US Property Tax Increases: The Tennessee Example

Written by: Patrick Price

The frequency of jurisdictions around the US announcing property tax rate increases has become almost a weekly occurrence of late, painting a vivid picture of the fiscal challenges faced by communities.

A daunting 30% hike approved by commissioners in Greene County, Tennessee is causing ripples of concern among its taxpayers. The move aligns Greene with several other TN counties like Unicoi, and cities such as Johnson City and Jonesborough—each recently reaching similar decisions.

The backdrop to this issue lies in a market where property values have been appreciating, contributing to a growing tax base. The lengthy bull market has also expanded the base, with significant new development and construction in most areas. However, it appears that local government spending has far outpaced this valuation growth, marking an alarming trend.

What sets Tennessee apart is that when revaluations are conducted every four years, the revenue collected cannot simply balloon due to asset value increases. The property tax rate is required by state law to be adjusted in such a way that the revaluation remains “revenue-neutral,” except for instances involving new construction.

Substantial new construction activities have indeed taken place in Tennessee over recent years, leading to a corresponding increase in tax base valuation (and thus, more revenue for its cities and counties). Beyond this natural growth from new construction, if the jurisdiction desires more revenue, it must publicly increase the tax rate.

While this system has the advantage of demanding transparency when government entities seek additional funds, it also comes with potentially far-reaching consequences. The newly implemented rates, when applied to current property valuations, will inevitably shape revenue forecasts and future-year budgets that politicians rely upon. However, when markets eventually correct and property values experience a decline — a cyclical event that’s on the horizon — this will necessitate even higher tax rates to accommodate the financial gaps.

Therein lies the heart of the issue: these elevated rates will persistently impact taxpayers for years to come, even as property values eventually rebound and appreciate over the long term. Tax rate increases should only be necessary in eras when property values are declining. Doing so in years of appreciating values signals especially difficult times ahead for taxpayers—when the values do deteriorate, and thus, even more tax rate increases are required. In general, this frequently appears to be the result of spending that is not adequately controlled rather than a revenue problem.

This cyclical nature of property taxation creates a complex and intricate web for taxpayers to navigate. As Tennessee’s property tax landscape continues to evolve, it remains essential for both policymakers and citizens alike to grasp the intricacies of this situation. A delicate balance must be struck to ensure fair and sustainable taxation, recognizing the inherent challenges that arise as property markets ebb and flow. The lessons learned from the Tennessee scenario serve as a clarion call for vigilant observation and prudent decision-making as communities strive to navigate the intricate terrain of property taxation.