Two Cents

It’s been a busy couple of weeks of budget talk in Knox County.

First, Knox County Schools put out their proposed budget. You can read about it here in the local media. The Knox County Schools page also has some info. The headline is about $4.4 million in cuts, including some job losses, furloughs, and a huge cut in the allocation of money sent to the schools for supplies and materials.

Then Mayor Jacobs announced his proposed budget on June 1. He put out a video highlighting various things, good and bad, in the budget. And he definitely wanted to make sure you know that there is no tax increase in the budget. It’s right there in the title of his YouTube video. The Mayor described the budget as “not pretty.” He said this is an “unprecedented situation.” He said the last couple of months were “anything but normal.” But he also wanted to make sure that we all remember his pledge during his campaign not to raise taxes.

Oh, yeah, he also said that he wants the Commission to approve this budget with the understanding that it is a working document. He said they may come back to the Commission multiple times over the coming fiscal year to seek to amend the budget. If their projection of sales tax revenues proves to be too conservative, then they can come back and perhaps undo some cuts. Likewise, if things get worse, he might also seek to amend the budget down further. In this latter situation, it didn’t need to be said, but clearly, based on the Mayor’s pledge, he would seek to fix things with more cuts, rather than consider any tax increases.

The Commission had their first public meeting on the budget on June 15. I was there to watch and I also spoke at the public forum part of the meeting. I followed three different speakers who were advocating for fully funding the schools. One of the speakers also mentioned the question of why property taxes aren’t on the table. It was the perfect setup for the remarks I had prepared.

I’ll throw the actual remarks I gave at the end of this piece, but here are the questions I raised and the points I made.

As I said above, the Mayor has described the situation as not pretty and unprecedented. He presented a budget that he tried to portray the budget as a shared sacrifice. Except, since he’s bound himself to this pledge of no tax increase, property owners seem to be excluded from that sacrifice.

I pointed out that property values in Knox County have gone up over the last 20 years and Tennessee has a certified tax rate law that says local jurisdictions can’t increase their revenues because property values go up. So, as a result, property tax rates have to go down. In the last 20 years, the property tax rate in Knox County has gone from $3.32 to $2.12 per $100 of assessed value. It’s gone down 120 cents.

I also pointed out that the Mayor’s budget document says that one cent of property tax equals $1.274 million in revenue. So, if you were to raise property taxes from $2.12 to $2.14 per $100 of assessed value, you would gain an additional $2.5 million in revenue, which could be used to offset the decline of revenue from sales taxes. If you own a $200,000 home, that would mean your property taxes would go up $40 annually. And, obviously, if you own a more expensive home, it would go up more.

My proposal would be to do the two cent increase in property taxes and let that extra revenue go to fill some of the holes in the Knox County Schools budget. I’ve made the same pitch in the answer to some questions from the Knoxville Focus (which I’ll write about later) and on Renee Hoyos’ Knittin’ and Politickin’ Facebook Live show.

I also asked the question in my comments whether it might also be appropriate to dip into the rainy day fund further to make sure that the Schools are taken care of. I suggested that the Mayor says these are unprecedented times and, maybe, that’s the exact use for a rainy day fund.

After I finished my comments, the Commissioners called up various officials to discuss the issues we four speakers had raised. There were a lot of excuses for why the rainy day fund couldn’t be touched. On property taxes, they noted that they projected the same amount of revenue this year as they did for last year. Even though there is more property on the rolls, because of the economy, they project they’ll have a harder time collecting.

I’m going to give some credit to Commissioner Larsen Jay, but maybe I’m damning him with my praise, since he’s a Republican. He was the only Commissioner to raise the question of why we are dependent on sales tax revenues, which are subject to the vagaries of the economy, to fund our schools. He didn’t come out and ask the same question I’m asking – why are property tax increases off the table – but he was in the ballpark.

I’ve said before, but it bears repeating. I think it’s irresponsible to make a pledge not to raise taxes. You never know when you’re going to face a global pandemic and have the economy shut down for two months. If you make that kind of pledge, you’re tying one hand behind your back. And, as the executive of a pretty big county, when things get tough, you’re stuck with using cuts or taking on debt to fix things.

The Schools budget is the biggest and most important part of our county budget. To my mind, it should be the last place you’re looking to cut corners. The Mayor shows what his true priority is when he allows huge cuts from the Schools just because he’s ideologically inclined to stick to a pledge which just hurts everyone in the county.

On the Facebook Live with Renee Hoyos, I was asked what would be the one thing I will want to take with me onto the Commission. I have a number of issues that I care about and which I think need to be addressed in the short term. I’m for Reasonable and Responsible Development. The lack of transparency at the KCSO. But I think the Schools is going to have to be my first priority. The Mayor says they may come to the Commission multiple times to amend the budget. I hope it means sales tax revenues are better than expected. In that case, I will advocate for the Schools to be first in line. But if the Mayor comes back and wants to amend the budget down, then I’m going to raise this issue again. It can be two cents or whatever level we can all agree on. But this is discussion that needs to happen. Under the Knox County Charter, the Commission has the power to adopt and amend the budget. And the Commission is not bound by the Mayor’s campaign pledge.

It is not lost on me that being the candidate in favor of a tax increase can make it hard to be elected and reelected. This is why I don’t expect this Commission to come anywhere near this idea. I also know that my opponent has pledged the same as Mayor Jacobs not to raise taxes. I wouldn’t blame him if he tries to hit me on this. As a matter of fact, I note that he’s added a post to his campaign Facebook page describing himself as “fiscally responsible.” At the end of the day, one of the main tenets of my campaign is to be transparent and stand for transparency in others when it’s called for. I’m for fully funding the Schools and I would raise property taxes in order to do that. You, as a District 4 voter, know where I stand on this issue. I think that’s important.

Mr. Chairman/Commissioners

The Mayor in his video announcement of the Knox County budget described this budget as “not pretty.”  He says the last couple of months have been “anything but normal.”  He also described this situation as “unprecedented.”

The Mayor said there is some good and some bad in the budget.  And maybe the sense of this budget is a little bit of shared sacrifice.  Some items maybe stay the same as last year.  But many items get a little cut here and there. 

So First, look at the Schools part of the budget, which has some serious holes.  To the tune of about $4.4m.  It looks like they’re cutting 20 jobs.  They say they’re saving $700k on 5 day furloughs.  There’s a $1m cut from school allocations that supplement costs for supplies and materials.  And they’re reducing funding for professional development plans.

To me, the schools part of the budget is not only the largest chunk of knox county’s budget, but it’s the most important.  To my mind, this Commission should seek to amend the Mayor’s budget to fill in those holes from the Schools budget.

And it seems to me you can do it one of two ways.  The first option is to draw down the rainy day fund some more.  Now here’s where you can maybe answer questions for me.  In his video, the Mayor said that they would be drawing down the rainy day fund by $3.7m and that would leave 3 months of operating funds.  There’s a chart on page 38 of the budget document which seems to show the rainy day fund from 2008 til now.  And if I’m looking at the right chart, that means that the rainy day fund was at about $39m in 2008 and got up to $68m in 2019.  The proposed budget would take the rainy day fund back to about $62m this year.  If I’m looking at the wrong chart there or misunderstanding, I hope the Commission or the Mayor can explain.  But if that chart does reflect the rainy day fund over the years, I’d like some better explanation for why more of that can’t be used to offset the current $4m cut.  I mean, we’re calling it a rainy day fund after all.  When you describe the situation as not pretty and unprecendented and you say you might need to come back for multiple amendments to the budget over the course of the fiscal year.  That feels pretty darn rainy.

Of course, we don’t really need to touch the rainy day fund if it can’t possibly go below $62m.

There’s another way to fix this.  You raise property taxes.  Yeah, I know the Mayor’s got this pledge not to raise taxes.  But how about some reality here. 

The mayor’s budget document states that 1 cent of property tax is equivalent to $1.274 million dollars.

In the last 20 years, property values in Knox County have gone up, but Tennessee has something called the certified tax rate law.  This says when your local property assessor says your property is worth more, that can’t mean that the county gets more revenue from you.  So the property tax rate has to go down to compensate.  

So, in Knox County over the last 20 years, the property tax rate has gone down from $3.32 to $2.12 per $100 assessed value.  In different terms, It’s gone down 120 cents.

So Here’s my two cents.  Pun intended.  Increase the property tax rate from $2.12 to $2.14 and use those funds to fill in the holes in the school budget.  That’s about $2.5m.  Maybe let the teachers have their professional development funding back.  That seems like an important thing to help attract and keep quality teachers in Knox County.  Or how about you put back that $1m for supplies and materials so that schools aren’t having to scrimp and run fundraisers and teachers aren’t having to pay for things out of their own pockets.  Or maybe 20 people don’t have to lose their jobs.

So, just 2 cents.  If you’ve got a $200,000 house, that’s an extra $40/year if my math is right.

This Commission is not bound by the Mayor’s pledge not to raise taxes.  It says in Sec 2.01 of the Knox County Charter that the Commission has the legislative power to amend the county budget and fix all county tax rates.  I think this Commission should do just that and send that extra money to the Schools.  

Published by Todd Frommeyer for Knox County Commission

Retired Air Force JAG, former Navy Russian linguist, former consumer financial regulator, political junkie

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