The proposed FY19 Metro budget has been out for ten days now…and it’s not good…and this is just the first year of a multi-year problem.
The quick top line summary is that the proposed budget would renege on legislation passed last June for employee cost of living increases and gives our schools only $5 million of the approximately $45 million that MNPS asked for. And in order to fund this bare bones, mostly status quo budget, the budget proposes selling $23 million of “surplus” Metro property and getting a $15 million one-time payment for outsourcing parking meter enforcement. Finally, there is consensus that the FY20 budget will be worse and require budget cuts, probably across the board.
Why this is happening? There are many contributing factors, but the single biggest is that the Metro government botched the reassessment and resetting of property tax rates last year. I don’t want to get too wonky, but nearly every time in the past when Metro has done a property value reassessment (which is required by state law to be revenue neutral), Metro has also changed the property tax rate (which can increase revenue). These are usually done at the same time because the revenue neutral property value reassessment already changes everyone’s tax bill. When revenue is needed for a growing city, it makes sense to change the rate when everyone’s payment amount is already changing due to the reassessment.
But last year, Metro only did the reassessment. The reassessment caused the property tax rate in Metro to drop from $4.516 per $100 of assessed value (which was pretty low historically) down to $3.155 (which is an all-time historic low rate). In almost every other reassessment in the history of Metro, the city would have reset the rate somewhere between these two numbers, which would have increased revenue. The failure to do this last year is the biggest reason why funds are short this year. And because property tax reassessments are on a four year cycle, this is also why Metro will be squeezed for cash at least into FY20.
Of course, there were other factors. For example, there were a high number of assessment appeals from large commercial properties last year. Since a majority of property taxes are paid by commercial properties, this impact is real. Also, the State of Tennessee continues to underfund Metro’s school system. There is ongoing litigation by MNPS to try to fix this, but the budget impact on Metro continues.
Will tightening Metro’s belt on spending correct this revenue problem? I don’t think so, not completely. I mean — Metro definitely should cut any fat that it can. But the proposed budget is already getting into the seed corn just to make ends meet this year. Is Metro going to find another $23 million of real estate to sell in FY20 to make ends meet then? Even if Metro could cut enough expenses to fund promised employee raises and education this year, is there enough fat to do it again in FY20? It’s hard for me to make the math work on Metro cutting its way to a fully-funded budget.
What can be done to correct this problem? The Metro Council is only one week into our budget meetings. I am hearing lots of ideas about where to cut expenses. I think we will cut expenses, perhaps aggressively. There are going to be tough conversations about how far we can cut back without eroding important government services, hurting Metro employees, or shortchanging our kids’ education.
I will update you all as the budget process unfolds.
FUN FACT: The previous all-time low property tax rate was in 1984-85. The rate that year was $3.17. That lasted only one year. It was quickly corrected by 75 cents, up to $3.92 for the rest of that reassessment cycle.
Correction, May 21, 2018: Metro Finance says that the one-time sale of real estate is expected to bring in $23 million. This post previously said $38 million.