Heavy Lifters

Property taxes are increasingly paying the cost of government.



Property-tax payers, brace yourself.

Your share of the tax load is increasing, and it will get heavier if present trends continue and some new proposed tax-break policies are put in place to fight the war on blight downtown and the war on empty space in eastern Shelby County.

There are 280,756 residential parcels in Shelby County (and 25,925 commercial and industrial parcels). Their owners pay a combined city and county property tax rate that ranges from $3.79 in Lakeland, which has no city property tax, to $7.02 in Memphis, which has the biggest in the state. The rate in Nashville, for comparison, is $4.58.

In 1996, Shelby County got 50 percent of its revenue from the property tax. Now, the property-tax share is 62 percent. There is no reason to think that number won't keep climbing when the city of Memphis and Shelby County adopt their budgets later this year. As Flyer political columnist Jackson Baker reported last week, Governor Phil Bredesen is dead serious about cutting state revenues to counties. Shelby County currently gets 12 percent of its revenue from the state. The federal government's share, also likely to decrease due to the war in Iraq and the cost of fighting terrorism, is only 3 percent.

Meanwhile, two expanded tax-incentive programs are in the works or have been approved within the past year.

One, via the Memphis and Shelby County Industrial Development Board (IDB), gives tax freezes to existing unoccupied offices and warehouses. Under the old rules, tax credits could only be given to companies that occupied new buildings. But speculation and overbuilding by developers in the 1990s created a surplus of empty space in so-called second-generation buildings.

The other, via the Center City Commission, would create a "tax-increment financing" district, or TIF, in much of downtown and part of Midtown. The theory of a TIF is that public investment sparks growth in the area that wouldn't have happened otherwise. The additional tax revenue that comes from the growth is dedicated to pay for the public improvements specifically within the TIF instead of mixing with general public funds.

So far, so good. But the history of tax incentives in Memphis and Shelby County for the last 20 years or so has shown that incentives tend to become entitlements. In other words, they are taken for granted and handed out generously to the deserving and not-so-deserving as Applicant A scrambles to keep up with Applicant B and so on.

If the second-generation principle catches fire in the suburbs, there could be a parade of lawyers and developers seeking tax breaks from the Industrial Development Board to level the playing field with competitors. The board, it should be noted, has recently shown signs of toughening its standards to punish or deny companies that promise more jobs and benefits than they deliver. But it's too early to say whether or not the liberalized second-generation incentives will work the way they're supposed to.

The Center City Commission, on the other hand, can more accurately forecast the success of the proposed TIF district. The future "growth" in tax revenue is already in the cards. It comes in the form of expiring tax freezes that were granted 15-25 years ago. When the Rivermark, for example, starts paying property taxes, it's not exactly new growth. The building, once a Holiday Inn, is nearly 40 years old. The owner's tax freeze has simply run its course.

Incentives have their limits. The Sterick Building and other abandoned, once-prominent office buildings and much of the Main Street Mall have defied 25 years of downtown revival. And, with the exception of AutoZone, subsidies have not lured a single large corporate employer to downtown.

Instead, the result has been a mixed bag of prizes, ugly ducklings, and oddities in the Center City Commission's real estate inventory. Also, the "center city" boundaries extend farther than you might think. Properties getting tax breaks in the name of downtown redevelopment include Malco's Studio on the Square in Overton Square, the Applebee's restaurant at 2114 Union Avenue, a Church's Fried Chicken at 925 Poplar, and a cluster of 20 apartment buildings in the 2200 block of South Parkway East.

In all, according to Chandler Reports, there are 254 properties to which the Memphis Center City Revenue Finance Corporation holds title. They include The Peabody and Marriott hotels, several apartments on Mud Island, the Morgan Keegan and AutoZone office buildings, various restaurants, and some eyesores. Their total appraised value, according to the Shelby County Assessor's Office, is $538 million. The property taxes on that would be $15 million a year if they were on the tax rolls.

Two big-ticket downtown public projects -- the FedExForum and the expansion of the convention center -- are not being paid for with property taxes. Their financing comes from several sources, including tax surcharges on hotel rooms, rental cars, event sales, downtown entertainment, and state government. With those sources tapped out, the property tax is left to pay for everyday public expenses such as police protection and schools.

Few people would trade the downtown of 20 years ago for the downtown of today, just as no one would deny the explosion of growth and wealth in eastern Shelby County. The question for policymakers is whether the same thing can be said of other parts of the city and county that don't directly benefit from incentives. And when is enough enough?

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