Nashville council members propose 50-cent property tax hike to make up budget shortfall

In a push to erase a budget revenue shortfall and inject new funding for schools and employee pay raises, a group of Metro Nashville Council members is proposing a 50-cent increase to the city's property tax rate.

The proposal, led by At-large Councilman Bob Mendes, with early backing from At-large Councilwoman Sharon Hurt and Councilman Bill Pridemore, would increase the city's combined property tax rate in the Urban Services District from $3.155 to $3.655 per $100 of assessed value, a 15.9-percent hike.

That means an owner of a home appraised at $250,000 in the Urban Services District would pay about $319 more per year in property taxes. The General Services tax rate would jump 49 cents from $2.755 to $3.245.

The plan — certain to be controversial and likely to set off an intense debate — would generate about $150 million in new revenue and be Nashville's first property tax rate increase since 2012.

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Mendes called his effort a tax rate "correction," arguing that the city should have increased the rate ahead of last year's reappraisal, which has been the norm for most of Metro's 55-year history.

"We've got significant problems with this budget, and it's only going to get worse next year," Mendes said, arguing that spending cuts wouldn't change the outlook.

"There's definitely no way to cut our way to prosperity on this," Mendes said. "There's no way to cut enough money to fund the pay plan, actually have a rainy-day fund at 5 percent (of the budget), and fund the schools budget."

The council will take up the tax increase proposal next month as an amendment to a resolution to set the city's tax levy. A budget must be approved by July 1.

Briley does not support tax hike

Mayor David Briley this month proposed what he's called a "status quo" $2.23 billion budget for the 2018-19 fiscal year that does not rely on a property tax increase. It would mark just a $22 million increase over the current fiscal year, keeping most department spending plans flat.

Most painfully, the budget proposal would deliver just a $5 million increase for the school district, which asked for $44.7 million in new dollars, and it would renege on a three-year pay plan promised to Metro employees.

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Mendes said the 50-cent increase would be enough to cover the full funding request of Director of Schools Shawn Joseph and the school board as well as the three-year cost-of-living pay adjustments for city workers. He said it would also cover future debt payment obligations on the horizon.

But the plan lacks the backing of Briley, who through a spokesperson, said he does not support the tax hike proposal.

"We don't think it's the right time for that, and the budget we've proposed, including no tax increase, is in the best interest of the city," Briley spokeswoman Judith Byrd said.

Tax proposal spills into mayor's race

Briley is one of 13 candidates running in a special mayoral election on May 24 to finish what's left of the term of former Mayor Megan Barry, who resigned last month amid a sex scandal with her former police bodyguard. A head-to-head runoff would occur on June 28 if no candidate gets at least 50 percent of the vote. Another mayoral race will take place in August 2019.

One of Briley's challengers, At-large Councilwoman Erica Gilmore, at a candidate forum Thursday night said she supports a tax adjustment to makeup the shortfall.

"People are fed up," Gilmore said, adding that the city needs to keep its commitment to employees. "At this point, we need to do a tax readjustment. People don't want to talk about it. But we can readjust it. In the past, we have done that."

But Briley dug in on his commitment to not raise taxes, saying it would have a "really hard impact" on working-class neighborhoods where land values are skyrocketing.

Nashville has seen $87.8 million in revenue growth from property tax, sales tax and other revenue streams over the past year, but the growth weakened from previous years despite the city's development boom.

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Although the city has collected $15 million more in property taxes over the past year, it was $26 million less than anticipated, according to the Metro Finance Department.

The mayor has attributed the property tax shortfall to a combination of factors including successful appeals from property owners following last year's property reappraisal — in which property values rise by an average of 37 percent — as well as the state's appraisal of utility properties, which were different than expected.

"It was a commitment and obligation that we gave last year for a three-year pay plan, and we need to honor that," Pridemore said, explaining his backing for the tax adjustment. "And the other justification if for the schools. "If we stay as it is right now, we're going to be in trouble again next year."

Some say tax increase should have happened under Barry

The council's Budget and Finance Committee chairwoman Tanaka Vercher said she had not seen the tax proposal but applauded her colleagues for "seeking out potential solutions."

"Nothing is off the table," she said. "Everything will be considered."

The proposal drew quick resistance from the free market think-tank Beacon Center of Tennessee, whose CEO Justin Owen called it "unconscionable" to have less-than-expected revenue amid Nashville's boom. He said the same people who "gave hundreds of millions of our tax dollars to huge corporations and sports franchises" are now proposing a tax hike.

"The Metro Council has been irresponsible and wasteful with our tax dollars, and it is absolutely unfair to ask the residents to pay more in property taxes because they cannot balance a budget," Owen said.

The city's last property tax increase, led by then-Mayor Karl Dean in 2012, was by 53 cents.

Barry, during approval of her final budget last year, celebrated the feat of the readjusted $3.155 combined tax rate because it is lowest in Metro history. It was a sharp decrease from $4.516.

But amid the current budget woes, some have questioned whether Barry should have raised the property tax rate either last year or in 2016.

Doing so would have presented political complications because of Barry's transit referendum. That plan, which came later, would have raised four taxes, including the sales tax, to fund a $5.4 billion transit plan. Nashville voters rejected the plan on May 1.

By state law, the city is not allowed to collect more revenue as a direct result of a reappraisal, which takes place every four years. The tax rate is adjusted accordingly.

But Nashville mayors in the Metro-era have historically raised the tax rate in the same year or the year before a reappraisal in order to capture the new growth. The most recent exceptions came in 2009 under Dean, who was navigating the budget in the Great Recession, and then Barry.

"Almost every time we've ever done a reassessment, we've done a simultaneous rate change, or increase revenue, and we didn't do that last year," Mendes said. "We've only made that mistake two other times."

Pridemore suggested that the tax rate may have been kept low under Barry to "ease the burden of the transit tax" that was later proposed.

But Metro's Chief Operating Officer Rich Riebeling, a top aide for Briley, and previously for Barry and Dean, said a tax increase wasn't even considered in 2016.

"If you look at Mayor Barry's first two budgets, we had revenue growth of over $100 million both times," Riebeling said. "We felt that we were going to continue to see new growth in revenue, and that we were going to be able to meet our obligations going forward without a tax increase.

"There was not a lot of consideration given to raising taxes. That really wasn't on the table."

Riebeling said if the automatic tax rate adjustment had been set a little higher "you could have avoided some of the issues this year." But the adjustment was based off projections that ended up being off. He said the certified tax rate should have probably been set at around $3.25 instead of $3.155.

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each Joey Garrison at 615-259-8236, jgarrison@tennessean.com and on Twitter and on Twitter at @joeygarrison.