What happens when a Tennessee community can no longer afford to govern itself, but the state has taken away its primary means of raising additional revenue?
That is a question legislators should answer before fundamentally restructuring local government finances. Sen. Bo Watson’s SB 2074, the Local Government Revenue Stability Act, proposes eliminating most local property taxes beginning in 2031 and replacing them with an additional 4% state sales tax.
The bill has not passed and would require a constitutional amendment. Nevertheless, its implications deserve serious examination.
As a member of the Signal Mountain Town Council, I understand the competing pressures municipalities face: maintaining essential services, providing competitive employee
compensation, replacing aging infrastructure and protecting residents from unnecessary taxes.
SB 2074 could make balancing those responsibilities considerably more difficult.
A funding formula with unintended incentives
The legislation proposes using each municipality’s 2028 property tax revenues as the baseline for future state replacement payments, adjusted according to statewide sales tax revenue growth.
That creates an unusual incentive.
Municipalities that increase property tax collections before the baseline is established could receive greater replacement funding afterward. Communities that maintain lower taxes could receive comparatively less.
Because the replacement revenue would come from a statewide tax, local decisions could effectively redistribute financial resources between communities.
The legislation also fails to clearly distinguish fiscal year 2028 from calendar year 2028. If the former applies, municipal budgets beginning July 1, 2027, could establish the baseline.
That is remarkably little time to evaluate a decision with potentially decades of consequences.
Communities change, historical funding formulas may not
What happens when a municipality’s population increases by 20%? When its residents age and demand for emergency services increases? When firefighter salaries, police equipment or infrastructure costs grow faster than statewide sales tax revenues?
A formula anchored to 2028 collections cannot necessarily accommodate these changes.
There is also a more consequential concern: municipal independence.
Financial sustainability supports local self-government. Communities make decisions about zoning, development, infrastructure and growth according to the preferences of their residents.
In Signal Mountain, those decisions help preserve the character of Walden Ridge.
If financial constraints eventually make municipal operations unsustainable, communities might face pressure to surrender services or consider consolidation with larger cities.
Such mergers are not required by this legislation and would involve separate legal and voter-approval processes. But consolidation could transfer important decisions about land use and growth to governments representing much larger populations.
The loss would not simply be financial. It could be governmental.
Study first, protect local flexibility
I believe municipalities should begin preparing now, without assuming this proposal will become law.
In Signal Mountain, I would support commissioning an independent, long-term financial study examining demographic changes, employee compensation, infrastructure, service demands and alternative revenue scenarios.
I would also establish a temporary citizens advisory committee, with public meetings and a firm reporting deadline, to review the findings and recommend a responsible course of action.
Simultaneously, municipalities should engage state legislators to seek clarification, additional preparation time, protections against funding shortfalls and flexibility to respond to changing local needs.
I am not advocating a predetermined property tax increase. Raising taxes in anticipation of legislation that may never pass could unnecessarily burden homeowners, particularly those on fixed incomes.
But failing to prepare could create lasting consequences.
Tennessee should not eliminate local governments’ financial flexibility without first demonstrating how those governments can remain sustainable and accountable to their residents.
Eliminating property taxes may be an appealing objective. Preserving essential services and meaningful local self-government must be part of the equation.
Otherwise, a proposal intended to provide financial stability could ultimately undermine the independence of the communities it promises to protect.
J. Miles Jorgensen is a member of the Signal Mountain Town Council in Hamilton County, Tenn.
This article originally appeared on Nashville Tennessean: Tennessee property tax plan could put local control at risk | Opinion
