Tax & Accounting Blog

De-annexation Bill Has Big Implications For Tennessee Cities

Blog, Indirect Tax, ONESOURCE March 29, 2016

House Bill 779, which failed at the conclusion of the 2015 legislative session, made a reappearance less than a year later just as supporters promised, passing easily with a 68-to-25 vote in the House.  This bill allows a pathway for residents of certain neighborhoods to de-annex themselves through a petition referendum if the annexation occurred on or after May 1st, 1998, or “became operative” after that date.  This battle was ignited after a forced Chattanooga annexation in 2010, and has since escalated into this proposed state law which would impact 5 other cities in Tennessee as well.  Should the bill become law, only 10 percent of registered voters within annexed portions of Memphis, Chattanooga, Knoxville, Johnson City, Kingsport, and Cornersville would be needed to petition for referendum.  Then, should a simple majority vote in favor, those residents could de-annex their communities from the rest of the city.  This option would only be available until 2018.

It is far more typical to see a city expand than to downsize, which has lead many community leaders to share their concerns, including Mayor Strickland of Memphis, who views this bill as very consequential to local tax revenue pointing to the estimated $80 million in lost property and sales taxes and up to 100,000 residents.  Others have indicated that it may give outsiders wishing to do business in the city the impression that they are in the midst of an economic decline, deterring newcomers.  In response, Democratic officials in Johnson City and Kingsport have filed amendments for exclusion from these provisions.

However, it is not all city officials who oppose the bill.  Some planners have concluded that the city’s budgetary shortfalls are due to services being spread too thinly over an ever-growing area, and in fact this downsize would save the city money as residents take back control of their own communities.  As a caveat, the bill gives the option of those who voted against de-annexation to ask to be allowed back in.  In any case, the debate is only heating up as it moves on to the Senate.