Month: March 2016

Update From 3/15 Council Meeting

My TIF ordinance passed 2nd reading last night. Two veteran Councilmembers told me (nicely) that I made a rookie mistake by not taking the opportunity to talk about the ordinance so that constituents in the audience and watching on tv would have a better idea of what the new law will do.  My bad – I’ll try to talk more…

At the March 1 meeting, the Rules & Confirmation Committee deferred the appointment of Dr. Feng Li as the County Medical Examiner. The main issue was that he didn’t live in Davidson County, and the Committee wanted to know more about the efforts to recruit a qualified doctor who would live in Nashville. After the March 1 meeting, Dr. Li decided to move into Davidson County. The Committee was pleased with this commitment and approved his appointment yesterday.

At yesterday’s meeting, the Rules & Confirmation Committee deferred two nominees for the Planning Commission for one meeting. These might be the most important appointments that we consider all year, and they deserve careful consideration. I expect the nominees to appear before the Committee at our next meeting. If anyone has questions they’d like us to ask the Planning Commission nominees, please let me know.

The media covered two bills.  One was CM Glover’s ordinance that would have required the Fair Board to reserve 17 weekend dates per year for gun shows until there is either a court ruling or Attorney General’s opinion about whether the Fair Board legally can stop having gun shows.  This ordinance got indefinitely deferred under the Council’s new “Rule 24.”  Under this rule, a committee can indefinitely defer a bill – this effectively kills a bill (with a one-time chance to bring it back to life.)  To bring it back, CM Glover would need to make a written request of the Clerk to place it back on the agenda.  If he gets a majority of CMs to vote at the next meeting to bring it back, it goes back on the agenda for further consideration.

Honestly, I was surprised that the indefinite deferral procedure was used. Practically, I am not sure it makes much difference. If there hadn’t been an indefinite deferral, CM Glover would have needed a majority vote to pass the bill on 3rd reading.  And, now that it has been indefinitely deferred, it still needs a majority vote to bring it back to life.  Either way, if a majority of CMs like it, it will become law.  But setting aside the practicality, using the procedure yesterday definitely stirred up some raw feelings. I’m not sure we need that…still processing…

The other bill that got media coverage was the Lifeway incentive package.  Other than the headline, I think the Scene did a nice job of capturing the difference in perspectives.  CM Cooper was pretty bothered by the developer getting paid to provide additional park space.  His view was that Metro is paying the developer for what is essentially an amenity park largely for their future residential owners.  CM O’Connell, who represents downtown, felt strongly that the incentives were appropriate and that downtown needs green space badly. I liked what CM O’Connell said in the Scene about the Council needing to focus on long term strategy because that will create more change in the long run that trying to re-negotiate individual deals that the Mayor’s office has already made.

(The Scene headline said that this measure “sailed through Council.” I bet the folks pushing for the incentives didn’t feel that way. There was a specially called Budget & Finance Committee meeting about this on March 7 to address a list of concerns raised by multiple CMs in addition to CM Cooper. And, there was also a Council site visit on March 11 to see the site of the proposed park land purchase.)

I voted in favor of this package. It had a $2.5 incentive that went to benefit Lifeway, a 125 year fixture in Nashville that provides lots of high quality jobs and is a good corporate citizen. Compared to what Metro has done for other significant corporate moves, this is not a large incentive.  And, regarding the additional $990,000 to the developer for the park land – it has been reported that the developer told everyone, “We already gave Metro more than an acre of land for green space…we are selling this additional land to Metro at a discount because Metro has asked to get more land…we will not donate it.”  Given this, the Council either could approve the purchase of discounted park land, or play a game of chicken with the developer to find out if the developer would donate the land even though they said they wouldn’t.  I didn’t think daring them to not sell the land for a downtown park was the right choice.  This whole analysis brings me back to what CM O’Connell said in the Scene.  Citizens win the incentives game by setting the long term ground rules, and not by haggling over individual deals that have already been negotiated.

I typed this update pretty late in the evening…please forgive any typos…

“Debt Service Taxes” In Proposed TIF Ordinance

I was approached this week by a lawyer who told me he is working with one of the bidders on MDHA’s Rolling Mill Hill property. He wanted to talk about how one aspect of my proposed TIF ordinance would work. You can read more about the proposed ordinance here.

The developer’s lawyer was asking whether the “debt service taxes” part of the ordinance would be an inappropriate “curtailment” of tax increment financing. I told him no – there is no “curtailment.” This is a slight adjustment that allows Metro to better meet its own debt obligations.

What is TIF again?

To see how slight the adjustment is, we need a brief recap of how TIF works.

A developer proposes a project. Typically, the developer will tell MDHA, “We have a great project, and we can almost make the financing work, but not quite…can you help us with some tax increment financing?” If TIF is provided, MDHA will borrow money from a bank, and the developer uses the money for the project. Once the project is built, it creates new, additional property tax revenue.  The new, additional property tax is the “increment.”  The developer (or owner) then pays the full property tax bill to Metro each year.

When the Metropolitan Trustee collects the property taxes, Metro gets an amount equal to the pre-development taxes, and MDHA gets the increment.  MDHA then pays the bank loan. If there is a shortfall, and the increment is not enough to make the loan payments, it is typically the developer who will pay the shortfall; the bank that made the loan will usually demand a guaranty from the developer.

What is this new “debt service taxes” provision?

One of the knocks on Nashville’s use of TIF over the years is that, by paying all of the increment to support a small number of developments, Metro is cutting into the tax revenue that would otherwise be available to pay its own long term debt obligations. As a reference point, about 15% of what Metro collects in property taxes is used to pay Metro’s own debt. Up until now, when there has been a TIF loan, that 15% goes to pay the TIF loan instead of paying Metro’s own debt.

You can see how, if Nashville were directing a high enough amount of property taxes into paying TIF loans, it would impact the amount of revenue available to pay Metro’s own debt. We don’t have to debate whether the impact is large of small – it is undeniable that using property taxes to support TIF loans means there is less revenue available to pay Metro’s own debt.

The new “debt service taxes” provision would allow Metro to keep the portion of the increment that is ordinarily used to pay Metro’s debt. The language require that, “All TIF loans authorized by [MDHA] after the effective date of [the law] shall include provisions stating that the debt service taxes shall be retained by the metropolitan government…” At our current Metro debt service levels, this means that after the new ordinance is passed the first 15% of increment will be retained by Metro on new TIF loans.

Does this matter?

There are two perspectives to look at.  From Metro’s perspective, I think that this new provision should reduce or eliminate the potential risk that paying for TIF loans could ever erode Metro’s ability to service its own debt. We’ll be setting aside the proper portion of the increment to pay Metro’s debt. This is fiscally responsible and, in the long run, will support a strong bond rating for Metro.

It is important to look at it from the developer’s perspective too. This will include a lot of numbers – I’m sorry about that. I’m going to use the project that lawyer called me about. In the call, he suggested it would be a $400 million project. I also know that the total amount of TIF that remains available in the Rolling Mill Hill redevelopment district is approximately $31 million. Let’s assume that MDHA were to decide to use the entire $31 million for this project.  (I can’t imagine that they would ever use ALL available TIF dollars on one project…but let’s pretend.)

In order for the developer (who will have to guaranty the loan) to want that large a TIF loan, the developer would have to feel like the expected property tax increment after the project is built will be large enough to make payments on a $31 million loan. When the lawyer who called me suggested my ordinance is a “curtailment”, he was making the point that, because we’ll now set aside the first 15% of the increment to pay Metro’s own debt, there will be less money to pay that TIF loan. There’s no question that this is correct.  But if there is 15% less increment to pay the TIF loan, logic tells us that the size of the loan the tax increment can support should also be 15% less.

That would mean that instead of the increment supporting our hypothetical $31 million loan, the increment might only support a loan that is 15% smaller, or $26.35 million.  This decrease of $4.65 million would lower the overall size of the project from $400 million to $395.35 million. I think we can agree that a 1% decrease in the size of the project shouldn’t kill any deal worth doing.

Remember, I’ve used outlandish numbers and assumed MDHA would put all of its Rolling Mill Hill TIF dollars into one project. More realistically, this wouldn’t happen. My guess is that, by choosing to pay Metro’s own debt first, we are making the choice that a $400 million project might have to get done on $397 or $398 million.

For me, TIF loans are a critically important tool for redevelopment. The proposed ordinance accomplishes two important goals – we are still committed to using tax increment financing for redevelopment, while also making the choice to be sure to pay Metro’s own debt obligations first.

CORRECTION (03/10/2016): An earlier version of this post said that the Tax Assessor collects property taxes. That’s not right. The Tax Assessor assesses the amount of taxes, and then they are collected by the Metropolitan Trustee.

Notes from 3/1 Council Meeting

I want to share three things from this week’s Council meeting.

County Medical Examiner Appointment: The Rules Committee was asked to consider the appointment of Dr. Feng Li as County Medical Examiner. The Committee voted to defer its decision for one meeting. The issue was that, while Dr. Li seems highly qualified, he does not live in Davidson County.

Metro has a contract with Forensic Medical Management Services, PLC, to provide forensic pathology services for Davidson County. Dr. Li is the CEO of FMMS, and they apparently do not have any employee pathologists who both live in Davidson County and are qualified for the County Medical Examiner position. State law allows for a doctor outside the county to serve in this position if it is “not possible” to find someone in the county to accept the position.

FMMS ran a job opening announcement for 22 days on the leading national medical examiner organization’s web site, and was unable to find an interested, qualified candidate.

The Committee voted to defer because it wanted to learn more about the search for a qualified candidate who lives in the county. Also, since Dr. Li is the CEO of FMMS, I am asking for Dr. Li to comment on the April 2015 Metro internal audit of the Medical Examiner’s office. I expect that Dr. Li’s appointment will most likely be approved by the Council, but these are questions that should be answered first.

BL2016-149: Infrastructure for Lifeway Project:  This ordinance would obligate Metro to spend up to $3,490,000 for the construction of public infrastructure improvements in the area around a new Lifeway building in the North Gulch area. As part of the deal, Metro will get a 1+ acre park that is supposed to connect to our greenway system. You can see more details in the Council Agenda Analysis, at pp. 10-11. This ordinance passed on second reading after an extensive discussion.

On the one hand, I think there was widespread agreement that Lifeway is a wonderful 125 year citizen of Nashville. We were told that Lifeway provides 1,100 jobs that have an average annual compensation of $53,000, and that Lifeway generates tens of thousands of room nights of hotel bookings each year. So, this isn’t like Dell swooping into town with no track record here. Lifeway is a legit long-time interested and engaged Nashville employer.

Also, there is no tax increment financing. Metro’s obligation would be to build water, street, and other infrastructure.

On the other hand, there was several Councilmembers who expressed frustration over why this particular infrastructure project should have priority over other projects, and over why building this new park should have priority over other new parks around the city. There were also questions about whether Lifeway would really move out of the city if Nashville were to decline to pay for this infrastructure.

These are all good and fair questions, and I’m glad that Lifeway and the administration promised answers to all of them before this ordinance gets to third reading.

As I see it, there are really two issues going on here.  One issue is a completely legitimate long-term complaint – you really can’t find a prioritized list of water infrastructure projects, or park projects, anywhere. So, for example, if any district councilmember has a piece of land in her district that has been acquired to become a park, she really has no earthly idea whether it will be actually built into a park in 2017 or 2018 or 2019 or whenever.

Coincidently, at a Budget & Finance Committee meeting this week, the administration described how they intend to create such a prioritized list that would address this problem. They described that it will take maybe as long as two or three budget cycles to turn what is currently a wish list of projects into a prioritized list that will reliably let people know when a project will happen.  For now, until Metro develops this prioritized list, we will be subject to criticism whenever a new project seems to just pop up.

The second issue is whether Nashville thinks it is a good idea to pay for this infrastructure.  Is Lifeway a good investment for Nashville? Is paying for this infrastructure a better use of $3+ million than something else? I plan to keep an open mind as we receive the rest of the promised information, but my instinct is that this is a really nice opportunity to get needed infrastructure at the base of our important Charlotte corridor, obtain an important greenway connection that otherwise will not be available to us, and help build the inevitable connection between the North Gulch and Germantown.

I think there will be another long discussion about this on third reading on March 15.

BL2016-157: Tax Increment Financing:  This is the ordinance that Councilmember Gilmore and I filed to change the ground rules for tax increment financing. (previous post here)  This passed first reading yesterday. Second reading will be on March 15. I’m thankful that the feedback on this has been very positive, and that we have more than 20 co-sponsors. I’m looking forward to seeing become law.