Knowledgebase-Setting a City'sTax Rate Before Adopting Budget

Information Product

Title:Setting a City'sTax Rate Before Adopting Budget
Summary:MTAS was asked whether a city is required to set a tax rate before it
adopts a budget.
Original Author:Hemsley, Sid
Product Create Date:10/17/2001
Last Reviewed on::07/15/2017
Subject:Budgets; Budgets--Municipal; Tax rates; Tax rates--Municipal
Type:Legal Opinion
Legal Opinion: Tax Rate and Budget public.doc

Reference Documents:

Text of Document:
October 17, 2001

Dear Mayor:

You have the following question: Is the city required to set a tax rate before it adopts a budget?

The answer is yes. [In actual practice, many, if not most, cities adopt a tax rate and budget in the same ordinance].

The Municipal Budget Law, found in Tennessee Code Annotated, 6-56-201 et seq. applies to all municipalities that do not have budget provisions in their charters at least as detailed as those contained in the Municipal Budget Law. [Tennessee Code Annotated, 6-56-202] I have checked the municipal charter for your City, and it does not meet that standard.

Tennessee Code Annotated, 6-56-207, provides that:

Except in cases of emergency as set out in 6-56-205, no levy of property taxes shall be made by any municipality unless and until a budget ordinance has been adopted and no appropriation of moneys or revenues shall be made for any purpose contrary to the estimates in the budget ordinance.

Tennessee Code Annotated, 6-56-210, does provide that where a city has not adopted a budget, “the appropriations for the last fiscal year shall become the appropriations for the next fiscal year, until the adoption of the new budget ordinance.” However, that statute does not even provide for a continuing tax rate. As indicated above, under Tennessee Code Annotated, 6-56-207, the only way a city that has not adopted a budget can levy taxes is in an emergency, as that term is defined in Tennessee Code Annotated, 6-56-205. That statute defines an emergency as “an actual emergency threatening the health, property or lives of the inhabitants of the municipality and declared by a two-thirds (2/3) vote of all members of the governing body present, when there is a quorum.”

There is a good policy reason for the requirement that a city adopt a tax rate before it adopts a budget: it helps keep the anticipated revenues and expenditures of the city roughly synchronized.

We briefly discussed the notice and hearing requirements on the budget ordinance. As I pointed out on the phone this morning, the 10 day notice must only precede the final passage of the ordinance. I have attached a copy of the notice and hearing requirements.

Let me know if I can help you further in this or any other matter.


Sidney D. Hemsley
Senior Law Consultant

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