Month: February 2016

New TIF Ordinance

The new TIF ordinance that Councilmember Erica Gilmore and I filed will be considered by the Council for first reading on March 1, 2016. Both MDHA and Metro Legal agreed on the text of the ordinance before it was filed. If passed by the Council, the ordinance would change the ground rules for tax increment financing in Davidson County in three important ways, and also allow MDHA’s Envision Cayce plan to proceed as scheduled.  The three changes are that Metro will get its tax revenue back more quickly, Metro will have more say in what projects get tax increment financing, and there will be greater transparency to show us how our tax revenues are being used by MDHA.

Metro will get tax revenue back more quickly

There are three provisions that will help Metro get its property tax revenue back more quickly.  First, going forward, for every TIF loan, MDHA will no longer receive the tax increment for the property after the loan is paid. Instead the tax increment will go to Metro after the loan is paid.  Second, for any new TIF loans going forward, Metro will be able to retain the portion of property tax revenue that is meant to pay Metro’s own bond debt obligations.  I think that this should reduce or eliminate the potential risk that TIF financing could ever erode Metro’s ability to service its own debt.  Third, if MDHA refinances a TIF loan to reduce its loan payments, the amount of tax increment funds it receives will also decrease – with any excess tax increment going back to Metro.

Metro will have more say in tax increment projects

There are three provisions that will allow Metro to have more control over some types of projects funded by tax increment dollars.  First, going forward, tax increment funds may not be used to support projects outside of the specific redevelopment district where the property is located without prior Council approval.  Second, going forward, if MDHA is selling land it owns in a redevelopment district, and it got that land from Metro (as opposed to federal funds), absent Council approval, the land sale proceeds must be used in the same redevelopment district or returned to Metro.  The third change is technical.  For redevelopment districts created after 2006 (i.e., Cayce Place, and Bordeaux), MDHA currently has the power under state law to collect tax increment funds for every parcel of property in the entire district.  MDHA has never exercised this power.  The ordinance would establish that Metro will only allow tax increment funds to be used by MDHA for properties that actually are being redeveloped (as opposed to all properties in the district regardless of whether they are redeveloped).

We’ll have greater transparency

Under this ordinance, MDHA will provide annual reporting about each TIF loan, including the current loan balance, the estimated maturity date, the amount paid in the last year on the loan, the parcels whose tax revenues are pledged to support the loan, and the amount of tax increment funds received by MDHA from each of those parcels.  The first report would be due 90 days after the ordinance is passed.

The ordinance will approve the Rutledge Hill land sale

In the ordinance, the Council would be specifically approving that MDHA may use the proceeds from the sale of 3 parcels in the Rutledge Hill Redevelopment District as part of the Cayce Place Redevelopment Plan.

During the mayoral and council campaigns last summer, people all over the county wanted to talk about tax increment financing, and whether it has been used fairly, or if it has been a giveaway to developers. My response was always that I didn’t think we, as citizens, had enough visibility into how our property tax dollars have been used for individual economic redevelopment projects.  My sense from the start has been that I might not have any complaint about the vast majority of Nashville’s economic redevelopment decisions over the last ten years – but I simply couldn’t tell because there hasn’t been enough readily available information for a reasonably well-informed citizen to make sense of what has been happening.  My goals with this ordinance are to help Metro get its tax revenue dollars back sooner, to give voters (through their directly-elected Metro Council representatives) more authority regarding tax increment projects, and to create thorough annual reporting about how these property tax dollars are being spent.

I want to thank the Mayor’s office, Councilmember Gilmore, the more than 20 Councilmembers that have agreed to co-sponsor this ordinance, Jim Harbison from MDHA, and Jim’s leadership team for being willing to not only talk about these issues, but agree on all of these important changes.  I am hopeful that the Council supports this ordinance.

 

Mayor’s press release (Feb. 24, 2106)

Tennessean (Feb. 25, 2016)

Nashville Business Journal (Feb. 25, 2016)

Coverage on WTVF-News Channel 5 (Feb. 24, 2016)

Last Week’s $10 Million For Metro General

I keep thinking about the $10 million supplemental appropriation the Council approved for Metro General Hospital on February 2.  Keep in mind that this is a huge budget miss – more than 10% of the hospital’s annual budget.

One of the things I do for a living is to help companies in financial distress find solutions.  Over the years, I have worked on lots financial restructurings and, regardless of industry and regardless of whether it is for-profit or not, there is a rhythm to how these things go.  Here’s how I figure the hospital’s fiscal year has gone so far based on what I read into the numbers and what the Council got told last week.

From July through the end of the summer, they must have known that their revenue was underperforming. With as little cash as they have, they must be looking at the bank account and the pile of unpaid bills every single day.  They must have known their revenue was off.

Then the fall came, and the Joint Commission accrediting people gave them $2.4mm of new problems. So, it was October-ish and they were tracking to miss the budget by $3.8mm (about 4%) for the fiscal year from these two issues alone.

Apart from these two items, they were choosing to spend money on new, completely unbudgeted strategic initiatives that will cost another $2.4mm for the fiscal year.  All of these things had to be known by October…early November at the latest.  By then, they must have been tracking to be at least $6mm short of their budget for the fiscal year.

At the Council meetings last week, we heard that the hospital approached Metro Finance just before the end-of-year holidays about the need for a special appropriation.  That tells me that, for 4-8 weeks, there likely was handwringing at the hospital about what to do about not being able to make it through this fiscal year.  When you are insolvent, time is precious and cash is king.  When management delays sharing bad news until they are a matter of weeks from missing a payroll, stakeholders end up with no choices except to pay whatever it takes, or let it shut down.

In my law practice, when a delay like this happens, it causes the people around the company to wonder whether management is capable of accurate cash forecasting.  If they are not, that is the first issue to be addressed.  If they are capable of accurate cash forecasting, then the inquiry shifts to whether the reason for keeping quiet until the last minute was a good one, or a bad one.  A typical “bad” reason might be something like spending money outside of approved budgets.  A typical “good” reason might be something like management’s extreme optimism made them think that they were about to turn a corner for the better.  Here, I’m not close enough to what happened to have a conclusion, but I suspect some of both.

I voted last week in favor of the special $10mm appropriation because having employees not get paid, or having an unplanned reduction in services, are not legitimate options.

That said, someone needs to figure out whether the hospital is capable of accurate budgeting and forecasting.  If not, they need to fix that.  If so, then someone needs to convey that it simply isn’t appropriate to run their operation this way.  Having a noble mission does not give you permission to start unbudgeted projects that are nearly 3% of year budget, or to keep quiet about dramatic budget holes until the last minute.

Metro General Hospital is an important part of the fabric of Nashville’s healthcare system. At the Council meeting last week, many of my colleagues spoke passionately about giving Dr. Webb’s new management team a chance to succeed.  I am absolutely in favor of giving them a chance to succeed – but that has to include operating within a budget, being able to predict what cash flow will look like more than a handful of weeks in advance, and not getting surprised by Joint Commission reports.  I’m looking forward to having the management team report back to the Council a few meetings from now so we can learn more about the direction they are headed.