It is with a total lack of self-reflection that the Tennessee Legislature now removes the cities’ option of annexation although it was lack of courage by the legislators for half a century that drove the cities toward sprawl through annexation.

Because the budgets for Tennessee’s largest cities are funded largely by one of the most regressive tax structures in the nation, major city governments like the City of Memphis in the past acted on the feeling that they had no option to increase revenues except through the lure of annexation.

Just last week, Tennessee was reminded of the crisis that sprawl is producing for the cities of the state, but here’s betting that the Tennessee Legislature will yawn and see no culpability for a problem that is worsening under its watch.  Sadly, it seems that the productive burst of interest in smarter growth that occurred with passage of Chapter 1101 in 1998 has long ago been forgotten.

There is little optimism that the Tennessee Legislature will do anything in a serious vein to again encourage smarter growth and wiser use of scarce governmental resources.  In fact, the law to require approval of annexation at referendum by the people in the area to be annexed is a monkey wrench that in large measure destroys the machinery of Chapter 1101 and opens the door to even more legislation restricting the authority of Tennessee cities.

We Are Not Alone

The Legislature assigned the monitoring of implementation to the Tennessee Advisory Commission on Intergovernmental Relations, and in recent years, the tone has shifted from academic analysis to validating the legislative shift toward Tea Party-influenced policies.

Last week’s research from the University of Utah’s Metropolitan Research Center and Smart Growth America indicated the seriousness of suburban sprawl in Tennessee by measuring 221 metropolitan areas and 994 counties using 2010 statistics in four key areas: residential and employment density, diversity of land use, the proportion of people and businesses located near each other and measures of physical infrastructure, such as the average length of street blocks and the percentage of four-or-more-way intersections.

While the research measured MSAs, it indicates to us that in search of new revenues, cities often pursued annexations that in turn were drivers of sprawl in their regions.  The fact that it is a statewide problem was glaringly obvious with six Tennessee areas in the top 26 for sprawl:

# 3 – Clarksville

#5 – Nashville

#10 – Kingsport/Bristol

#15 – Chattanooga

#23 – Knoxville

#26 – Memphis

Cause and Effect

In other words, while we thought that sprawl was a scourge for our community, it is a negative fact of life for Tennessee’s major cities, and the consequences of this problem have failed to hit the agenda of our state legislators.

Then again, it seems to us that sprawl is the symptom and that it would be a good time for someone in the Haslam Administration or the Legislature to identify the causes by examining how state policy and tax structure are drivers of sprawl and what changes could be made to mitigate the impact on the anchors of the state’s economy – its cities.

Here’s an indicator of the depth of the problem: the land area of Chattanooga is about 137 square miles.  That’s roughly the size of Atlanta, but the population of Atlanta is 260,000 people larger than Chattanooga, or put another way, Atlanta’s density (people per square mile) is two and a half times greater than Chattanooga’s.

If there is a data point that underscores the problem, it is this one: Memphis has the highest density of the six cities on last week’s sprawl ranking.   When our brand of sprawl is the best city on a list, it says volumes about the statewide problem.

One of the Most Regressive

Soon, Memphis and Shelby County will enter yet another budget season, and once again, there will be the regular hue and cry about the tax rate, bonded indebtedness, fund balances, and the need for public sacrifice. Once again, it will largely be baling wire and gum because local government doesn’t have the ultimate power to fix what’s really wrong: Tennessee’s broken tax system.

The dilemma for Memphis and Shelby County is that they can talk about new sources of revenue, they are only short-term solutions. There is no long-term answer until a new tax structure is created to remove the present inequity and unfairness.

In a studied 51-city analysis released a couple of years ago by the Office of Revenue Analysis for the District of Columbia Government, Memphis (and by extension, Tennessee) is among the worst three cities for its regressive tax structure. In the meticulously documented report, the analysts looked at the tax burden for the largest city in each of the 50 states and Washington, D.C.  In other words, in this report, Memphis was merely a stand-in for the state’s tax structure, and it is no different for any city in Tennessee.

Put simply, our state’s taxes are regressive at their core, meaning that low-income families pay a larger share of their incomes in taxes than high-income families.

Upside Down Taxation

That’s because local government has an overreliance on property taxes and sales taxes as the primary sources of revenue, especially when compared to other governments across the U.S.   With no real options except the two primary tax sources allowed by state law, city and county governments are left with two inequitable places to go for most of its revenues.

While local efforts to expand tax sources over the years are well-intended, in the end, the current tax structure is so badly flawed that even new sources are just stopgap answers that don’t address the real inequities in the system.

The District of Columbia study analyzed the tax burden for families with average incomes of $25,000, $50,000, $75,000, $100,000 and $150,000. The assumptions for the study were that each family has four members and owns a single family home within the city limits.

The average tax burden for the 51 cities across the U.S. was 7.3 percent for families earning $25,000; 8.3 percent for families earning $50,000; 9.1 percent earning $75,000; and 9.2 percent at the $100,000 and $150,000 levels. In other words, most cities have a tax structure that is progressive, which means that it responds to a person’s “ability to pay.”

Memphis does just the opposite. The more a family earns, the less it pays. The family earning $25,000 pays 7.0 percent, right in line with the average for the 51 cities.  But, the family earning $50,000 doesn’t pay more; it pays less – 6.2 percent. A family earning $75,000 pays 6.3 percent, one-third less than the national average; and the $100,000 income family pays 5.9 percent and the family earning $150,000 pays just 5.6 percent.

Courage Is a Thing of the Past

In other words, in the higher income brackets, Memphis taxpayers are paying a smaller percentage of their income in taxes than families making less than one-fourth as much.

Tennessee desperately needs a progressive tax structure, and if the Haslam Administration is honest with Tennesseans, it would point out that the current revenue crisis in state government would be cured by a state income tax.  There was a time when a Republican governor, Don Sundquist, and Republican finance officials like party patriarch Lewis Donelson were advocates for a modern, fair tax system, and if it had been passed, the state and its cities would be in much better financial condition today.

Courage and common sense are scarce commodities on Capitol Hill in Nashville these days, but until state leaders get logical about the causes and effects of recurring local government budget crises and the sprawl of Tennessee’s largest cities that have been preordained by an inequitable tax system that left little option but to chase annexation.

If the Legislature is intent on reducing the authority of Tennessee’s cities, it should at least feel an obligation to consider hearings about a tax structure that would better serve their needs.  Instead, what we get is Senator Brian Kelsey’s latest exercise of political egotism with a constitutional amendment to prevent the state from ever approving an income tax.  What’s needed most is the kind of mature political leadership that tries to solve a problem rather than trying to exploit it for narrow political benefit.