Sunday, May 27, 2018

Why is Metro short of money?

by Rod Williams - If you have been following the news, you may think that Metro has less revenue to spend this year than they did last year. That is not correct. This year's proposed budget is $2.23 billion, which is $22 million more than last year.  $22 million is not chump change, but it does represent a growth in revenue of less than 1%.  Cost of providing government services has increased more than 1%,  given the services those in power want to provide. The proposed budget does not reduce any services, institute any cost savings, nor does it raise taxes.

Since Nashville is booming and the sky is filled with construction cranes and existing homes are being demolished everywhere and new much larger homes are being build in their place, how can it be that tax revenues are not greater? We know that we have been experiencing historically high appreciation of property.  A couple things or more are going on. 

We had a mass reappraisal this year.  The state mandates that every four years property be reappraised. The reason for this is that values change in relationship to each other. If you and a friend each bought a house four years ago and you bought a house in Antioch for $150,000 and he bought a house in The Nations for $150,000, then four years later the home in Antioch may be worth $200,000 but the home in The Nations may be worth $500,000. The person with the home in The Nations should be paying more property tax than the person with the home in Antioch. A reappraisal determines current value so each are being assessed a tax obligation based on the current value of their home.

Another reason for a periodic reappraisal is to keep local governments honest.  A lot of  State funding, especially education funding, is based on assuring that people from poor parts of the state have an equal opportunity to an education as are people from wealthy counties. So it is in a local governments interest to plead poverty so they can get greater state funding. A periodic state-supervised reappraisal every so often ensures that local governments are not purposely undervaluing their wealth in order to appear poor and get more state funding.

Since the purpose of reappraisal is not to bring in more revenue but to "equalize" evaluations, the state requires that following a mass reappraisal that the local government adopt a "certified" tax rate that  brings in no more revenue than before the reappraisal. Often what happens is that in a year of an appraisal, local government slips in a tax increase. The local governing body does as they are required to do, and adopts a revenue-neutral lower tax rate, but them immediately adopts a higher tax rate, usually at the same meeting. Since most people do not understand what is going on, they blame their increased property tax burden on the reappraisal. Mayor Barry did not do this. Last year would have been a golden opportunity to raise taxes but to her credit, Barry did not do it.

Following the adoption of the certified tax rate, there were a lot of people, especially large companies, who appealed their appraisal and some appraisals were rolled back resulting in the new certified tax rate not bringing in as much revenue as city officials thought it would.

Another factor is that much of Nashville's urban commercial growth has occurred in redevelopment districts and the growth was financed by Tax Increment Financing and the increase in tax revenue flows to MDHA to fund more development rather than flowing into city coffers. I do not know the extend of this but it is a factor. If we had an inquisitive local press, this would be something worth investigating.

So, the bottom line is that while Metro has had a lot of growth, it did not produce the revenue it was anticipated to produce. The budget is considered a "status quo" budget which means that with few exceptions it funds departments at current levels. The two areas most "underfunded" by the budget are a promised Cost of Living employee pay plan adjustment and funding for Metro Schools.

The Metro School funding problem is largely the result of declining enrollment. While Metro's population is soaring, many of those moving to Nashville are childless young millennial's. Our schools are so bad that those with school age children choose to locate to a surrounding county or they send their children to private schools. If we had an inquisitive local press we would know to what extend this is an issue. While the school system has fewer children to educate, the cost of providing that education should also drop but the school system cannot contract as rapidly as enrollment is dropping. In the short-term there are fixed overhead cost.

None of what I have written above is intended to justify a tax increase, which I oppose, but rather to provide context to the claim that Metro has a shortage of revenue.

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