Citizens are expressing outrage over increases in local property taxes. There are those calling for the recall of local elected officials. There are advocacy groups calling for artificially imposed limits to tax increases. I understand and share their concerns, frustrations and justified ire. Their actions, while well intentioned, will not rectify the underlying cause of the recent financial concerns. Recall elections and property tax circuit breakers will simply treat the symptoms and not address the underlying disease itself.
The tax levy for property taxes is simply one part of a mathematical equation. All governments spend funds to provide services to citizens. The costs of those services are covered through government revenue sources. Those sources may include some combination of sales taxes, fees, shared state revenue and local property taxes.
Of these sources of revenue, only the property tax can be accurately predicted. That is because the value of the property subject to taxation remains a relative constant over the course of the revaluation cycle. This is why most communities derive between 30% to 60% of their tax revenue from property taxes. These property taxes are the primary funding source for every community’s greatest expense, public education.
Financial issues arise in many communities when this property tax base is eroded by the adoption of economic policies designed to provide an economic advantage to one group of taxpayers over another. Property taxes are designed to be fair and to equally distribute the tax burden. The more frequently the erosion of the tax base occurs the greater the average taxpayer feels the discomfort.
Problems arise when well-intentioned governments allow their tax base to be exchanged for a promise of equal or greater revenue in the form of sales taxes and fees. (Think of it as a bird in the hand is worth two in the bush.) Why is this a concern? Because payments in lieu of taxes (Pilot) agreements remove a property from the tax base and artificially shifts the tax burden onto those least able to afford it.
These programs are sold as being good for the community. Very many of these individual programs are and their costs are outweighed by the advantages. However, when your economic incentive plan relies disproportionately on property tax incentives you ignore utilizing and developing incentives from other assets your community has to offer. The elected and appointed officials charged with this oversight are doing exactly what they were asked to do; which is to create growth. Communities develop land use comprehensive growth plans through zoning and codes in order to ensure the community follows a clear vision agreed to by its citizens. Currently there is no such similar plan relating to a community’s use of financial incentives to attract growth and industry.
A solution could be to establish a cap on community wide TIF (tax increment financing) incentives and Pilot (payment in lieu of taxes) abatement programs. It is possible to be over competitive just as it is possible for someone to overeat and with very similar results! The cost of being over competitive can and has become a detriment to the financial health of the average citizen especially when anticipated sales tax revenues do not materialize in economic downturns. (Remember, a bird in the hand is worth two in the bush.) It’s not too late. We can stop this now if we have an honest and transparent dialog. We must treat the disease rather than throw pills at the symptoms if we are to regain our fiscal community health.
Rob Mitchell, Conservative Republican Assessor of Property from Rutherford County Tennessee is a Winner of the John C. Donehoo Award from the International Association of Assessing Officers; Five time President of the Middle Tennessee Association of Assessing Officers; Winner of the Excellence in Operations Award from the Tennessee Association of Assessing Officers;
Three Star Award Winner for Office Operations. Mitchell has returned over three million dollars of taxpayer money over his tenure.