The latest revelation that Shelby County Government must borrow $125 million to meet payroll has the handwringers and the haters bashing the lame-duck mayor and blaming the Democratic leadership of the entire community. Even Bartlett Alderman and former County Commissioner, David Reaves, is digging up the bones of a decades-old idea for white suburbia to form its own county or join with another. Before they call the moving trucks, they might want to consider some history.

In 2006, when I first ran for the County Commission, a primary plank of the campaign platform was paying down the County’s $1.8 billion in debt. There were perennial issues too, like taxes, government efficiency, and public safety, but every Republican and many Democrats campaigned on reigning in the debt. In fact, A C Wharton, in his 2002 county mayoral race, campaigned on reducing the debt.

Reducing the county’s bonded indebtedness had dual purposes. The debt service, or the interest paid on the borrowed funds, had reached $139 million in 2006, or approximately .70 of the property tax rate. The obligation to pay the debt service from the general fund kept the property tax rate the highest in the state and limited spending flexibility because of the debt service commitment. The second reason is that the county was teetering on losing its AAA bond rating. Downgrading by the bond agencies would result in money being harder to borrow and more expensive. How did it get this way?

The Rout Administration

In 1994, when Republican County Commissioner Jim Rout was elected County Mayor, the county’s debt was about $716 million. Over the next 8 years, during Rout’s two terms, the county debt skyrocketed to $1.25 billion – a 75% increase.

In fairness to Rout, the population shifts to suburban Shelby County fueled much of the debt because there were not enough classrooms. The largest portion of the debt during those years could be attributed to school construction, as well as the Shelby County Jail Annex.

Rout wasn’t in it alone, either. The County Mayor cannot issue debt without the approval of the County Commission, which was majority Republican in those years. When Rout left office in 2002, the county’s budget was approximately $1.1 billion with a general fund of $490 million. The unrestricted fund balance had bottomed out at $33 million or just about 6.5% of the general fund. The Government Finance Officers Association recommends 16.7%, and many rating agencies expect a fund balance between 15-30%.

The point is not to be critical of the Rout Administration twenty-five years later, but to demonstrate how each administration is faced with its own set of challenges and impacted by the decisions of those that came before them.

The Wharton Administration

The heavy debt load and minimal fund balance of the Rout years were inherited by A C Wharton, along with an aggressive capital needs program for schools, corrections, roads, and deferred maintenance to which the county was largely obligated. In 2004, 2005, and 2007, the Wharton Administration, under the guidance of Finance Director Jim Huntzicker, issued Tax Anticipation Notes due to the timing of tax collections because of an insufficient fund balance stemming from the previous administration. Those TANs totaled $94.9 million, $81.94 million, and $30 million, respectively. I voted in favor of the 2007 TAN.

It is worth noting that Republican stalwart Bob Patterson was the multi-term incumbent Trustee (tax collector). A source of pride for Patterson was his office’s ability to collect property taxes at a higher rate than his predecessors. Yet, there was still a substantial timing difference necessitating the TANs to address the cash flow gap.

All of the notes were paid off during the same fiscal year in which the money was borrowed. When Wharton left office to become Mayor of Memphis in 2009, the Shelby County Budget was still $1.1 billion, the general fund was $520 million, and the fund balance had been restored to 15% or $76 million.

The Luttrell Administration

When Mark Luttrell became Mayor in 2010, he inherited a much more fiscally sound county government than Rout or Wharton, at least relative to the debt and the fund balance. By that point, the debt was coming down, and the capital spending had slowed. Luttrell’s administration did not issue any TANs. When he left office, the county budget was $1.3 billion, and the general fund was stable at $500 million. The fund balance had reached $100 million or 20% of the general fund.

The Harris Administration

It is true that Lee Harris swept into office with a $100 million fund balance and a healthy county budget. It is also true that no TANs were issued by the Harris Administration until 2025. However, the fund balance steadily declined to its current level of $65 million (twice what it was when Rout left office) primarily because of school funding requirements and to prop up the corrections enterprise fund that was not covering expenses because federal and state fees are too low. Then, there were county commissioners who chose to offer amendments for use of the fund balance for various projects; not sound fiscal policy, but also not the first commission to do it.

Today, the fund balance stands at approximately $65 million, or 13% of the general fund, which has remained relatively stable. That is about $15 million shy of the recommended ratio of fund balance to general fund balance – not insignificant, but absolutely achievable in a short period of time.

A Word about the Timing of Tax Revenue

For good reasons, the ability of the county to seize your property is difficult and requires clearing numerous legal hurdles. When a property owner does not pay their property taxes on time, they are considered delinquent, but they have many chances after that to pay the taxes, partially pay them, set up payment plans, and legal avenues stretching across years before their property can be seized for nonpayment. Even if it is seized, it may not be worth what is owed in taxes and interest. Some of this stems from our community’s high poverty rate, and the inability of some long-time homeowners living on fixed incomes to make the payments. In other cases, commercial interests owning multiple properties simply choose not to pay on time for cash flow purposes.

The Next Mayor

Whether the next mayor is Mickell Lowery or John DeBerry (very likely Lowery), he will be faced with a crumbling jail causing inhumane conditions, a safety net hospital in need of a new campus, untold millions in school maintenance, and a tax base that is stretched from high gas and grocery prices. It is an unenviable position. It will be critical for the next Mayor to have a solid relationship with the new Commission and to develop a partnership surrounding sound fiscal policy.

County Finance Director Audrey Tipton suggested that following the budget could prevent the need to borrow money in the future, to which Commission Chairwoman Shante Avante replied,

“This is a very hard lesson that we can’t spend what we don’t have.”

Indeed, it is.