Month: December 2016

FY2016 Audited Financials Are Out

Metro’s Comprehensive Annual Financial Report For the Year Ended June 30, 2016, or CAFR, was accepted by the Metro Audit Committee yesterday and is posted online. It’s 320 pages of financial details about Metro. Since I’m still recovering from my rotator cuff surgery, and typing doesn’t feel great, I’ll just hit a few points of interest:

  1. The auditors provided an unqualified opinion — that’s good. See pages 19-21 of the PDF. That means that Metro’s financials fairly present its financial position in accordance with generally accepted accounting principles.
  2. The auditors did not find any material weaknesses in Metro’s financials. This is good.
  3. Metro added some information about tax abatements to the Notes this year. This was voluntary by the administration — it’s not required to be included. It is at pages 153-54 of the PDF, and describes nine current real property tax abatements.
  4. If you want to read up about Metro’s long term bond debt and commercial paper program, there’s lots of detail from pages 96-110 of the PDF.
  5. Metro’s pension plans are discussed at pages 111-131 of the PDF.
  6. Metro’s other post-employment benefits (OPEB) plans are discussed at pages 132-134 of the PDF. This shows the OPEB obligations are funded at 0%.  This will bite Metro at some point if left unaddressed.
  7. There is information about our investment in roads, streets and bridges at pages 155-56 of the PDF. There’s some interesting data about how the quality of our roads and streets took a hit with the flood in 2010, but are making a comeback over time.
  8. The fact that Metro does not have a good, accurate budget for Nashville General Hospital has an impact on the audit.  At page 20, the auditors include a “going concern” note about NGH.  At page 144 of the PDF, there is more detail.  Basically, because we continue to budget about $35 million even though the real cost is higher, the audit has to say, “The Government has budgeted and legally approved an appropriation of $35 million to the Hospital Authority for the year ended June 30, 2017. The Government has also not committed to provide additional funding to the Hospital Authority should such funding become necessary.” If Metro would budget a realistic budget and NGH met the budget, we would likely eliminate the “going concern” comment about the hospital.

Feel free to email me any questions or comments.

That DWB report…

On October 25, 2016, a report entitled “Driving While Black – A Report on Racial Profiling in Metro Nashville Police Department Traffic Stops” was released by Gideon’s Army in collaboration with about a dozen other community organizations. The report claims that data from the Metro Nashville Police Department traffic stop database “…shows that ‘driving while black’ constitutes a unique series of risks, vulnerabilities, and dangers at the hands of the Metro Nashville Police Department (MNPD) that white drivers do not experience in the same way” and “…shows that MNPD’s traffic stop practices impose a severe disparate or discriminatory impact on the predominantly black and low-income communities that MNPD’s traffic stop and search regime disproportionately targets.”

These are serious claims and warrant a response from Metro.

Councilmember Erica Gilmore and I filed a resolution asking MNPD to let us know whether the data in the report is accurate, and whether there is additional data that would help put the report’s data and conclusions in context. We also filed an ordinance asking for traffic stop data to be reported to the Council annually with crime reports that are already required to be produced.

The resolution was considered by the Council’s Public Safety Committee at our last meeting (Nov. 15), and deferred. Several committee members, and the MNPD officer who was present, had not yet read the report, and I was asked by committee members to arrange for Gideon’s Army to meet with MNPD to describe the data and methodology used in the report. Both the resolution and ordinance will be before the Public Safety Committee on Dec. 6.

There have been some developments.

First, there won’t be a meeting between Gideon’s Army and MNPD. I started with Gideon’s Army and the bottom line is that they would want any meeting to be public or recorded, and I wasn’t comfortable with that request. I felt like the scope of the proposed meeting was narrow and sort of technical — just to talk about the source of data and the report methodology. I felt like the presence of a recording device would push all sides to state their formal positions and conclusions rather than focus on actually understanding the data and the methodology. Conversations about a meeting concluded with Gideon’s Army sending me a letter, copying the Mayor, Vice Mayor, and many Council members. As I have told them, I respect their position, but that’s not the kind of meeting I had in mind.

Second, despite the fact that there won’t be a meeting, it looks like MNPD understands what data was used in the report.  On Nov. 29, Chief Anderson sent me a Memorandum, and two reports (here and here). Chief Anderson copied the Vice Mayor and the Public Safety Committee on his email also. In these materials, Chief Anderson supplied the data requested by the proposed ordinance for 2015 (although there is one detail I am trying to pin down with Chief Anderson still).

I want to make sure I am clear about my purpose with the proposed resolution and ordinance. The current public narrative is that: (a) a group of 16 community organizations put out a 213 page report that looks at first blush to be pretty well annotated and footnoted, and apparently written by a variety of credentialed social scientists and others; and (b) other than Don Aaron’s comments quoted in the Nashville Scene on October 25, I am not aware of any substantive response from the Metro government.

I think it is fair for Metro (through MNPD) to respond with “that data is wrong…here is the correct data” or “that data is right, but you really need to also be looking at x, y or z to properly understand what is going on” or “that data is right, and we stand by it because that’s the natural outgrowth of our policing strategies” or something.

The resolution simply asks if the data in the report is accurate and if there is other data we should be looking at for context. And the ordinance asks for traffic stop data to be reported annually with other crime reports that are already required. We should pass this legislation.

That next $10 million…

It costs Metro more than $35 million for Nashville General Hospital to operate. The average annual cost to Metro to operate NGH has been more than $35 million per year for more than a decade.

I understand that the Hospital Authority was created in March 1999 and had a $15 million cash deficit that year. I believe that, through fiscal year 2007 (so, before the Dean administration even), that cash deficit grew to $62 million. Even though the formally budgeted contribution from Metro was in the mid-$30 million per year range at that point, there was average additional cost of at least $5 million per year through those years due to the deficits. If you dig through the Metro audits for these years, you can find all of this.

For me, it is important to note that the public’s perception about cost focuses on the idea that “it costs Metro $35 million per year to run NGH.” I would guess that political pressures on all involved going back to the early days of the Hospital Authority contributed to a popular impression that it costs Metro $30-35 million per year to operate NGH, when really – all-in – it was more.

The fact is that, for whatever reasons, more than a decade ago, the seeds were planted that created the impression that it costs Metro about $30-35 million to operate NGH. The more precise perception would have been that the formal operating subsidy was $30-35 million per year and that Metro spent more than that on average over the years once you took deficits and unpaid payables into account.

I am more interested in having the “all-in” number be the one that gets discussed publicly. I believe the Barry administration feels the same way. I think the Hospital Authority and Dr. Webb agree too. But the long-standing political ground rule that “it costs $30-35 million” is persistent.

With that as background, let me give my answer to each of the questions raised in David Plazas’ editorial yesterday.

Question: Why do we need another bailout?

My perspective is that the use of the word “bailout” is an unfortunate downside to the perception that was created more than a decade ago about the supposed cost to Metro to operate NGH. The average cost over many years has been higher than $35 million. And much of that time was before the most recent, well-documented challenges in medical reimbursement nationally.

NGH needs more than $35 million this year because it historically costs more than $35 million from Metro to operate the hospital, and because medical reimbursements are as challenging now as they have ever been.

That doesn’t mean NGH gets (or wants) a blank check. Obviously, we have to look at how the money is being spent. But I don’t think the traditional notion of “bailout” applies.

Question: Why did Dr. Webb say early this year that the last $10 million was a one-time event?

I can’t speak for Dr. Webb. But my sense is that there were at least two things he had in mind. First, I believe that it was his goal to make it a one-time event. Second, since long before Dr. Webb took over at NGH, one of our local political ground ground rules has been that “it costs Metro $35 million to operate NGH.”

I have shared with Dr. Webb that I am more interested in knowing a realistic all-in number for what it costs Metro to operate NGH – even if the number violates a long-standing ground rule by being higher than $35 million.

Question: Why did Dr. Webb say during the budget process that $35 million would be enough for this fiscal year?

I have the same response to this one. Dr. Webb will need to answer this, but I suspect that the NGH budget for this year was what I would call aspirational.  I think it was likely built to reflect what the results would be if everything broke just the right way – especially with reimbursements for medical services provided. I suspect that Dr. Webb and his team, in an effort to meet the long-standing political expectations that it is supposed to cost $35 million for Metro to operate the hospital, set budget goals that were aggressive.

Question: Why was Metro was surprised by the request? Why were Metro officials caught unawares? Why were hospital administrators not forthcoming?

On this one, I think the Finance Director can best answer the question for Metro.  For me, there was no surprise. It cost Metro $45 million to operate the hospital last year.  And the running average over more than a decade is higher than $35 million.  And lots of hospitals are having reimbursement issues. I was sure there would be a supplemental appropriation request at some point.

I understand that Metro and NGH have had regular, frequent meetings or calls to discuss budget and cash forecasting throughout this fiscal year. I think both Metro and NGH have seen the possibility of the supplemental request coming.

I suspect that NGH, through the first quarter of the fiscal year, was fully committed to the budget I am calling aspirational. I think that, after NGH closed its books for the first quarter (which would have been late October or early November), they saw the handwriting on the wall, and let Metro and the Hospital Authority know that they would need a supplemental appropriation.

Question: Why did NGH brief the Hospital Authority before the Mayor or the Council?

Two things here.  I understand that NGH did talk to Metro Finance in the days before talking to the Hospital Authority. But also, that’s the way the governance structure works.  Dr. Webb and his team report to the Hospital Authority.  As for the Council, Metro Finance let the Council know within a week or ten days about the situation.

Put all together, the NGH management team worked their budget for the first quarter. Those results show trending that will require a supplemental appropriation.  They let Metro Finance and the Hospital Authority know.  Metro Finance let the Council know.  All of that seems to have happened in a matter of several weeks.

Let me wrap up with two final points.

First, don’t lose track of some positives.  I understand that NGH has successfully dealt with all of the Joint Commission issues raised last year. I am told that, over the last two years, NGH has dramatically decreased infection rates, and the rates are now better than national averages. I believe that the medical staff morale is in a good place. These positives matter, and I think the newly re-formulated Hospital Authority will help continue the push in a good direction.

Second, and I’ll be trying to write more about this in the coming weeks, NGH needing more money isn’t the story.  That’s consistent with historic costs. The more important issue is for us (NGH, the Hospital Authority, the Mayor, the Council) to get rid of the long-standing political ground rule that it costs $35 million for Metro to operate the hospital. It’s arbitrary…it gets in the way of proper management and governance. We all need to know the actual all-in cost to Metro, and we need to be able to know that NGH has a realistic budget and can meet that budget.

(You can see what I wrote about NGH earlier in 2016 here.)