Nashville businessman Jimmy Granbery is like most Metro residents who’ve been trying to figure how the “It City’s” budget hit a wall.
With property values rising and cranes dotting the downtown skyline, one could reasonably assume Nashville coffers should be brimming with extra property tax revenue to fund public schools, employee pay raises, a professional soccer stadium and maybe even a flood wall to avert another 2010 disaster.
The reality is Metro faces a shrunken fund balance, commitments to employee cost-of-living raises and an estimated $34 million revenue shortfall for fiscal 2019, the majority of it stemming from property tax reappraisal challenges resulting in less money for next year’s budget.
Making matters worse is the loss of $8 million in state education funding. Also, there is reduced revenue from the Hall income tax on investments and dividends after the Tennessee Legislature adopted a plan to phase out the state tax by 2021.
And the shortfall is likely to grow with owners of another 1,954 parcels asking the State Board of Equalization to reduce the values of their properties even more.
Some council members are floating a 50-cent property tax adjustment to make up those losses, but that would be a tough sell on the heels of the soundly defeated transit spending plan earlier this year and another mayoral election next year.
Many areas of Davidson County had their property taxes reduced via reappraisal because their values were less than the 37 percent average county-wide increase in assessed values.
The Hermitage area, for example, saw roughly a 27 percent increase in values, 10 percent below the Davidson County average. Well-developed or established areas such as West End and Hillsboro also received property tax reductions.
“In the world of metaphors, the perception is that Metro left money on the table,” says Granbery, chairman and CEO of H.G. Hill Realty Co.
Granbery is among thousands of property owners who challenged and won adjustments at the Board of Equalization level, lowering the city’s projected property tax revenue for the coming year by $26 million.
The 31-floor Fifth Third Center at 424 Church had its assessed value lowered from $94.2 million to $89 million on appeal. Other appeals are ongoing at the state level that could lower revenue even more.
— Lyle Graves | The Ledger
Still, property tax collections are expected to grow, with Metro Finance Department figures showing total property tax revenue will be $1.036 billion for next fiscal year, $15 million more than the current year’s $1.021 billion, due to new construction, new parcels, improvements and zoning classification changes.
Granberry’s Hill Center Sylvan Heights on Charlotte Avenue, for example, was valued at $60.3 million in the 2017 reappraisal but received a $2.6 million reduction from the Metro Board of Equalization on appeal. It was one of 7,177 formal appeals leading to a $717.8 million assessed loss.
Roughly 80 percent of appeals were on commercial properties, which are taxed at 40 percent of the appraised value compared to 25 percent on residential properties.
A combo development that opened in 2016, Hill Center Sylvan Heights features Station 40 for people who want to live just west of downtown Nashville, along with several retail businesses such as Double Dogs, The Urban Juicer, My New Smile, Painting with a Twist and Champagne Nails.
Those appeals before the independent board – appointed by the mayor and confirmed by the council – piled on top of more than 9,800 informal reviews at Property Assessor Vivian Wilhoite’s office, which led to an assessed loss of $190.4 million and roughly $26 million less for the Metro budget. The certified tax rate fell to $3.155 from $4.50 per $100 of assessed value in the urban district.
Granbery, whose company owns dozens of properties across Davidson and in Williamson, is far from alone in winning adjustments from the Board of Equalization. For example:
— Opry Mills had its appraisal reduced to $300 million from $334 million.
— HCA Health Services or Tristar Centennial Hospital received a reduction to $70.9 million from $81.8 million.
— Fifth Third Center in downtown Nashville got an adjustment to $89 million from $94.2 million.
The total assessed value for 2017 hit $28.7 billion, a 48.94 percent increase from the previous assessment year, property assessor’s office numbers show.
But rather than anticipating that type of loss in property tax assessments and raising the new certified tax rate of $3.155 in 2017, as is common practice after a reappraisal, Metro Council went all in on a $5.8 billion transit plan accompanied by a laundry list of tax increases, most notably on the sales tax.
The transit referendum failed miserably in a May 1 vote, and the council suddenly has nothing to show after a full year of transit debate marked by the resignation of Megan Barry, whose replacement, Mayor David Briley, is proposing a status quo budget with only $5 million in new money for education.
Briley: no new taxes
Briley, who won a May 24 vote to complete Barry’s four-year term, is seeking a $2.23 billion budget for fiscal 2019, just $22 million more than this year’s budget, without a property tax increase.
“Nashville has enjoyed historic revenue collections in recent years, but shortfalls in several areas this year mean we have to make tough decisions for the city,” Briley said in a statement before the election.
“A tax increase is not on the table, and we have to be fiscally prudent and careful with our funds. To that end, I have asked all Metro departments to tighten their belts and manage a status quo budget. Citizens expect us to manage the circumstances in front of us and keep our city on a healthy fiscal track, and that’s what we’re going to do.”
Briley’s plan calls for increasing funds to $46.1 million for Nashville General Hospital, which received a $17.7 million emergency infusion earlier this year, along with initiatives to deal with youth violence and bolster pre-kindergarten education. It also provides more money for opening and running Smith Springs Community Center, Madison Community Center and a new Family Justice Center.
The mayor hopes to prop up the budget with $38 million in public property sales and by hiring an on-street parking vendor.
His budget plan does contain $8.5 million for employee pay increases, though it doesn’t meet a three-year cost-of-living pay plan approved in 2017.
Briley’s budget also provides $10 million for the Barnes Fund for Affordable Housing and $450,000 for the Housing Incentives Pilot Program. In addition, a $9.4 million increase in debt service obligations for school facilities must be paid.
The mayor and Metro Council member Tanaka Vercher, who chairs the finance committee, both acknowledge challenges in the budget cycle but contends Metro isn’t in as much trouble as some might think.
“The fundamentals of the city are very strong. We had difficult choices to make, but we will manage through this budget cycle as efficiently and seamlessly as possible,” Briley says.
Adds Vercher: “This budget process is a little uncomfortable, but we’re going to get through it. The great thing is our financials are still sound as a city.”
Vercher says Metro is not cutting jobs or diminishing city services. Still, the fund balance, which exceeded $72 million the last four budget years, is projected to be at only $9.4 million in fiscal 2019, much less than the council’s 5 percent goal.
Numbers bite back
Vercher prefers to call this a “recalibration period,” one in which the council will have to put its priorities on fundamental services such as education, fire and police.
It’s not as if the city is in the hole, though. Revenue just isn’t coming in like it did the past couple of years. In fact, revenue is projected to increase by $87.8 million next year, compared to $121.5 million two years ago and $119.1 million for this year.
Wilhoite defends the reappraisal, pointing out it is designed to “re-establish equity, with the new certified tax rate enabling property owners in distressed areas to pay less and requiring property owners in hot areas to pay more. The office looks at income, cost and the market in determining values.
The certified tax rate is approved by the State Board of Equalization to ensure the government doesn’t receive a windfall from reappraisals. Then the new rate goes to the mayor’s office and the Metro Council, where a tax increase can be adopted no later than June of the reappraisal year.
“We are confident that there is nothing that we did to impact a budget shortfall,” Wilhoite adds.
The first-term property assessor points out real estate growth in Davidson County continues to be strong.
A property assessor’s office analysis shows Davidson County will see a 3.3 percent increase in assessed value from new growth, equating to about $29 million, mainly from new construction, new parcels, improvements and classification changes.
However, that figure can be affected by property owners’ appeals, which are allowed each year.
“There are also other decisions independent of the Office of Assessment that can impact expected revenue. As for the present shortfall of Metro’s budget, nothing in our responsibility contributed to that,” Wilhoite says.
Property tax breaks for new developments are only a small part of the puzzle with Metro approving 15 during the last eight years, three of which have run their course, and only $2 million worth of abatements this year. Over time, those are expected to yield more property taxes, with empty lots being transformed and buildings such as the Bridgestone Tower producing substantial revenue.
Wilhoite points out the five-year Metro Board of Equalization operates independently of the property assessor’s office, with appointments from the mayor and confirmation by the council.
The recently constructed Hill Center Sylvan Heights was valued at $60.3 million by Metro appraisers but got a discount of $2.6 million on appeal.
— Lyle Graves | The Ledger
Board of Equalization Chairman Derrick Starks says the group looks at one case at a time and has no way of knowing whether appraisals were too high overall. The process takes about six months to complete once the certified rate is set.
Starks notes the total amount of assessed loss at the Board of Equalization level and the city’s budget situation came as a “surprise.”
“There’s no way, as you can imagine with 7,000 cases, anybody could be keeping any type of recollection,” Starks adds. “It wasn’t anything that I would say that we said, ‘Hmm, are more people winning appeals than not?’ There’s just no way to know with all those cases.”
Starks, in fact, says he believes the board did a “superb” job of hearing the information on each case and reaching a decision.
Compared to previous reappraisal years, however, assessed loss at the Board of Equalization level was $717.8 million, a 2.58 percent decrease, compared to decreases of 1.06 percent and 1.24 percent in 2013 and 2009, according to property assessor’s information.
“There was a projected number that all this was supposed to result to, and I have no idea of the projected number or how they come about it. But evidently it didn’t match up to what happened,” he acknowledges.
From a legislative standpoint, there’s little the Tennessee General Assembly can – or at least will – do to stave off these situations. State Rep. Mike Stewart, a Nashville Democrat, says the process for property reappraisals is “baked into the system.”
“As a practical matter, I think it’s unlikely that you’ll see a legislative remedy, which would likely have to apply to the entire state,” Stewart explains. “I think the question really is one of priorities. To me, getting parents quality schools they can count on is probably the most important thing Davidson County can be doing, so I would think funding the schools properly would be the first job that we do and everything else would have to be looked at more carefully to accommodate that.”
Sam Stockard is a Nashville-based reporter covering the Metro government and the Legislature for the Nashville Ledger, Memphis Daily News, Knoxville Ledger and Hamilton County Herald. He can be reached at firstname.lastname@example.org.