Friday, January 20, 2012

What's Your Price? Half a Cent?

Posted By on Fri, Jan 20, 2012 at 12:27 PM

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Some end-of-the week thoughts about municipal school districts, paying for them, and the psychology of savings.

Warning: This post contains mathematical calculations. One of the ways consultants say suburban municipalities could pay for their proposed school systems is a half-cent increase in the local sales tax. This would push the total tax from 9.25 cents to 9.75 cents. It would require a referendum and majority approval by the voters.

Some merchants don't like this idea because it could put them at a competitive disadvantage on, say, Stage Road in Bartlett versus Stage Road in Memphis, where the sales tax would be half a cent less. This tested my mathematical skills to their limit, so I confirmed the numbers with our company accountant, who lives in Mississippi, where the sales tax is 7 percent.

On $1,000 worth of retail purchases, which is a pretty big buy in one lump but not so much over a year or so, the sales tax at a rate of 9.25 percent is $92.50, and at a rate of 9.75 percent the sales tax is $97.50, a difference of $5. Let's call that a "sandwich" worth of savings. At a tax rate of 7 percent, the sales tax is $70, or a savings of $22.50 compared to shopping in Memphis. Let's call that a "dinner" worth of savings. Our accountant says this is why she buys all her groceries in Mississippi, and sees lots of Shelby County license tags in the parking lot.

I get it but I also don't get it. Like most people, I probably have $22.50 in change in various mason jars and cans on my dresser. And I could save $22.50 cents in one weekend by not going out to dinner or to the movies. Why someone would drive out of their way to save sandwich money or dinner money is beyond me, except that I do it myself every week when I scout out the cheapest gas stations or use my Kroger card to save a whopping 3 cents a gallon. Rational creatures we are not.

If we were driven simply by the forces of taxes, I suppose we would all live in Lakeland, which has no property taxes, or in the ritzy Southwind gated community which pays no city property taxes, versus the $3.19 rate in Memphis and the $1.48 rate in Germantown. Or at least we would all heed the signs like the ones on Shelby Drive that say "no city taxes" and separate the annexed from the not-annexed. At the varying tax rates, we are talking about hundreds or thousands of dollars a year. Let's call that a "refrigerator" worth of savings.

My point, and I do have one, is that municipal school district decisions will be driven a lot more by neighborhoods, friends, teachers, school buildings, safety perceptions, test scores, and annexation prospects than by dollars and cents. Especially the sandwich savings and dinner savings of the sales tax.

The property tax is different, but not so much at the lowball rate of 15 cents that the consultants are talking about. I think that is overly optimistic, but we are at the early stage of posturing and negotiations and bluster in this process. Even if a more realistic estimate is an additional 50 cents, suburbs might well decide it is worth it. I have several friends who live in unannexed areas within shouting distance of their annexed neighbors, but they have stayed put. And Memphis, with a combined property tax rate of $7.21 plus a "one-time assessment" last year still has 650,000 residents.

Yes, I know the population trend is not good, but those of us who live in Memphis have our loyalties and our reasons, and they transcend sandwiches, dinners, and refrigerators.

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