We can forgive taxpayers for their confusion about tax policy and tax uses when discussions at Memphis City Council do more to obfuscate than illuminate.
Based on The Commercial Appeal’s Amos Maki reliably accurate reporting, we are told that Councilman Kemp Conrad said that Memphians would not support improvements to the Fairgrounds, demolition of the Mid-South Coliseum, and purchase of a Jumbotron for Liberty Bowl Memorial Stadium when police cars should be a higher priority.
We’ve commented before about our local tendency to say no to choices that are ultimately false and that great cities known how to walk and chew gum at the same time. We have to have the courage to invest in the frame for economic growth and in police cars. And it shouldn’t be an either-or choice, because successful cities have both.
We wrote last week about the lessons that we should have learned from Nashville’s success as it blew by us economically, and a main one was its ability to act boldly, think courageously, and exhibit a self-confidence that it deserves the best and that it can deliver it on many fronts at the same time.
But leadership requires the consent of the governed, and that’s the real problem with so many discussions in the halls of government. We expect the politics, because it is the nature of the beast, but elected officials should also use their political constituency to inform and educate us to the complexities of public taxation and the facts about different kinds of taxes.
In the real world, the choice isn’t between police cars and Fairgrounds improvements, because if Memphis never spent another dollar on the Fairgrounds, it would not free up more money to spend on public safety because the taxes that will fund the Fairgrounds are state taxes that will be “captured” for Memphis through the Tourism Development Zone. In other words, it is not property taxes that are used to pay for capital costs like new police cars.
For us, this funding is the best of all worlds. At a time when Memphis couldn’t ever get this myopic state legislature to give us anything resembling our fair share of state revenues, we can take the state sales taxes collected inside the zone of the Tourism Development Zone and pay for improvements without spending any city tax money. It’s a largely untold story that the Wharton Administration should be crowing about – and so should the Council for that matter – because it has created a way to do something bold and without it costing Memphis taxpayers any money.
The following is the City Journal column in the January issue of Memphis magazine on this subject:
They’re seen often in comments to online news stories and heard on talk radio: Memphis is going to spend $110 million on The Pyramid and Pinch District, so it should instead use that money to pay the $57 million it owes Memphis City Schools, or the $250 million to build FedExForum should have been spent on fixing roads and schools.
It’s a rare Memphian who can make heads or tails of taxes. Then again, it’s a rare City Hall employee who can, either. But here’s what many people don’t understand: The costs of The Pyramid and Pinch District are being paid by state sales taxes and can only be spent in the convention center area, and the money used to pay for the arena can only be spent on it.
Nothing about government is quite as confusing as taxes, but the basic rule is that they are neither interchangeable nor always what they seem. Some taxes can only be used for specific purposes, and costs of operations are altogether different than costs of capital projects.
There is one thing that everybody knows: The biggest source of money for city government comes from taxes paid by all Memphians and companies who own real estate. Conventional wisdom to the contrary, Memphis’ property-tax rate is not skyrocketing. It’s the same that it was back in 1993.
The second-largest source of money for city government is sales taxes collected every time something is purchased in Memphis — 7 percent of the purchase amount goes to state government and 2.25 percent is split between schools and city government.
It’s the 7 percent Tennessee sales tax that is being rebated to city government to pay for $110 million in improvements to The Pyramid and Pinch Historic District. They are part of the Tourism Development Zone (TDZ) approved by state government. There’s another TDZ at the Fairgrounds, where state sales tax will be returned to city government to pay for the development there.
To complicate things, the cost of the Bass Pro Shop at The Pyramid and the Pinch District retail stores is a capital expense, so it will be paid by bonds. The yearly cost for $110 million in bonds is about $8.8 million, and because it’s coming from state sales taxes, it cannot be spent for schools or anything outside the TDZ.
A similar state sales tax rebate collects the sales taxes from the sale of tickets, concessions, and merchandise at the games of professional sports teams. This funding is being used to pay off the bonds that financed FedExForum and AutoZone Park construction. The tax rebate can only be spent for professional sports facilities.
We pay numerous other taxes like wheel taxes, gas taxes, and beer and alcoholic taxes, most of which go into the general fund to be spent on city services. Another one, the hotel-motel tax, is paid by people staying in Memphis hotels. It can only be spent on specific uses, primarily convention center construction and the Memphis Convention & Visitors Bureau.
Finally, Tax Increment Financing (TIF) collects increases in city and county property taxes in specific districts to pay for roads, sidewalks, and other infrastructure. There are only two TIF districts: Uptown and another one created for the Highland Row project near the University of Memphis.
Most people know about the payment-in-lieu-of-taxes (PILOT) program that freezes property taxes at the amount of the unimproved property. For example, if a company buys an empty lot and erects a new building, it only pays taxes on the lot for a specified period of time. Memphis and Shelby County have handed out more tax freezes than all metropolitan areas of Tennessee combined, but less known are the PILOT payments made by Memphis Light, Gas & Water Division to the City of Memphis.
These are just a few of the taxes collected by Memphis government, so it’s little wonder that people are frequently confused about why the money spent on some big-ticket projects can’t be spent to build schools or fight crime, or why $100 million for construction isn’t the same as $100 million for operations.
Even if they wanted, city and county governments could not legally redirect revenues paying for The Pyramid or FedExForum to schools or the police department. The Wharton administration says that more and more, city government will have to come up with innovative ways to pay for big projects so property taxpayers don’t foot these bills; however, for a super-sized project like a new $500 million convention center, it won’t just take innovation. It’s likely to take magic.
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