Monday, July 06, 2009

Reassessing The Facts About The Tax Rate

Shelby County Commissioner Mike Ritz continues to wage a war for truth in government taxation that would make Don Quixote proud.

Or perhaps more aptly, he feels like the Amish shunned from the community for talking too much to the outside world. In his case, the sin is not going along with the party line when it comes to rolling back the tax rate following the reappraisal of property.

While Shelby County Government has voted twice to approve a $4.02 property tax rate inside Memphis and $4.06 outside Memphis, Commissioner Ritz makes the case that the amount should more accurately be $3.92 inside Memphis and $3.96 outside Memphis.

Rolling Ahead

Here’s his argument: in the wake of a reappraisal, city and county governments are required by law to roll back their tax rates so that the same amount of property tax revenues is produced. Then and only then can the local governments increase the tax rate.

This process was designed to ensure transparency in the setting of the property tax rate, but characteristically, there is a rather large gray area: both city and county governments are allowed to set aside an amount that is alleged to be the amount needed to cover appeals of the reappraisals.

This time around, the board of commissioners, at the recommendation of the Wharton Administration, built in 21 cents (more than $25 million) as an allowance to cover possible appeals. Commissioner Ritz considers that amount excessive, pointing out that four years ago, county government set aside 17 cents but only used 10 cents.

The Good Fight

He said that in other words, county government was able to hide a 7 cent increase inside of the allowance, and he contends that the same thing is happening this year.

“(Shelby County Director of Finance) Mike Swift comments (in support of a $4.02 rate) make little sense,” he wrote in a letter to the county attorney. “I think Mr. Swift was really covering the administration’s need and desire for more money.”

While Commissioner Ritz’s target was county government, the same argument could be made on the cityside of the street.

Most of all, Mr. Ritz argues that the public deserves to know that their taxes are being effectively increased and that rhetoric saying that county government has made a 2 cent tax cut this year is misleading. (City of Memphis claims a 6 cent decrease from $3.25 to $3.19. After all, there was no real cut in taxes; there was only the adjustment in light of increased revenues.

Commissioner Ritz is unlikely to stand in the way of a third vote approving the tax rate and moving ahead. He is undoubtedly frustrated at the lack of understanding of this issue by the media (except for the Memphis Daily News' Andy Meek who continues that paper's fine job of covering government), but here, we give him points for fighting the good fight against some awfully long odds.

Gray Area

In this vein, we’re reprising an abbreviated post from July 18, 2005:

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.

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; 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 is to 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.

Burying The Facts

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 a result, the city and county administrations negotiated the certified tax rate and then negotiated 16 cents in the tax rate as the allowance for appeals 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.


brncgirl said...

Mr. Ritz is 100% on point. We also shouldn't forget that this reserve carries forward to each succeeding year. The voodoo economics behind the tax rate calculations is a taxpayer ripoff of major magnitude. This is an area where we could certainly use more transparency. After all, there's nothing really complicated about the basic math.

Anonymous said...

Smart City,

You've only told a fraction of the story. Ritz's argument does not account for growth in a normal tax year. His numbers are based on the total property tax revenue collected at the end of last year. Revenues are generally expected to grow by 1-2% annually because of subdividing, improvements to existing structures etc. Revenues are expected to grow 1.5%. This fact alone eats up most of the surplus Ritz claims exists.

In regard to the .21 allowance, currently more than 65% of appeals are successful and being lowered. This is a unique year and no one knows what the impact will be. If we are short on the reserve amount needed for appeals, the county still must provide the same level of funding for schools by law, which means that other services would have to absorb the shortfall. If we don't use all of the reserve, it will be the responsibility of the Commission to address it at that time, but to aim short would be irresponsible.

Finally, Comm. Ritz (and the other Republicans) voted against my budget proposal that cut $18 million and used reserve funds to balance the budget this year in exchange for a large, needs-based layoff next year, which would have saved an additional $18 million. He offered no viable budget proposal of his own or provided any funding for Operation Safe Community, for example. It is disingenuous to crticize the efforts of those of us trying to rprovide for essential services and improve this community when he offers no solutions of his own.

Mike Carpenter

Smart City Consulting said...

Thanks, Commissioner Carpenter.

If the appeal rate is less than the amount generated by 21 cents (which we believe is likely based on history and what's taking place in some other cities), will the public then get their property tax rate reduced or where does the money go?

Our primary point (and perhaps we didn't make it clear enough) is that this process has traditionally been a time when local governments - city and county - have added funding to their budgets. We suspect that will happen again this time.

We appreciate your comment.

Anonymous said...

Carpenter, your skin is too thin and your overreacting. I didn't read this as being about any conflict between you and ritz about budgets, but about setting the tax rate. On that one, Ritz is right.

Anonymous said...

Mike is a great commissioner. I know he didn't mean to sound defensive or hostile.

Smart City Consulting said...


We share your high regard for Commissioner Carpenter, and we read no defensiveness into his comment.

He's a bright light on our legislative bodies.

Anonymous said...

Smart City,

If all of the reserve is not used on appeals, then clearly it should be disclosed to the public and the tax rate lowered or an extremely compelling argument made as to why it shouldn't be lowered. I am fully committed to making sure that happens.

To the individual concerned about my thin skin: after more than 15 years in politics, thin skin is not my issue or I would have gotten out a long time ago. However, my patience for hyperbole, grandstanding, false accusations, half-stories and partisan agendas has diminished greatly. I respect differences of opinion, but voters should have the complete story not just the part that benefits ones position.


Mike Carpenter

Zippy the giver said...
This comment has been removed by the author.
Zippy the giver said...

Mike Carpenter,


What the heck are you talking about, what numbers?
Memphis is NOT growing ANYTHING.

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