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.
URL for this story: http://www.memphismagazine.com/gyrobase/Content?oid=2589414
Spending $25 million on Fairgrounds, with money borrowed from city’s capital improvement fund, is putting property tax at risk. This is just like the city advancing money for Liberty Land that was not paid back. Where is the proof that Fairgrounds sales tax will pay back bonds backed by property tax? Is there a city council adopted plan for Fairgrounds? or is this something in Robert Lipscomb’s hip pocket? Even if users are to pay for improvements to Fairgrounds, where are the policy priorities over the next 5 years?
The “proof” is the independent study done by RKG that shows the amount of sales tax more than covering the $25 times six. Every one in government knew that the Libertyland money would never be paid back, so there was never any independent analysis or study.
Updates on this project have been presented several times to City Council. The plan has been adopted in concept by Council.
Again, “real” cities can walk and chew gum at the same time.
We’re not sure what your last question is asking? If it’s suggesting that City of Memphis should have policy priorities for the next five years, we agree, as long as we don’t act like the priorities are rigid. Often we miss opportunities here because our plans have no resiliency in them.
The fact seems that Memphis really does have a hard time walking and chewing gum at the same time, that seems to have been true for a very long time.
Priorities have always been screwed up
I’m glad everyone in government knew that Liberty Land would not pay back the bonds since no one in the general public knew this. I recall that we were told that Liberty Land would pay for itself (bonds & operating costs), and it didn’t.
I don’t know who RKG is. Did they measure sales tax based on the “concept plan” shown to City Council? Where is the “increment” from increased sales tax going to come from with Overton Square and Broad Ave coming up to speed. Did RKG do a market study or simply measure sales tax from square feet envisioned by Robert Lipscomb and Tom Marshall?
FH-
You might want to do a quick google for RKG. Their homepage can be found at http://www.rkgassociates.com . A description of the organization as well as other projects for which they have consulted can be found there. Also online, I found the estimated tax revenues are based on the plans presented to the city council as a result of previous studies and planning sessions. As reported by the Memphis Flyer: based on the most recent comments made before Lipscomb presented the latest proposal for a TIF district that would encompass the area, the funds created by said TIF district would be utilized to finance improvements at the Fairgrounds while also funding various other projects in Midtown including projects at Overton Square, drainage improvements within the Lick Creek basin and improvements at Overton Park.
Finegold: The same thing goes for the Fire Museum, which was never going to pay back the money city and county governments “loaned” it. Again, everyone in government knew that it wasn’t going to pay it back, but that’s not what was said at the public meetings.
Thanks, Urbanut, for sending RKG website. It’s a detailed study and it’s informed by a separate consultant looking into what sports venues make the most sense and if they would produce revenues. The most valuable independent verification of the project will come when city government hires a master retail developer who’ll be in charge of building the space and contracting with businesses. As for the TIF district, it’s to fund the Overton Square, Overton Park, and Lick Creek basin projects. The last projections we saw did not include TIF money at Faigrounds.