It might be called the case of the Phantom Tax Increase: The City Council voted to add 18 cents to the city property tax rate on June 21. Then council members failed to add the 18 cents to the rate when they approved the tax ordinance. The city’s news media didn’t understand what happened and reported for about six months that the council increased taxes when in fact no increase was adopted.When they left the lengthy City Council meeting on June 21, council members and most news reporters were convinced that the council had adopted a property tax rate that included a one-time-only 18-cent increase for a total tax rate of $3.37.
All or virtually all the news media reported the next day that the council had approved the 18-cent increase or that the increase could be on the way.
However, certified and signed documents that flowed from the June 21 meeting reflect that no tax increase was adopted and that this year’s rate is $3.1889, which is a smidgen lower than last year’s $3.1957.
The tax rate ordinance with the $3.1889 rate was signed on July 5 by Bill Morrison as council chairman and on July 7 by Mayor A C Wharton. The document was certified by the city comptroller.
Morrison also signed the minutes of the June 21 meeting that were certified by the comptroller.
On the tax rate ordinance item, the minutes say that city Finance Director Roland McElrath “stated that with the one-time 18-cent increase the tax rate will be 3.1889.”
The city administration prepared and sent out tax bills using the $3.1889 rate in July and August and city property owners paid the taxes in August. Most people who keep close watch on their taxes undoubtedly noticed not only that their taxes did not increase this year, they went down a few dollars.
Whether any news reporters checked on the certified and signed tax rate ordinance or the tax bills is unclear. If they had, they would have seen in July that no tax increase went into effect.
Also, whether McElrath misspoke, was in error or properly presented the rate as $3.1889 is irrelevant at this point. Assuming the signed minutes are correct, the council members were told that $3.1889 was the rate they were voting on.
One would assume that the council members knew that the 2010 rate was $3.1957 and that $3.1889 was not 18 cents higher than $3.1957.
The minutes do not show that any council member questioned the $3.1889 figure before a majority of council members voted to adopt it.
It may have been a case where all of the council members present were “asleep at the switch” and did not notice that they were adopting a rate that was basically the same as last year’s rate.
Or they may have assumed that a motion they approved earlier during discussion of the budget ordinance had taken care of adding the 18 cents.
That motion, presented by Councilman Shea Flinn, is reflected in the minutes as “restore 18 cents to be paid into the courts for the benefit of the entity that is currently known as the Memphis City Schools for as long as they are deemed to be in existence.”
The minutes show that Flinn also referred to the 18 cents as “a one-time 18-cent assessment.”
Under parliamentary procedures, it is questionable whether the motion should have been presented during discussion of the budget rather than when the tax rate was being considered.
Whatever the case, the council adoption of the $3.1889 tax rate procedurally negated any previous action to set a higher tax rate. The council can set a tax rate only through a budget ordinance or an amendment to the budget ordinance.
The signed and certified tax rate ordinance does include within the $3.1889 rate a one-time assessment equal to 18 cents of the tax rate “to cover any potential education funding obligation.”
That is presumably the 18 cents outlined in Flinn’s earlier motion. The 18 cents replaced 18.68 cents for the benefit of city schools that was in the ordinance when the council approved it on second reading on June 7.
On Dec. 13, in response to an e-mailed query about what the council had done on the 18-cent rate increase, Councilman Jim Strickland wrote: “The council did vote for the one-time tax increase and intended to increase taxes (I voted against it), but the mayor did not issue the tax bill for the increase. Why? I don’t know.”
More Bills to Come?
It is clear that once the Wharton administration received the tax rate ordinance that was signed by the council’s chairman and the mayor and certified by the comptroller, officials had no authority to bill taxes above the $3.1889 rate.
The tax bills that went out to taxpayers clearly state that “ANY SUBSEQUENT SPECIAL SCHOOL TAX APPROVED BY THE MEMPHIS CITY COUNCIL WILL BE MAILED SEPARATELY.”
An 18-cent rate increase could still be put in place by the council. Actually, the council has the power to amend the budget ordinance at any time to raise property taxes in any amount if a serious situation develops involving schools or any other government operations.
Barring a serious financial situation occurring, it seems unlikely at this time that the $3.1889 rate will be amended.
Lest people think there is major disarray at City Hall, it is clear that Wharton’s administration knew at the end of the June 21 meeting that a tax increase had not been adopted.
At this point, Wharton and his administration appear comfortable that city government can operate this year under the adopted budget with the revenue from the $3.1889 tax rate and other revenue sources.
But it is always dangerous to consider anything to be certain.
Let’s take a look at what various media outlets reported from the June 21 meeting.
The Memphis Flyer accurately reported that the property tax rate “stays at $3.19.” The Flyer story also said “it could go up 18 cents in August depending on what courts say about the merger of city and county schools and the city’s funding obligation.” The writer did not report and probably was not aware at that time that the only way the 18 cents could be added would be for the council to come back and amend the tax rate ordinance.
A July 8 story about the city budget by another Flyer writer said that a “prolonged council stalemate” on the budget “was finally resolved with the revocation of the 2008 property tax cut of 18 cents.” The setting of the tax rate at $3.1889 at the June 21 meeting meant that no revocation occurred.
The Memphis Daily News story on the June 21 meeting said Memphis City Council members “left the city property tax rate at $3.19.” However, the story went on to say that council members “added 18 cents to the tax rate on a one-time basis with a separate resolution.” Even if the story correctly characterized the council action in adopting a resolution, it failed to recognize that the council can increase the tax rate only through the budget ordinance or a budget ordinance amendment. The adoption of a resolution does not increase the tax rate.
On June 23, The Commercial Appeal reported that the council had approved a $661 million operating budget and an 18-cent property tax increase to provide funds for city schools, making the budget total about $681 million.
Several television stations also reported that the council had approved an 18-cent one-time property tax increase.
After a meeting on Sept. 20, both The Commercial Appeal and the Daily News reported that the council had voted to reject a proposed referendum that would make it more difficult for the council to increase property taxes.
In their stories, which ran on Sept. 21, both newspapers said the rejection came just a few months after the council had adopted a one-time 18-cent property tax rate increase. As mentioned above, city property owners received and paid city tax bills in July and August that did not include a tax increase.
On Dec. 9, a story in The Commercial Appeal apparently was the first or one of the first stories in the Memphis media to report that the 18-cent property tax rate increase did not go into effect.
The newspaper story said council members in June had approved “an 18-cent property tax assessment” but that the assessment had not been levied.
The story included no discussion of why the assessment was not levied and did not identify what entity had the power to levy the tax.
The City Council, of course, is the only body with power to levy a city tax.
The thrust of the story appears to be whether Wharton’s administration might consider using funds from the “assessment” to help balance the 2013 fiscal year budget that will be discussed and adopted next spring.
On Dec. 11, two days after the newspaper reported that the 18-cent property tax increase did not go into effect, a column by another of the newspaper’s writers strongly criticized council members for granting one-time pay bonuses to city employees.
A sentence in the column referring to the state of city government finances said the city “had to raise property taxes by 18 cents” for schools.
My view is that the daily newspaper and all other Memphis news outlets that covered the story failed, in varying degrees, to inform the public adequately about the proposed 18-cent property tax rate increase.
In the interest of disclosure, for those who do not know, I am a former longtime reporter with The Commercial Appeal who was terminated in 2009 in one of the newspaper’s economic cutbacks.