An Open Letter to Nashville About Property Taxes

If you follow local politics in Nashville–or just live here and pay attention to where your tax dollars go–you are no doubt familiar with the argument we have been engaged in the last few years about property taxes. Are they too low? Should they be raised? If so, by how much? Or would doing so undermine economic development that’s been fueling the city’s growing tax revenues? What about equity–would a tax increase disproportionately impact lower-income households and accelerate displacement?

Most growing cities like Nashville, especially those in states with low tax burdens, are having some form of this debate. COVID-19 has changed the conversation a bit, but the fundamental issues underlying the debate are still there. For the uninitiated, here’s a primer at WPLN with links at the bottom to related articles for background on the situation here, or check out this recent story in the Tennessean if it’s not behind the paywall. Or, head over to CM Mendes’s website and search for posts on the budget or property taxes and you’ll find more details available there.

Many, many details.

To illustrate, there’s a slide you can count on being in nearly every budget presentation to Metro Council or the public, showing Nashville’s relatively low property tax rate compared to other large cities in Tennessee. Here it is from this year, with the proposed rate for next fiscal year:

Last year:

The year before:

The year before that:

You get the picture. Even before the historically low rate of $3.15 went into effect it was still lower than other large cities in the state.

But does that mean it’s “too low?” Well, that depends on your budgeting philosophy and general outlook on the role of government–something I’m not going to get into here because somebody will inevitably fire back with something along the lines of “government should budget like a household” and I just can’t do it right now. We can have that ridiculous argument when we’re not all wearing protective masks anymore, if you’d like.

What I do want to point out, though, is how limited a view that slide from the budget presentation provides. It’s not inaccurate or misleading; it’s just incomplete, at least in terms of how most people think about taxes. Here’s another way to look at it, with some more context:

At the median, households in Davidson County paid $1,861 in real estate taxes in 2018, third highest in the state behind households in Williamson County and Shelby County. For a household in an owner-occupied unit earning median income of $60,856, that’s 3.1% of income going to real estate taxes, second highest in the state behind Shelby County.

So, just because the tax rate in Nashville is low compared to other places doesn’t mean that the tax burden on residents, and particularly middle to lower income residents, is comparatively low here as well. In fact, they are already facing a combined state and local sales tax rate that ranks among the highest in the country.

And that brings me back to the slide in the budget presentation: Why look at only cities in Tennessee? After all, if we are going to entertain the notion that raising the tax rate could hurt our competitiveness in economic development, we should consider where we rank nationally, with particular attention paid to our competitors for jobs and private investment. We can’t get a complete accounting of Nashville’s competitive standing here without information on taxes paid by households and commercial entities, but this is a start. Maybe the Chamber or another local business association can fill in the gaps during the budget debate at Metro Council.

At the median, real estate taxes paid by households in Nashville are low compared to most other large counties. In 2018, only 20 of the 140 counties with populations of 500,000 or more had lower median real estate taxes paid compared to Nashville. Here’s the list:

Nashville’s relatively low property taxes stand out even more among the nation’s fastest-growing local economies. Forty-four large counties have averaged at least three percent real (inflation adjusted) GDP growth on an annual basis since 2010. Of those counties, Davidson ranks fifth according to the lowest median real estate taxes paid by households, behind Maricopa (Phoenix), Utah (Provo), Oklahoma (OKC), and Tulsa. There were only two other counties with median real estate taxes paid of less than $2,000 in 2018, in suburban areas of Atlanta and Denver.

You would have to ask somebody at the Chamber which regions Nashville competes with most often for projects, but I assume Atlanta and Denver are on that list. Oklahoma City may be as well, but its economic drivers are much different than Nashville’s core industries. You also may have noticed in the table above other regional players in Nashville’s orbit, including the Jeffersons (Birmingham, Louisville), Greenville, and, to a lesser extent, Guilford (Greensboro).

So, if you can fill out this picture with taxes paid by commercial entities and the story doesn’t change much, which I’m guessing is the case, then there’s an argument to be made that raising property taxes may hurt our competitive standing in the region from a cost perspective. However, I don’t believe we are anywhere close to a tax rate that would significantly change Nashville’s most important economic development asset: human capital attraction and retention. Median real estate taxes paid here are considerably lower than places like Charlotte (-21%), Raleigh (-34%), Dallas (-47%), and Austin (-70%).

Yes, that’s correct, 70%. I couldn’t believe it either.

As you watch and hopefully participate in the budget debate over the next few weeks, decide what sort of local government you think we should have in Nashville, even during a crisis. We can do better than clickbait rankings and talking points from special interests. Metro Council is in a tough spot, largely of our own making some would say, but that’s way too convenient and, at times, self-serving for the people pointing fingers. I can’t claim to be completely objective–or above reproach, if you prefer–here given my time at Metro, but I think it’s more than fair to say that our debates about the “right” level of taxation have been lacking in some crucial perspective.

City budgeting is not like a household or a business, and while we’re at it, next time you hear somebody claim that renters don’t pay property taxes please do yourself a favor and just turn around and walk away. Trust me, it’s not worth it.

The “right” level of taxation can only be determined by the community’s willingness to fund what we believe should be the city’s priorities and that will only happen when we are ready to have an honest, inclusive, and data-driven conversation about the pros and cons of doing things like raising the tax rate–and admitting publicly what we know, what we don’t know, and what we probably can’t know about the consequences.

Otherwise, we’re left with the budget slide, the loudest voices in the echo chamber, and an incomplete picture. Nashville deserves better.

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