September 4, 2006

Latest Attack on Nashville Property Tax Referendum Proposal Falls Flat

The Tennessean continues to attack the proposed Nashville city charter change that would give voters referendum power to approve or reject property tax rate increases. The latest salvo: a Gail Kerr column pointing out that even if voters approve the charter change, some property owners' property taxes will still increase every four years, thanks to state-mandated citywide property reappraisals. And Kerr is right - but she presents only part of the picture. She writes:

Frustration leading to this vote bubbled up because Nashville mayors have passed property tax hikes on top of reappraisals. It's kind of a sneaky way to make the tax hike not look so bad, and it's killing people in hot real estate markets. They got hit with a double whammy tax hike.

In a nutshell: Metro must, by law, reappraise every property every four years to make sure it is listed on the tax rolls at fair market value. Cities aren't allowed to raise more revenue during a reappraisal. So the property tax rate is adjusted down to account for all those homes that went up in value.

"If the average value increase was 25 percent, but your home's value went up by 40 percent, then your property tax bill will be higher," Cardwell explained.

But what Kerr doesn't tell her readers is that property owners whose property value increased LESS than the average would get a tax CUT thanks to the reappraisal process. And that's fair - property taxes are a flat rate based on property values, so if my property value increased faster than yours my tax bill ought to rise relative to yours.

If you read between the lines, Kerr's attack on the proposed charter change actually helps supporters of giving voters referendum power over property tax-rate increases. For, although she doesn't come right out and say it, Kerr's column admits that the city of Nashville will still see property tax revenue rise even if voters never approve another rate increase. Here's why: People continue to build new residential real estate - homes, condos, apartments, duplexes and such - and commercial real estate - industrial buildings, stores, office buildings, etc. - in Nashville. Each one of them adds to the tax base. And as re-appraisals every four years result in a lower tax rate, Nashville will become an increasingly attractive place for people to invest in real estate, whether by building or by buying existing properties. The result of that is easy to predict: Demand will drive up both prices and supply, which means higher property values in existing properties, more new properties being added to the tax base - both generating more tax revenue for the city without a property tax rate increase.