Out of step with historic practice

Metro handled its property tax rates in a historically unusual way last year.

Most of the time when Metro has done a periodic property value reassessment (which is required to be revenue neutral), Metro has simultaneously raised the property tax rate. For example, in 1997 (Bredesen was Mayor), the property value reassessment process (which has to be revenue neutral) dropped the property tax rate by $0.92. But Metro simultaneously raised the rate for FY98 by $0.54. When these two actions were netted against each other, the total property tax rate dropped by $0.38, from $4.50 to $4.12. Having the reassessment work in tandem with a change in rates has been the historic norm in Nashville.

(For those of you that want to follow along with raw data, here’s a link to pages A-24 and A-25 of the Metro Citizen’s Guide to the Budget. Page A-24 has a full list of historic property tax rates. Page A-25 gets into the weeds of showing every change to the rates over the years — including information about whether a change was due to a reassessment or tax increase. Also, here’s a link to my summary of these two pages. For those of you who want to follow the raw data and also like to double-check math, there are two numbers on Page A-25 that are incorrect. I think Metro Finance will update those soon.)

There have been three exceptions to doing a reassessment rate drop netted against a simultaneous tax rate increase.

For FY85, the reassessment drops the rate to a then all-time low of $3.17. That rate lasted only one year. Anecdotally, from people who have been in Metro for decades, this very low rate caused an immediate budget crunch and the rate was raised by $0.75 (to $3.92) the next year. That lesson was apparently learned well, because there were rate hikes paired with every reassessment after than until the Great Recession.

The second exception was in 2009 (for FY10). This was the very early days of the Great Recession. The reassessment dropped the rate from $4.69 to $4.13. By 2012 (for FY13), the reassessment when rates were usually changed was still a year away and Metro needed additional revenue. So, the Dean administration adjusted the rate a year before the reassessment up to $4.66. This increase was designed to give Metro adequate additional revenue to make it through the five years until the 2017 (for FY18) reassessment.

In both of these example, whether it was a mistake like in FY85 or for macro-economic reasons like in FY10, Metro had to correct the property tax rate before the next reassessment.

The third exception was last year in 2017 (for FY18). The reassessment process was done properly and dropped the rate by $1.361, from $4.516 to a new all-time low of $3.155. There was no simultaneous change in rates to increase revenue for our growing city. I know people will want to dig into why Metro bucked the historic trend. Surely, the example of FY85 should have predicted that setting an all-time low rate might cause an immediate cash crunch. Speaking just for myself, I think the Council might have been bitten by a side effect of term limits. The last time this was done “normally” was before the Great Recession, and none of us were in office at that time. That’s a pretty weak excuse, but one way or another, the traditional timing for periodic rate corrections fell by the wayside.

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.