Chasing Down Line 7777

I’ve talked to some MNPS advocates who are bothered annually by Line 7777 in the MNPS budget. It’s called Property Tax Refund and is just over $9 million for the upcoming fiscal year. See page 37 of 42 in the proposed MNPS budget. Here’s what that is…

Property taxes are automatically divvied up to different Metro accounting Funds. Two of those funds are the “Schools Funds” which get about 36.5% of collected property taxes, and the “School Debt Service Fund” which gets about 4.5% of collected property taxes. Again, property tax revenue is allocated automatically to these Funds in these percentages.

However, when MDHA approves tax increment financing for a project, new property tax revenues from that project are pledged for tax increment financing (TIF) loans and are largely not available for use by Metro. For TIF deals before April 2016, none of the new revenues are available to Metro until the TIF loans are repaid (usually in 10-15 years). For TIF deals approved after the Council passed BL2016-157 in 2016, MNPS will get to keep the debt service fund part (4.5%) of the new tax revenues.

So, we have property tax revenues automatically allocated in set percentages to these Funds. But the new revenue from TIF projects mostly needs to be used instead to pay the TIF loans. The technical accounting requires MNPS to receive all the revenue allocated to it, and then to be debited for the portion of MNPS’s allocated property tax revenue that is due to the active TIF loan properties.

Using approximate numbers, from FY2017 (which ended June 30, 2017) to FY2018 (ends June 30, 2018), the budgeted property tax revenue that went to the “Schools Funds” increased about $15 million, from about $298 million to $313 million. For these two years, the property tax revenue that went to the “School Debt Service Fund” increased about $2 million (from $38 to $40 million). In total, overall revenue to MNPS from property taxes increased about $17 million from FY2017 to FY 2018. So that’s great news, right?

HOWEVER — during this same period, the total new property tax revenues for TIF loan properties increased by about $3.6 million. See MDHA reports for the last two years here and here. Remember, MNPD has to “refund” the new revenue it gets from TIF project property taxes. Since MNPS is allocated about 41% of property tax revenue, the additional “refund” to give back in FY2018 was about $1.5 million. (That’s the roughly $3.6 million in total new property revenue that year from TIF properties times the 41% that MNPS is allocated.) That means, in the current FY2018, MNPS got to keep only about $15.5 million of the $17 million in new property tax revenue that was allocated to it.

Mark North pointed out in a 2015 blog post that, back in 2007-2008, the amount of the MNPS refund was $2.3 million. For the current FY2018, with the increased frequency of MDHA TIF loans, the refund had grown to $8.3 million. And for the upcoming fiscal year, the refund apparently will top $9 million.

I haven’t done all the math, but it’s clear that MNPS continues to get substantially more new property tax revenue each year than it has to refund through this arcane and technical process. But the fact is that Line 7777 in the MNPS budget has continued to grow and it does grab attention.

This also squarely points out that Metro is currently using about $9 million per year of property tax revenue to assist with development when that money would otherwise be used by MNPS. Economic development people would say that Metro and MNPS more than make up this amount with increased revenue from our robust economy. School advocates would be quick to point out all the things that could be purchased with $9 million per year for our schools.

Hopefully, this makes sense. Feel free to shoot me any questions at bob.mendes@nashville.gov or @mendesbob on twitter.

Bob Mendes

Bob Mendes represents all of Nashville as a Council-At-Large member of Nashville’s Metro Council. He is Chair of the Council’s Charter Revision Committee, a member of the Metropolitan Audit Committee, and a member of the Council’s Budget & Finance Committee, Rules & Confirmations Committee, and Ad Hoc Affordable Housing Committee. Bob also practices business law at Waypoint Law PLLC. Bob’s complete bio is here. You can follow Bob @mendesbob.