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Comparing Cities Tax and Fee Burden

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By James Bourey
March 14, 2022

Most all of us have heard local government elected leaders tout the city’s low property tax rate to their citizens and others they may want to encourage to move there. Of course, local government managers know that it takes revenue to provide quality services to citizens, and having a low tax rate is not necessarily a good thing for the community. Let’s leave that issue aside for the purpose of this column. Simply using the tax rate as a measure of the cost of government for residents and businesses is misleading at best. To really understand the cost of government, one needs to examine the total cost of all taxes and fees imposed by a community. For instance, some cities fund their solid waste operations through the property tax and others through user fees. The same is true for stormwater services. To compare the cost of government from one city to another requires an in-depth analysis of all costs, as well as a sound basis for making the comparison. This column describes an approach to making valid comparisons of the tax and fee burden of cities. This methodology is described in a book I authored which was published in January entitled, A Guidebook for City and County Managers; Meeting Today’s Challenges.

In order to produce an apples-to-apples comparison between cities, there needs to be a basis for equating the costs. From late 2019 to early 2020, I worked as part of a consulting team on a project examining the financial condition of Metropolitan Nashville and Davidson County, Tennessee (Metro). The clients were the Nashville Chamber of Commerce and Board of Realtors. Part of the project entailed comparing the cost of Metro to six peer cities. We used a methodology that compared their tax and fee burden with these other governments. This took into consideration all locally levied taxes such as property, sales and hospitality taxes and all fees such as water, sewer, solid waste, storm drainage and electricity (not necessarily imposed by the government). As a basis for comparison, we used a fairly typical single-family household. We selected a house value that was the average price for the community. We made a reasonable assumption about the income of the household. We also made assumptions about the amount of gas, water, sewer, stormwater and electricity that would be consumed by that household, as well as the amount of goods and services which would be purchased. In doing this analysis we felt we needed to include state taxes as well. Tennessee does not have an income tax but some of the other states did and pass some of this revenue down to the localities. In addition, the client wanted an overall view of the competitiveness of Metro and if raising taxes would put it at a disadvantage.

Using the values described above, the amount of taxes and fees paid by this typical household was then computed. We used the same assumptions for calculating the taxes and fees for the peer cities/counties. The result was a typical cost for each community. In order to illustrate the type of results, please see the annual tax and fee costs for this typical household in all the cities shown below:

Nashville               $7,462

Austin                  $10,900

Charlotte             $10,900

Denver                 $ 8,870

Indianapolis       $13,911

Jacksonville         $8,958

Louisville            $11,921

Of course, there are limitations to any such comparison, as conditions in the cities can vary significantly. I take issue with much of the benchmarking I see cities do. Comparisons such as the cost of road maintenance is a great example. I rarely see all the factors that can affect the cost taken into consideration. The original type and construction of roads differs greatly. The weather plays a major role in the need for maintenance. The freeze/thaw cycles of some cities is brutal on the road conditions. It is similar with comparing the cost of local government services, because taxes and revenues provided at the state level can vary tremendously. This will affect not only the cost to that typical household, but also the amount of other revenue that the city receives. Nevertheless, the comparison of tax and fee burden described in this column does provide the best approach for localities to compare themselves with other similar jurisdictions.

As a city and county manager in many locations, I have had to make recommendations on taxes and fees for each annual budget. Due to a variety of circumstances, I have actually never recommended a property tax rate increase. However, that is a bit misleading since I have always taken advantage of increased valuation of property which resulted in more revenue. In addition, I have almost always recommended increases in user fees to account for the increased cost of doing business. Thus, every budget I recommended to the council took into consideration that the cost of doing business was increasing. In order to be totally transparent in the budget presentation, we always showed the impact of the taxes and fees on the homeowner. After all, it is about more than just the property tax rate.

Author: James Bourey served local government for 37 years, including as a city and county manager and regional council executive director. He also worked as a consultant to local government for another six years. He is the author of numerous professional articles as well as the books, A Journey of Challenge, Commitment and Reward; Tales of a City/County Manager and A Guidebook for City and County Managers: Meeting Today’s Challenges.

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