Strategizing a Path to Prosperity

THE PROBLEM

This month, the Oak Ridge City Council will establish your property tax rate for 2014 via the approval of our annual city budget. And though it appears that taxes will remain flat, our excessive spending levels are unsustainable and continue to hinder our ability to compete with surrounding communities.

In spite of all the new developments happening as of late, if council approves the budget as proposed, residents and businesses will continue to feel the financial crunch for quite some time. Not only will we retai n one of the highest property tax rates in the state, but we’ll also retain one of the largest per capita debt levels in the region. (At nearly $7,000 per person, we have more than four times that of Knox County residents and over seven times that of City of Knoxville residents). A dozen more chicken places and grocery store relocations won’t make a dent in the average Oak Ridger’s bills.

If we are to make any kind of progress, we need a strategy that aims to increase revenue while reducing expenditures. This column will focus on increasing our revenue base. I will address budgetary inefficiencies and waste in a follow up piece next week.

SOLUTION #1: Convert City-Owned Assets into Taxable Properties

We must first examine our existing assets to distinguish those which produce the highest benefit to the taxpayer from those that do not. The City of Oak Ridge’s most valuable assets are contained within some 17,000+ acres of non-DOE land.

Of that land, the city owns approximately 150 parcels, many of which contain neither schools nor city facilities and are clearly more of a liability than an asset to the taxpayer. If we were to sell some of them, we could apply the profit to our debt and use the perpetual new property taxes to reduce everyone’s property tax rate. None of the following suggestions would reduce our 3,448 acres of greenbelt and parklands; on the contrary, one might argue that such actions would help to preserve those areas.

The most obvious first choice is to sell the golf course. The city borrowed $7.3 million to build it in 1998 and we still owe over $4 million. Even if we had to sell it at a loss, we’d realize an immediate annual savings of $500,000 of debt service payments that we would otherwise continue paying through 2021.

As I’ve stated before, the city should also cancel its lease with the Chamber of Commerce and sell our land. According to chamber president Parker Hardy, they pay the city roughly $600 per year to lease the land and “the building will become the city’s should the lease not be renewed.” Given that it is one of the most prime pieces of real estate in town, I’m tempted to personally stick a For Sale sign on the corner and see what kind of response I get.

We also own a vacant building in Commerce Park similar to a $1.5 million building located next door. To my knowledge, it produces neither rent nor any other form of revenue. Allowing it to continue to sit empty is unacceptable.

Finally, the city has accumulated a number of residential properties through a blight acquisition program. Instead of sitting on them indefinitely via a land bank or turning them into community gardens as some have suggested, let’s put them up for auction the day after the properties are razed and return them to a taxable status.

SOLUTION #2: Eliminate Tax Abatements

In addition to city owned land, there are another 300 parcels that produce little-to-no revenue for the city because of their tax-exempt status. Data is limited because appraisals are not done on most exempt properties. However, the data that does exist suggests that the value of the non-church properties could easily range from $200-$300 million.

At least $100 million of that exempt property is owned by for-profit businesses that have received tax abatements from the Industrial Development Board (IDB) via their Payment In Lieu of Taxes (PILT) program. The purpose of this program is to boost our competitive advantage and, in turn, boost our economy. However, these arrangements may actually be eroding our tax base.

The selling point of most PILTs hinges on a promised increase of jobs which are projected to bring in millions of dollars in residual revenue from the new employees. The annual reports of about 10 companies show that only 35% of those jobs have materialized and very few of the employees live in our city.

It’s time that the city re-examine this program. That $100 million, if taxed at the full commercial rate, equals at least $1 million in property taxes. That $1 million, if fully realized, is the equivalent of eleven cents on the tax rate. Why not make all of Oak Ridge more financially competitive via a property tax reduction instead of picking and choosing winners?

SOLUTION #3: Alleviate Forced Subsidization of Nonprofits

Exempt property owners, their employees and their patrons receive many of the same services as their non-exempt contemporaries. Our police and fire departments are obligated to respond and assist regardless of whether or not those in need pay for their services. The use of our roads and parks are unrestricted. Visitors and residents alike can walk into our local library and read to their hearts’ content. In other words, those who pay the full tax rate are subsidizing those who do not.

There is a partial solution to this inequity found through a different type of PILT than the one Oak Ridge has typically used. Cities across the country have successfully negotiated voluntary PILTs from exempt entities such as hospitals, universities and cultural nonprofits. Boston has proven to be the most successful so far. Their city website reports that for 2010, they collected $14 million from universities and hospitals and another $17 million from miscellaneous foundations and organizations.

The notion of collecting PILTs from nonprofits is likely not without precedent in Tennessee since our laws specifically address such agreements. TN Code Annotated 67-5-209 allows for an exempt hospital to “agree to the payment of tax equivalents to the creating or participating governing authority…” Shouldn’t those with the ability to pay do so?

Conservative estimates indicate that there are hundreds of millions of dollars’ worth of untaxed property whose nonprofit owners may be both able and agreeable to similar arrangements. Consider Methodist Medical Center, Oak Ridge Utility District, Tech 2020, Roane State Community College (to whom you recently donated an additional $500,000 to expand their campus) or the University of Tennessee properties. Given their benevolent missions, wouldn’t they want to pay their fair share? We won’t know if we never ask.

TURNING IDEAS INTO ACTION

When Oak Ridge loses or gains revenue, so do our host counties. Mayor Terry Frank recently called for the exploration of “new ways of increasing revenue” and “partnering with organizations to meet these challenges.”  The City of Oak Ridge should accept her invitation and also engage Roane County officials in order to identify and convert our shared underperforming assets, examine the necessity of continuing with the IDB program and negotiate for remuneration from those nonprofits that can afford to pay for some of the services they currently receive at the taxpayer’s expense.

I have instructed our city manager to include these three initiatives on our agenda for the May 13^th city council meeting. I am hopeful that my fellow councilmembers will acknowledge the excessive financial burden that has been placed on our constituents and will be open to taking the necessary measures to alleviate that burden. As with all of our meetings, I will post the results and votes on my website, trinabaughn.com.

Likewise, I ask you, our citizens, to make your voices heard. Change won’t happen overnight, but, with your help, it will happen. Contact your elected representatives, submit your own ideas to the papers and attend our meetings. Email addresses for all can be found at cortn.org and ortn.edu. I can be reached directly at trina.baughn@gmail.com. Together, let’s ensure a viable, prosperous future for our Oak Ridge!