Metro Pulse/Insights/Tax base growth

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by Joe Sullivan

The 7 percent increase in city property taxes recommended by Mayor Victor Ashe for the fiscal year ahead follows on the heels of a 20 percent increase in Knox County property taxes last year and a 10 percent increase in city property taxes the year before. For city property owners in particular that adds up to a 37 percent increase in their taxes in these years. And it raises the question whether local government can continue to live by taking more bread off taxpayers' tables alone.

The answer to that question is clearly no. But with the city still in search of a funding source for infrastructure to support massive downtown development plans and the county ever in need of more money for schools especially, the question becomes where else to turn for additional revenues?

Political foes of higher taxes have long postulated (or postured) that spurring economic growth will grow tax revenues enough to obviate or at least abate the need for tax increases. Along with creating new jobs, more industrial, commercial and residential development will augment the property tax base and boost sales tax collections, they contend. While this contention has become a somewhat tired refrain, it deserves a fresh look in relation to the recent spate of property tax increases.

This look reveals that tax base growth in the Knoxville area has, in fact, lagged behind the other metropolitan areas of the state in recent years. Consider:

* Assessed valuation of property in Davidson County and Shelby County grew by more than 40 percent between 1994 and 1998 whereas Knox County growth was slightly less than 30 percent. (Hamilton County lagged behind at 24 percent).

* Sales tax growth of just under 20 percent in Knox between and 1993 and 1997 (the most recent year for which state data are available) trails all of the other metropolitan areas and, more surprisingly, the statewide average. If Knox had just matched the statewide average increase of 26 percent over this period, it would be yielding more than $5 million a year in additional sales tax collections—enough to cover a 3 percent annual increase in Knox County teacher pay.

So why is the Knoxville area falling behind in these and other measures of economic vitality (such as growth in per capita income) and what can be done about it? There are no easy answers to these questions.

Growth has no doubt been retarded by downsizing at each of the three legs of what used to be regarded as the three-legged stool supporting the local economy: Oak Ridge, TVA and UT. The demise of Whittle Communications and Levi Strauss' Cherry Street plant, with its 2,000 jobs, have obviously hurt as well.

Yet, paradoxically, unemployment in Knox County is at an all-time low of 2.4 percent—so low that numerous job openings at all skill levels are going unfilled. The flip side of this robustness may be that labor force constraints have contributed to the county's lack of success in landing any new industry or other major new employers. Not since 1996, when PBR Automotive picked Knoxville for an $85 million, 400-job manufacturing plant, has a new plant located here (though several existing ones have expanded.)

Meanwhile, the Nashville area, despite its own tight labor market, has attracted the likes of Dell Computer and Hewlett-Packard with thousands of new high-tech jobs.

The Knoxville Area Chamber Partnership was formed two years ago with much fanfare to strengthen the area's economic development efforts. But partnership quickly became a misnomer for the relationships between the various entities (the Chamber of Commerce, the Convention and Visitors Bureau, the Downtown Organization and the Knox County Development Corp) that were supposed to be folded into it. Indeed, the new entity spent much of its first year seemingly embroiled in tugs-of-war over control of its component parts. These have largely been resolved in favor of restoring or preserving the autonomy of the CVB and the Development Corp. But meanwhile economic development efforts—at least as measured by recruitment successes—appear to have suffered.

The chamber's president, Tom Ingram, can now point to recent successes, such as the Continental Airlines maintenance facility that's going up at McGhee Tyson Airport and the Marriott Corp. accounting center to be located at the conjunction of Pellissippi Parkway and Topside Road. Each will create several hundred new jobs, and many of these workers can be expected to live and shop in Knox County. But even though the chamber was very much involved in the site selection process, both opted to locate their new facilities in Blount County.

Ingram espouses a regional approach to development that puts a premium on collaboration among his counterparts throughout the nine counties in the "One Vision" zone—of which he's a big proponent. Ingram also has a holistic approach to development that puts a lot of emphasis on enhancing the business climate by making the Knoxville area a better place to work and live and by improving communication among all segments of a diverse business community as well as fractious political bodies. But meanwhile the Development Corp is undertaking a 175-acre expansion of its Eastbridge Business Park and has also just acquired a 155-acre site for a new business park in North Knox County. Its hierarchy's emphasis is on getting a master recruiter who can match up to a Phillip Fulmer in landing prospects to fill this space and thus augment both employment and the Knox County tax base.

If economic development chieftains need to be more mindful of tax base issues, so do segments of the population that tend to view development as a dirty word. The prospectively $500 million Turkey Creek "power center" that's displacing West Knox woodlands, for example, is spurned by its critics as the epitome of sprawl. Yet a $500 million increase in the tax base alone would yield a 4 percent increase in Knox County's property tax revenues and nearly double that for the portion of the development that's within Knoxville's city limits. Indeed, if just the $130 million first phase of the development that's now under construction had made it onto this year's tax rolls, the resultant revenues would have covered a big part of the $4.3 million Mayor Ashe is seeking via a 19-cent property tax increase.

It's true that rampant growth, especially residential growth, can add as much or more to government costs as it generates in revenues. But all of the rapidly growing counties surrounding Nashville have solved that problem by imposing what are known as impact fees on developers and thus avoid hitting the taxpayers at large.