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.