverty, and if we could do that, we'd really have staked out unique territory for our city.

Smart City Consulting said...


We took no offense. We're all breeders here.

To answer your question, you are right. Because we have more kids, we get more money from Nashville. However, the amount of additional money that we're talking about is not state money, but purely Memphis and Shelby County tax dollars.

Here we are so convinced that part of this could be solved if we were more direct about adolescent sexuality, which is a fact of life whether we like it or not. We're in favor of the home room teacher calling the roll every day and asking who needs morning after pills. Couple that with some innovative intervention and maybe we could see some progress.

By the way, if the rest of you didn't hear Charlie Santo's interview on Smart City, you should. Here's the link:

Anonymous said...

Simple answer to the question you raise. Taxes in Memphis higher as one pays county property tax in addition to the city taxes. Hence the same house outside the city and in the county pays much more in taxes.

Gregg said...

It would be interesting to see how the Nashville versus Memphis comparison works if you included Williamson County (Franklin) and Desoto County.

The bottom line is the cost of a poor education and the perceived safety risks in the Memphis city schools will always drive people away from Memphis. I've made this comment here before, but city tax+county tax is hard to afford. Private school tuition on top of that makes it pretty much impossible except for the upper middle class and higher. I question the sacrifices (financial and security) we are making to live in the city of Memphis EVERY DAY.

We choose to because of the proximity to the restaurants, church, people we "enjoy" and the great, older neighborhood and house. Financially it makes no sense and that's why I struggle. We essentially pay for the insanity living in the suburbs would likely cause.

Smart City Consulting said...

Anonymous: As we've pointed out before, Memphians clearly pay a disincentive to live inside the city limits, but in this case, it's not as simple as the two-layered tax structure. More to the point, it's back to the demographic bulge of so many school-aged children. If that bulge were reduced, Memphians would see the dramatic reduction in their tax rate as we pointed out.

Smart City Consulting said...


We agree with everything you say, and as for us, we think that you and others like you deserve a commendation for sticking with Memphis, driving a stake in the ground and helping to define a different future than the one that sometimes seems predestined now.

However, in this particular case, the bulge in school age population ensures that there are thousands and thousands of more students in public schools than comparable cities.

Finally, would you be willing to write your personal commentary on the trade-offs that you make to be a Memphian and why you and your family are inspired to do it. We would be interested in reading it, and we are confident our readers would too.

Anonymous said...

Well, as a Memphian I must disagree with your suggestion that you have addressed the two layed tax structure. Why should I pay COUNTY TAX to support a school system that I will never benefit from. I say consolidate the schools and we may see a return in our taxes. Only problem with this is the insanity of both school boards. And everything in Shelby County/Memphis is reduced to race; especially education.

Gregg said...

SCC-How can I email you?


Smart City Consulting said...


Sorry for the confusion. What we meant is that we've addressed the two-tiered tax system and the solutions to it many, many times on this blog. That wasn't the purpose of this post, because Memphians would still pay a surcharge if that duality were eliminated.

And we're on record in favor of consolidating the school systems. We are the only metro in Tennessee that hasn't already done it, and amazingly enough, neither Nashville, Chattanooga nor Knoxville has ceased to exist. Ironically, Mayor Herenton's proposal for consolidating the system and then breaking it apart into smaller operating districts makes great sense.

By the way, yes, you are supporting a county system that you cannot use. But the same can be said by Shelby County taxpayers outside Memphis.

Smart City Consulting said...


Please email at Look forward to hearing from you.

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