After two budget seasons of pandemic surprises, there are a few more left Tuesday, April 19, as Memphis Mayor Jim Strickland takes his budget proposal to the Memphis City Council to kick off the seventh budget season of his administration.

Strickland will outline his budget proposal at the start of the 3:30 p.m. afternoon council session.

The council’s budget committee then begins deliberations on the way to council approval ahead of the July 1 start of the new fiscal year.

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Among the budget surprises expected in Strickland’s budget book are:

• A new certified or basic city property tax rate that is a penny lower than the $2.71 rate set last year after the countywide property reappraisal for taxation purposes.
• A new lower state discount rate on investments that is lower than the city’s rate of return and requires the city to adjust its rate lower, meaning more revenue from elsewhere to make up for the loss and cover the city’s pension liability.
• Accounting for the city’s share of the city and county agreement to pay the Memphis Grizzlies an estimated $45 million over the next eight basketball seasons at FedExForum.

The council budget committee begins hearings on the budget proposal next month. Council ordinances and resolutions regarding all the decisions with the budget will be presented at an 8:15 a.m. committee session.

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All but one have blanks where dollar amounts will go later as the council inevitably makes some amendments to the mayor’s proposal.

The exception is the ordinance setting the city property tax rate, which is currently $2.71.

The rate in the ordinance due for the first of three votes next month is $2.70.

City Property Tax Rate

The city is losing a penny on its property tax rate at least at the outset of the 2022 budget season based on a recalculation by the Tennessee Comptroller’s office.

The comptroller’s office notified the city last month of the recalculation to a $2.70 tax rate. If the city wants to keep the rate at $2.71 or go above it, the council would have to take a separate vote after setting the recertified rate at $2.70.

The comptroller’s office took the action after noting that the appeals allowance in the 2021 countywide reappraisal of property — the amount of money the tax base was forecast to lose because of successful appeals of property values — came in $62.1 million less than the estimated loss.

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With the allowance loss, local governments are allowed to adjust the property tax rate up to account for revenue lost in successful appeals.

The city’s $15.1 billion tax base was expected to lose $387.6 million in appraised value as property owners appealed their assessments last year.

Because of that forecast from the Assessor’s office, the city was allowed to increase its property tax rate accordingly based on a rate that is per $100 of assessed value at 25% of that value for residential property and 40% for commercial property.

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The successful appeals only came in at $325.5 million.

“The law authorizing this adjustment requires recapture of any portion of the adjustment which exceeds or does not meet actual appeal reductions in the year following the reappraisal,” reads the March 16 letter from Robin Pope, executive secretary of the Tennessee Comptroller’s office.

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Property values in Shelby County are reappraised for taxation purposes every four years to reflect increases or decreases in value.

The property tax rate is then reset and approved by the state based on those new values to produce approximately the same amount of revenue for each of the seven cities and towns in Shelby County as well as the county that was produced by the old rate at the old values.

Discount Rate

The city’s annual contribution toward its pension plan liability is expected to go up in the new fiscal year after state government lowered its discount rate, or the expected rate of return, on investments that partially fund government pension plans.

The state of Tennessee last year set its discount rate on investments lower, going from 7.25% to 6.75%, which requires a lower discount rate for local governments.

The city’s current discount rate is 7.5% and city Chief Financial Officer Shirley Ford recommended this past January that the city drop that to 7.25%.

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The drop of a quarter of a percentage point would mean the city has to make up a certain amount of what doesn’t come in from investments.

The estimate Strickland has cited is $7 million to $8 million more. Ford told council members in January it could be as low as $500,000 in the next fiscal year.

Council members are sure to get some more recent dollar estimates before acting on this specific matter.

The initial reaction of some on the council was to complain that the state could afford to drop its discount rate because of its multi-billion-dollar surpluses that local governments don’t have to cushion the blow.

FedExForum Agreement

The city’s share of the city-county payments, negotiated to keep the Memphis Grizzlies from possibly exercising an option to move the NBA franchise after drops in attendance triggered the contract option, comes to $22 million over the next eight Grizzlies seasons at FedExForum.

Because of the way city government is structured, giving the mayor broad authority to negotiate contracts, the council didn’t have a seat at the table in the talks.

The council was briefed in a private attorney-client session April 5.

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While the mayor negotiated the dollar amount, the council will approve the line items impacted to come up with the city’s portion. The combined city-county amount is $4.95 million for each of the first four years starting with the fiscal year that begins July 1 and then a combined $6.3 million for each of the next four years.

The Shelby County Commission approved a resolution for the county’s share at its April 11 meeting.

The county budget season begins next month when County Mayor Lee Harris presents his budget proposal in May 4 committee sessions.

Public safety pay raises

Strickland’s budget proposal is expected to include the latest in a series of pay raises for police and firefighters.

Strickland telegraphed a pay raise proposal in his January State of the City address but said the percentage of the raise would depend on contract negotiations this year with the Memphis Police Association.

In his six years as mayor, the pay of police officers has increased from 11.75% to 13.75% depending on the rank and experience of police officers.

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MPD has also offered one-time bonuses as well as moving expense in an attempt to grow police ranks to a goal of 2,500 officers.

Since taking office this past July, MPD chief Cerelyn “C.J.” Davis has also streamlined and accelerated the city’s hiring process along with easing some rules that the city has the ability to waive.

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Garbage and dumping

City Public Works Director Robert Knecht has told council members the city will roll out some new litter and trash initiatives with the budget proposal. Those initiatives could include an overhaul of the city’s process for dealing specifically with discarded car tires and how public works handles blight on abandoned properties.

There is also expected to be a “significant investment” in heavy equipment for public works to clean long-time dumping sites like the Wolf River bottom land near the Covington Pike exit on Interstate 40, which is used for off-road vehicles as well as dumping.

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In a March committee session, Knecht said his division has to borrow such heavy equipment from other city departments and would have its own equipment in the budget proposal.

“All they would do is illegal dumping cleanup,” Knecht said of the unit that would use the heavy equipment.

Also in the March committee session, Knecht said the city is exploring a way to get the state tire fee attached to the purchase of every tire in the state directed to the city instead of to county government.

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The city would also like to see the $1.50 fee raised and possibly the process changed that now requires the city to pay a private company for shredding discarded tires.

The city’s Solid Waste Division recently changed some of its routes as part of more changes in the curbside collection of trash and garbage at homes.

A share of state sales tax revenue

Strickland’s administration is watching closely bills in the Tennessee General Assembly that would give the city a share of state sales tax revenue. The state has kept the money for the past 20 years.

Last month, Strickland said the legislation for which the city has lobbied over several legislative sessions in Nashville was closer to passing this year than it has been in the past.

But he also said he doesn’t expect a sudden windfall if it does pass, but instead some kind of phased-in increase of the local cut over several years.

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Over several years, it could come close to making up for the $15 million in revenue the city lost over five years when the state phased out the Hall income tax — a state tax on dividend and investment income.

Strickland said last month any additional revenue from such legislation would all go toward pay raises for firefighters and police.