A Shifting Burden
As Knox County Commission prepares to pass its 20th straight budget with no property tax increase, we look at what that means for county revenues and property owners.
by jesse fox mayshark • June 6, 2019
knox county mayor glenn jacobs presents his 2019-20 budget proposal on may 1, 2019, at central high school.
When Knox County Commission meets at 4 p.m. today to vote on the county budget for 2019-20, commissioners may discuss or make changes to some parts of county Mayor Glenn Jacobs’ proposed spending plan.
During the past two decades, property tax revenues have declined as a share of the total Knox County budget.
But one thing they are almost certain not to change is the county’s property tax rate. That means the county will adopt its 20th consecutive budget without a property tax hike -- an impressive run, considering that in that time the county has added an estimated 80,000 people and built several new schools.
An analysis of county budgets going back to 2000 shows the effects of that rigorous budgeting, for taxpayers and the county government’s revenue streams.
Although property tax remains the largest single source of county funding, it has declined as a share of revenue from about 38 percent to less than a third. And adjusted for inflation, the median county homeowner is paying about 11 percent less in property taxes now than in 2000.
Meanwhile, the share of the county budget made up by state revenues -- which mostly come in the form of school funding under the Basic Education Program (BEP) -- has risen from 26 percent to 29 percent. Sales taxes have remained fairly steady at about 20 percent of total county revenues.
A Falling Tax Rate
One of the biggest differences between the proposed budget and the one adopted in 1999-2000 is the property tax rate itself.
Twenty years ago, under former County Executive Tommy Schumpert, County Commission raised the county tax rate to $3.32 per $100 of assessed value. This year, that rate will be $2.12, a 36 percent drop from 2000.
How has it fallen so drastically?
Property tax is the most complicated local government revenue stream. Sales tax is relatively straightforward: A consumer pays a set rate per dollar on each item subject to the tax. The state sales tax rate in Tennessee is 7 percent, and Knox County and Knoxville add another 2.25 percent “local option” tax on top.
Sales tax closely tracks inflation, since as certain items become more expensive, the amount of tax collected on them goes up as well.
Not so with the property tax. The tax is based on a percentage of each property’s appraised value, as determined every four years by the county property assessor’s office. Residential properties are assessed at 25 percent of their total value, and commercial properties at 40 percent.
But neither the county nor city governments are permitted to gain revenue through reappraisal. If the overall value of property in the county rises during the quadrennial survey, then the local governments have to adjust their tax rates downward so that they are still receiving the same amount of revenue as before.
What that means in a growing county like Knox, where overall property values are consistently rising, is that over time the property tax rate will drop. That makes it difficult for property tax revenues to keep pace with inflation.
Whether they live inside or outside the city of Knoxville, all Knox County property owners pay county property taxes. Those support county functions including schools, the Sheriff’s Office, libraries, the Health Department and county parks and road improvements. (City property owners separately pay a city property tax, which supports the Knoxville police and fire departments, trash collection, Knoxville Area Transit and city parks and road improvements.)
To get a sense of the effects of the falling tax rate, you could look at what the owner of a $200,000 house paid in county property taxes in 2000 ($1,660) versus this year ($1,060). But because property values tend to rise over time, it is more instructive to compare tax bills for median properties each year.
According to the property assessor’s office, in 1999 the median residential property in Knox County was valued at about $73,900. At a tax rate of $3.32 per $100 assessed, that would give it a county tax bill of $613.37.
The current median value of residential property in the county is $158,700, which at the tax rate of $2.12 will produce a 2019-20 bill of $841.11.
If you take the 1999 tax bill of $613.37 and adjust it for inflation using the federal government’s CPI calculator, it would be worth $943.11. That means the median homeowner in the county is paying 11 percent less county tax in 2019 dollars than they would have 20 years ago.
What It Means
That helps explain why property tax collection has fallen as a share of total county revenue. In 1999-2000, property tax revenue of $176.9 million made up about 38 percent of the total county budget of $470.3 million.
In Jacobs’ proposed budget for 2019-20, anticipated property tax revenue of $270.1 million makes up about 32 percent of the total amount of $853.1 million.
During the same period, county sales tax revenues have risen from $101.5 million in 1999-2000 to an estimated $174.3 million in 2019-20, a nominal increase of 72 percent.
If property tax revenues had increased at the same pace as sales taxes, they would be up to about $304 million now -- meaning an additional $34 million in this year’s budget.
The county has added one significant new revenue stream during the past two decades -- the wheel tax enacted in 2003 by former county Mayor Mike Ragsdale. It initially charged residents $6 per registered vehicle, and was raised by county voters to $36 in 2004. The rate has not changed since.
The wheel tax is primarily dedicated to funding the Knox County Public Library, with small pieces of it also going to the school system and the county general fund. Next year, it is estimated to produce $14 million, about 1.6 percent of the total county budget.