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City appears against tax decrease

With new money pouring into city coffers thanks to successful litigation against the county, will McMinnville officials lower city taxes?
The city stands to gain an estimated $26 million over the next 25 years after a favorable local option sales tax agreement with the county.
However, some city officials are reluctant to embrace the idea of a tax decrease.
“The reason why I would be hesitant to recommend taking part of the sales tax recovery and decreasing city taxes comes back to the fact that if we reduce city taxes it won’t be too long before we will have to raise them,” said Alderman Ken Smith. “People are not going to remember taxes were lowered. All they are going to remember is they were raised.”
The statement was made Tuesday night during a joint meeting of the city’s Parks and Recreation Committee and Finance Committee to discuss future capital improvement projects. Smith’s plan calls for using sales tax recovered from the county to pay for the projects.
Vice Mayor Ben Newman asked about lowering property taxes in the city as the county raises its taxes.
“Conversely to that, we could possibly look at giving some of that tax back,” said Newman. “We spoke about this. We know county taxes will have to go up. I don’t see how they won’t.”
Consideration for lowering the city’s property tax rate as the county increases its started after city officials decided to challenge the county over local option sales tax that was given to the county in 1969.
Negotiations between city and county ended with a phase-out agreement in which the county agreed to return 4 percent of the city’s local option sales tax each year. Compounded annually, the city will receive 100 percent at the end of the 25-year agreement.
If projected numbers stay unchanged, the county will return around $80,000 the first year, $160,000 the second, $240,000 the third year, etc. After 25 years, the city will receive the entire portion of its local option sales tax annually.
“We do live in the county and we have to look at this,” said Newman. “If the county taxes go up, that impacts the city. Do we need to look at putting in that cushion. If the county taxes go up, maybe the city taxes need to go down.”
The county celebrated its 10th straight year without an increase in property taxes in 2012. Smith says he disapproves of the streak, because not raising taxes slowly will result in a much larger increase.
“I thought when I was a commissioner that we had, pretty much, gotten it through everyone’s head that you don’t do them a favor by not raising taxes,” Smith said. “You need to raise your property taxes a few cents a year, because you have a cost-of-living increase, period. And, by doing that, you can avoid the 25-cent or 50-cent increase.”
Smith says he prefers a policy of a small yearly property tax increases in order to avoid a larger one-time increase.
“I would much rather go ahead and raise city property taxes 2 cents a year,” he said. “I’m just throwing out a number. To just get in the routine of ‘well, it’s up 1 or 2 cents’ and avoid a 19-cent tax increase.”
When the country went through an economic downturn, city officials had to cut expenses and increase property taxes by 55 cents over three years in order to avoid a financial deficit.
“You know you didn’t make me very happy in those years,” Smith said to city administrator David Rutherford. “If it had been 2, 3, 4 cents, I wouldn’t have thought about it. At 55 cents, even I thought about it.”
Mayor Jimmy Haley says people understand a small cost-of-living increase.
“Some of the taxpayers have told me they understand a cost-of-living increase,” said Haley. “If you say, ‘All right we are going to do a built in, cost-of-living increase each year of 2 percent, 3 percent, 2 cents, 3 cents or whatever’ they understand that more than reducing them and raising them back again, reducing them and raising them back again.”
Haley added, “Or making some blanket statement that we will reduce our taxes to match their increase and then, five years down the road have to raise taxes to pay for even the smallest of projects.”
Officials are considering capital improvement projects that cost under $10 million. Projections place the return of $26 million in sales tax revenue over 25 years. Smith says the extra money could be used elsewhere.
“If these numbers are anywhere close to correct and you go out 25 years, you will have collected $26 million, which we can use on capital improvements or other things if we have to,” Smith said.
Newman said, “I see what you are saying. It makes sense.”
A 2-percent increase in the property tax rate generates approximately $90,000 a year in revenue for the city, while a 2-cent increase in property taxes amounts to approximately $40,000 a year.


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