MauryTHINKS

The City of Spring Hill has requested an advice be given for getting out of the previously passed referendum to require the citizens approve of the Board of Mayor and Alderman increasing (or creating) a property tax.

The University of Tennessee has a Municipal Technical Advisory Service, which gives legal advice on how to get out of, how to enforce and how to deal with municipal legal issues.

They provide services for almost every city within the state of Tennessee.

The response to their inquiry about a possible loop-hole is as follows:

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March 31, 2008

The Honorable Board of Mayor and Aldermen
City of Spring Hill
199 Town Center Parkway, P.O.B. 789
Spring Hill, Tennessee 37174

Dear Board of Mayor and Aldermen

The University of Tennessee’s Municipal Technical Advisory Service (MTAS) has reviewed Resolution 03-24 establishing a taxpayer’s bill of rights for residents of the City of Spring Hill, Tennessee. The resolution contains provisions requiring that any property tax rate increase shall be placed before the taxpayers by means of a public referendum and that any budget surplus created by excess revenues in the general fund shall be returned to the taxpayers in the next fiscal year by means of a property tax rate reduction.

In reference to a public referendum, the Tennessee Supreme Court has held that “The right to hold an election does not exist absent an express grant of power by the state legislature.” (See Brewer v. Davis, 28 Tenn.208 (1848); McPherson v. Everett, 594 S.W.2d 677, 680(Tenn.1980). The Tennessee Attorney General’s office has consistently concluded under those cases that referenda are elections for which there must be statutory authorization (Op. Tenn. Atty. Gen. No. 86-146; 95-013). The following referenda are authorized under Tennessee law:

o The issuance of general obligation bonds.
o Liquor sales (package sales) or selling alcoholic beverages for consumption on premises.
o Annexation.
o Local sales tax option.
o Adoption or surrendering the general law mayor-aldermanic charter, manager-commission charter, or modified manager-commission charter.
o Creating an emergency communication district.
o Recalling a city official if the charter provides for recall.
o Adoption of home rule.
o Popular election of the mayor in manager-commission chartered cities.
o Consolidation of city and county governments.
o Increasing the number of commissioners from 5 to 7 for cities with a population greater than 20,000 incorporated under the uniform city manager-commission charter

There is no express authority from the state legislature or the city charter to conduct a referendum on the approval of property tax rate increases in Spring Hill. This resolution provision is inconsistent with the provisions of state law.

Article II, Sections 28 and 29, of the Tennessee Constitution and TCA Section 67-5-101 give cities the authority to tax all real and personal property, unless state law provides an exemption. Again, the resolution requirement for a referendum to set the tax rate is inconsistent with constitutional provisions and state law. The Board of Mayor and Aldermen clearly has the authority to levy a property tax if it chooses to do so.

The property tax is the mainstay of municipal revenue for nearly all Tennessee cities. (Some small cities make no levy). All Tennessee cities have the authority to set the next fiscal year tax rate at a level that would decrease the level of property tax revenues or at some other level as determined by the governing board; however, it is essential that reserves be established to meet the increasing costs for new streets, maintenance of existing streets, public facilities, schools, recreation, solid waste disposal and other infrastructure needs associated with the cost of growth and development. In order to fund future needs, reserves may need to be accumulated over a period of several fiscal years. In a 1992 Growth Impact Study of Rutherford County, Tennessee, a study of 100 new residential homes indicated that for each $1 of new revenue generated from new homes, $3.33 in expenditures is required for increased services and infrastructure needs. While this may or may not be the case in your city, there is often a future cost associated with growth and development and reserves need to be maintained to meet future service and infrastructure needs.

Most Tennessee cities levy a property tax in conjunction with other more elastic revenues to fund needed services and capital costs. While it is an unpopular tax, it provides a stable source of revenue for a city, especially in a growing community. The state now requires that newly incorporated cities must charge a property tax at least equal to the amount of state shared revenues that would be distributed to the city as a condition for incorporation. It appears that this is in recognition of the need for a stable source of revenue to pay for the increasing costs of operation and infrastructure needs.

It is the opinion of MTAS that Resolution 03-24 is invalid and that the board of mayor and aldermen has the authority to establish and set a property tax levy for the benefit of the city, regardless of any resolution to the contrary.

Please let me know if I may be of further assistance in assessing the use of a property tax levy as a stable source of revenue for the future.

Respectfully Yours

Ron Darden
Municipal Management Consultant