De-annexation Equals Chaos, Not Cure 

The de-annexation bill moving through the General Assembly would have adverse consequences for city and county.

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By the time you read this, the Tennessee General Assembly may have already voted to allow as many as 10 areas of Memphis a chance to vote themselves out of Memphis.

HB 779, sponsored by Representative Mike Carter and Senator Bo Watson, both of Hamilton County, is an effort to roll back nearly two decades of land use and planning by cities all over Tennessee, including: Memphis, Knoxville, Chattanooga, Johnson City, Kingsport, and tiny Cornersville (population 1,199).

On Monday, the House passed HB779. The Senate could take action later in the week.

If enacted, the bill could put as much as 12 percent of the city's tax base in question, making an already tough budget even tougher and severely hamstringing the city's ability to plan for the future.

Addressing the bill last week, Memphis Mayor Jim Strickland said it could put Memphis in such dire straits that "forced consolidation" was a possibility. He's since downplayed those comments.

But what is certain is that the city would be put in a nearly impossible position. Nearly two decades of growth brought on by annexation could be undone by referendum, putting millions of dollars of infrastructure and service deployment in those areas in question.  

While the bill allows the city to continue to tax these departing residents for the debt incurred, it doesn't mention hard costs such as investments that didn't incur debt, including parks, streets, streetlights, police, and fire houses. It also fails to mention employment costs for sanitation, police and fire salaries, pensions, healthcare, and other post-employment benefits (OPEB) the city incurred when it ramped up services to these areas. Considering the city's financial position, there's no question that the total bill would be contested in court, a process that would be very costly and take years to resolve.

De-annexation could also make borrowing for the city more expensive in the future. Bond ratings are set by a calculation of tax collections versus outstanding debt. Fewer tax payers means fewer dollars to pay existing debt. The bill says nothing about additional borrowing costs that could come as a result of a potential credit downgrade after de-annexation.

Shelby County government would also feel the brunt of this bill if passed. The county would have to ramp up deputy patrols and fire service in the newly de-annexed areas, as well as incurring other costs, meaning an almost certain property tax hike for Shelby County. Thus far, Shelby County Mayor Mark Luttrell has been virtually silent on the possible financial ramifications of the bill for the county.

To his credit, Strickland has said that he's open to a discussion about decreasing the footprint of the city. That's a pretty brave position to stake out, considering the financial challenges that face the city and the generally negative impression that a "shrinking city" leaves in people's minds.

There is a way to do this. Just like there's a way to get divorced where the kids don't suffer too terribly, or split up a business that ultimately adds value for the shareholders. This isn't it.

Five of the cosponsors of this bill call Shelby County home: senators Brian Kelsey and Reginald Tate, and representatives Ron Lollar, Steve McManus, and Curry Todd. It should be noted that Tate lives in Southwind, one of the areas that would be allowed to vote for de-annexation.

There's no question that Memphis and Shelby County need to have a real discussion about land use and growth. Both governments need to come together to find common cause in maximizing existing investments in infrastructure and services, in addition to the ones they plan to make in the future.

While this bill may have increased the level of urgency for such discussions, it gives neither the city nor the county any tools to try and recover from the loss of tax base brought on by de-annexation. There is no mechanism to help cities revitalize older areas or help bring up property values, and by extension, tax collections to help their financial situation.

That's not what this bill is about. It's about retribution against cities for using the power of state law that is provided to expand their tax base.

If the state wants to change the way cities grow, that's very much in their wheelhouse. But their prescription must take into account the investments cities have made to provide services to neighborhoods, not just the debt. It should also give communities the tools to recover when a neighborhood that's been a part of the city for nearly two decades decides to go their own way.

Steve Ross writes about state and local policy and politics at vibinc.com.


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