Former finance chief gives his two cents on property tax hike

Sunday, November 13, 2011 at 10:05pm

David Manning no longer carries the purse for Metro government, but the former finance director during Bill Purcell’s mayoral administration still knows how to read a line graph, compute some basic arithmetic, and compare expenditures with revenue projections.

And when it comes to forecasting the financial outlook and tax future of the city –– a task he was asked to undertake for a recent seminar –– Manning arrives at a simple conclusion: Over the next four years, Mayor Karl Dean and the Metro Council have to consider implementing Davidson County’s first property tax hike since 2005 if they don’t want to engineer draconian cuts in government spending. 

“Property taxes have to be a part of the discussion based on just simple math,” Manning told The City Paper.

On a single sheet of paper, Manning, who today works as a receiver for the U.S. District Court of Guam, gave seminar attendees a broad “ballpark” view of the local government’s current financial situation –– how he see things, anyway –– and the monetary obligations Metro must meet through the 2015-2016 fiscal year. He paints a picture consistent with courthouse chatter that already exists. After a severe economic recession limited revenue intake, spurred minor budgetary cuts and prompted a decision to defer Metro’s debt payment obligations, the city is seemingly becoming stretched. As a result, Metro could face a sizable budget shortfall in the coming years as Metro spending requirements increase.

“I didn’t present the document as anything other than ballpark estimates based on my own experience,” Manning said. “It’s something that anybody inside Metro government can get information on. It’s just my own observations with respect to it.”

In the end, Manning’s “exercise” culminates with a funding estimation that could raise some eyebrows. To make up for a shortfall that he projects could range between $114 million and $212 million over the next four years, Manning believes anywhere from an 81-cent to $1.51 property tax hike could be required during that four-year span, absent any cuts. An alternative, according to Manning, could be drastic budget cuts to make up the shortfall.

The current property tax rate stands at $4.13 for residents in the Urban Services District and $3.56 for residents in the General Services District, according to the Metro Trustee’s Office. Property owners pay these rates on every $100 of assessed property, which is 25 percent of appraised residential property value. 

Metro’s current finance Director Rich Riebeling, when asked of Manning’s projections, said it wasn’t an appropriate time to comment or speculate on his predecessor’s budget estimates. Time-wise, he said, it would be “way too early,” as the city is still awaiting revenue figures and other numbers. The next budget process kicks off in early 2012.

“I don’t think I have a response to that,” Riebeling said. “We have a job to do. We’re going to start the budget process in January. This is my fifth budget, and every year everyone tells me that property taxes are going to increase. Our job is to prepare a budget that is in the best interests of the city.

“We’ll approach the budget as we have the four previous years,” he said.

Metro’s last tax rate bump in 2005, which Purcell and Manning engineered, totaled 67 cents. Since 1993, a property tax increase in Metro has often come in the year property values are reappraised, which occurs every four years. That didn’t happen in 2009 during the last reappraisal, when property values increased. Instead, by state law, the tax rate was adjusted, and lowered, to compensate for the property value bump. The next reappraisal period is 2013.

“Right now, it looks like based on the most recent information that we have, in terms of recent sales and looking our current appraisals, it doesn’t appear there will be a huge change in value overall,” Davidson County Assessor of Property George Rooker Jr. said. “Our appraisals are hovering pretty close to the current levels of sales prices.

“If we were to do a reappraisal today –– and I can’t predict what’s going to happen in the market in a year –– but assuming there’s no dramatic change, I don’t expect there to be a huge change in our property values.”



How Manning arrived at his final figures requires some number crunching.

Manning first analyzed the city’s present situation, comparing Metro’s current $1.59 billion budget to the 2008 budget. Excluding the city’s fund balance, Manning said Metro had $17 million in revenue growth during that period, and $84 million in expenditure growth. That marks a $67 million deficit, he said, which wasn’t funded through economic growth, which was notably weak. Instead, Metro implemented selected cuts and deferred debt to balance the four-year period.

“So, that’s basically my take on where we are,” Manning said.

Looking ahead over the next four budget cycles, Manning said he expects the city’s program requirements –– required spending such as city employee pay plans –– to increase anywhere from $84 million to $225 million. Adding to that figure, he anticipates $64 million in deferred debt payments, an action the council approved. That would create a “funding need” between $148 million and $289 million, he said.

Meanwhile, Manning said he expects revenue growth to range between only $34 million to $77 million between the 2012-13 and 2015-16 fiscal years, and thus he reaches the $114 million to $212 million shortfall. His projected necessary tax rate hike is made accordingly –– but he also looks at another option. 

“The other thing that comes up is, if you’re not going to have a property tax increase, how do you balance this?” Manning said. “The debt service option has pretty much already been used, so the only thing left, really, is cuts.”

Targeting those cuts, however, becomes increasingly difficult –– arguably impossible –– if the goal is to shield public schools and public safety from the consequences, which is the usual tendency, Manning stressed.

A skeptic could reject Manning’s perspective as little more than an outsider’s voice from afar, but his point of view certainly provides an intriguing backdrop as Dean begins his second term.

Dean, re-elected in August by a healthy margin against three no-name candidates, avoided a property tax hike during his four years in office, but it wasn’t without small cuts here and there. Dean did manage to fund public education to levels requested by the Metro Nashville Board of Education, though not at levels to compensate for lost federal stimulus dollars. In the years ahead, maintaining Metro government’s core services could remain tricky. The mayor indicated as much during his inaugural address in September.



The council’s Budget and Finance Committee chair Sean McGuire has reviewed Manning’s one-page analysis. He called it a “pretty compelling” argument: “If you look at his projections and his analysis, it would seem that analysis is saying we would need a property tax increase to keep the services at the level where we need to them to be.”

McGuire, who works as financial analyst, said Manning probably “has a great pulse on what a situation is.” Still, he said he’s unclear where some of the numbers originated, specifically Metro’s program requirements.  

“Certainly, it’s not a secret that we’re looking at a situation where revenues are not where we would like them to be, and expenditures are remaining constant, if not increasing,” he said. “That’s not sustainable. Your options are to either raise property taxes or to make significant cuts to continue to live within your means.”

At-large Councilman Ronnie Steine said the longest the consolidated Metro government has gone without a property tax increase is six years, noting it has been six years since the last hike.

“Much of what we base services in this community on is obviously the property tax,” Steine said. “So my sense is that clearly it’s got to be on the table, it’s got to be on the table in the near future to look at it. We appropriately, two years ago, refinanced debt through the hardest of the hard economic times. But clearly, over the next couple of years, we’ve got to begin to pay for that refinancing.

“Anyone that says we’re not going to have this discussion, I suspect in next few months, but certainly in the next year and half, I think is being irresponsible,” he said, adding that a tax hike is always a “last resort.”  

There could be a major wild card at play with a potential property tax increase. In November 2006, Davidson County voters approved a charter amendment that requires a public referendum to increase the “real property tax rate” above the rate that existed on Nov. 7, 2006, which was $4.69. That would allow a 55-cent hike without a referendum.

But legal questions linger over the tax referendum. One month after voters approved the charter amendment, the Metro Department of Law issued an opinion that said the charter amendment is not valid.

“A court is likely to find this provision of the Metropolitan Charter is invalid because the Tennessee Constitution has vested the General Assembly with the power to authorize counties to impose an ad valorem tax on property.”

On the bottom of the opinion is signature of then-Metro legal director, current mayor, Karl Dean.     

David Manning budget presentation .pdf39.19 KB

9 Comments on this post:

By: govskeptic on 11/14/11 at 6:04

What a joke for the precursor of this administration's own property tax
increase! Mr. Manning one of the least trusted Finance Directors this City
has ever had gives us his opinion/study. This was done for the purpose
of a seminar for an unnamed group? Another joke on the public, I suggest
it was done to skip a true unbiased study but as backup and enforce the
upcoming plan by Mayor Dean! Whatever the rate may become it will be
based on property appraisals that are over inflated for 1/3 to 1/2 the properties
located within Davidson County! Death and taxes (for the greediest) remains
alive, well, and truthful!

By: on 11/14/11 at 10:40

Govskeptic, I agree. Why would we want input from that guy? Surely there are more legitimate sources of information.

By: CrimesDown on 11/14/11 at 3:07

I was beginning to think the writer wasn't going to mention the most important fact. You know, the one where they can't raise property taxes unless we let them.

The following part of the article was funny.

"Dean, re-elected in August by a healthy margin against three no-name candidates, avoided a property tax hike during his four years in office, but it wasn't without small cuts here and there."

He avoided it because it's not up to him. Dean has spent our money like an arrogant pharaoh. This article and all to follow similar to it, are Deans feeble attempt to soften up the voters, hoping they will do something stupid, like vote for higher taxes on ourselves.

Karl, some of the people that voted you into office may be crazy but we aren't all stupid.

By: 742180 on 11/15/11 at 8:40

Draconian Cuts to Gov'mt??? Are our leaders not reading the news out of other cities and municiapalities? Bottom line is the amount of monies going to fund retirement of government workers (local, state, and federal) is bankrupting the systems.
Of course we need cuts, but don't make it sound like the end of the world. Let me make the cuts, the lost 'services' would never be noticed.
Consider this - The only sector of the economy who continues to 'add jobs' is Government (at all levels). And Government Jobs add NOTHING to GDP, they are just draws on GDP.
Further - In the debate about closing the Tow In Lot, it is suggested that the 29 gov'met workers would be transfered to vacant positions with in Police. If there are 29 vacant positions why aren't they being advertised for applicants?
Why, because Gov'ment never fires Gov'ment, look it up.

By: pswindle on 11/15/11 at 12:11

Diod we not see this coming? Of course, Dean waited until after the election to slap us in face with this one.

By: Captain Nemo on 11/15/11 at 12:34

David Manning is a Republican and if a Republican thinks taxes need to be raised…

By: bfra on 11/15/11 at 4:25

The headline is right! 2 cents is all David Manning's opinion is worth, if that much.

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