While Mayor Karl Dean has managed to break the every-four-year cycle of raising property taxes, some Council members believe he may just be delaying the inevitable for a year.
Dean’s budget was presented to Metro Council last week and, as promised, it did not include a recommendation to raise the certified property tax rate. However, an early look at the 2011 fiscal year budget shows funding concerns that will make increasing revenues necessary in order to cover new costs and to maintain a fund balance that’s dwindling.
What’s the quickest way to do that? Property tax increases.
“I would think next year would probably be the decision-making year,” said At-large Councilman Tim Garrett.
Most of the concerns about revenue center on the Metro operating budget which will lose the nearly $14 million in revenue generated by the hotel/motel tax, which will likely disappear in order to finance the proposed Music City Center. Click here to see where that $14 million is currently used.
Among the uses for the hotel/motel tax at this time are the Farmer’s Market, the Adventure Science Center and the Arts Commission. Also, the Metro Transit Authority and the Regional Transit Authority receive a combined $2.5 million from the hotel/motel tax.
The biggest chunk goes to the subsidy Metro provides the Nashville Predators at the Sommet Center — $7.4 million.
Richard Riebeling, Metro’s finance director and Dean aide, admitted such appropriations would have to be eliminated or funded in another way. To some members, that means raising property taxes in order to fill in the gaps.
Prior to this year, Metro had raised property taxes in each property reappraisal year dating back to 1993.
Property values are up 15 percent across the county, meaning the certified tax rate will be lowered to $4.10 per every $100 of a property’s value. Dean promised not to raise the rate at a time when the recession was already hurting people’s pocket books.
With other revenues, especially sales tax, down a combined $28 million, property taxes now comprise 50 percent of the operating budget. In the current fiscal year’s budget, property taxes amounted to 48 percent of the operating budget.
“We’ve got to get this year’s budget done before we can worry about next year too much,” Riebeling said. “But I think it’s important that the Council always know that you’re thinking ahead. I don’t like to pull surprises and so it’s important to be thinking about these issues. We’re just going to have to figure out how to address them. I just don’t know what the answer will be, but we’re going to have to address them.”
Garrett admits next year would be critical for Metro Council to decide whether it continued funding many of those initiatives, although a legal contract between Metro and the Predators binds the Sommet subsidy. Garrett said the previous Council and Mayor Bill Purcell should have set aside the hotel/motel tax funds and not used them to prop up other agencies.
“Obviously the anticipation is the economy will be much better,” Garrett said of next year’s financial situation. “But using those [hotel/motel tax] funds to prop up those agencies is a one-year situation.
“I wanted everybody to know that if the convention center is approved, some of those funds, if not all those funds for all those agencies, will disappear. Unfortunately, when the convention center that’s there today was paid off, the previous administration took the funds that came available and spread it all across the budget.”
District 28 Councilman Duane Dominy offered the opinion that Council should set aside the $14 million from the hotel/motel tax this year and find other ways to fund those items in order to prepare for funding Music City Center.
“I think we should have banked it so we know how much is going to be coming in from the hotel/motel tax for the convention center and so we are prepared for how we’re going to fund those other items next year,” Dominy said.
Replacing the $14 million from the hotel/motel tax fund won’t be the only obstacle facing Dean and Council in next year’s budget. Once again, Metro is dipping into its reserve fund balance in order to fund the operating budget.
Riebeling pointed out the fund balance would dip below 4 percent this year.
Now the budget will be in the hands of Metro Council, which owns the authority to raise property taxes.
District 23 Councilwoman Emily Evans offered a rough calculation that raising property taxes by 9 cents to $4.19 would have generated enough to cover the cost of the lost hotel/motel tax revenue.
“If that money is no longer available because it’s being transitioned to a convention center, that amounts to roughly 9 cents in a property tax increase,” Evans said. “In order to get that money back and replace that money, you’ll have to raise property taxes 9 cents, or eliminate those appropriations all together.”
Also, Metro will be hit with other costs, according to Riebeling, that it did not have to deal with this time around, including an employee pension contribution payment that comes due next year, and a higher appropriation for debt service in order to protect Metro’s still strong bond rating.
With all the talk of whether the mayor of his staff should have done more to avoid next year’s loss of hotel/motel tax revenue, the general consensus of Council members is that the budget process wasn’t nearly as bad as it could have been.
“I think [the mayor] has done a good job of helping everybody where he can and keeping as level-headed as he can,” Garrett said. “When you fund schools, and you fund the fire department and you fund the police department, you’re doing pretty good.”