Month: April 2017

Unfunded OPEB Obligation Going Over $3B in 2018?

Between now and the end of June, the Metro Council will approve our budget for the 2018 fiscal year. Before we get too deep into that process, it is worth remembering where Metro stands on its financial obligations to Metro retirees.

The financial obligations to retirees have two components – pension obligations and what is called “Other Post-Employment Benefits” or “OPEB.” The OPEB component is the health insurance coverage that Metro retirees have.

Metro has never set aside any money for the OPEB obligation. Instead, each year, Metro pays for the post-retirement healthcare obligations out of operating funds for that year. At the end of FY16, actuaries calculated Metro’s total unfunded OPEB obligation at $2.79 billion. There are several points to make about the unfunded OPEB obligation.

First, it is an enormous number. In fact, it was 1.4 times the entire Metro budget for 2016.

Second, this number has been growing rapidly. Back in FY12, the unfunded OPEB obligation was $2.23 billion. This means that, during Nashville’s historic growth from 2012 to 2016, the unfunded OPEB obligation grew by just over a half billion dollars ($560 million).

Third, there has been predictability in these numbers for the last 5 years. In both FY12 and FY16, the unfunded OPEB obligation was 1.4 times the Metro budget. The main takeaway is that, for every $100 Nashville has been able to grow its revenue/budget over the last 5 years, our unfunded OPEB obligation has grown $140. This is probably Metro’s worst financial statistic.

Here is a chart that shows Metro’s budget, unfunded OPEB obligation, and the OPEB obligation as a percent of the budget for 2012 to 2016.

I did the same analysis for the pension obligation. Here’s the chart for that. For the pension, there is money set aside already, although not enough to cover all future obligations. For the pension, the accountants calculate the “net pension obligation.” To do this, they look at how much money is set aside and then make some assumptions about inflation and how much money Metro will earn on the invested funds. Based on this data and assumptions, they calculate how much the shortfall will be over the long run. And that “net pension obligation” is how much Metro should anticipate having to pay for all current and former employees in addition to what is already set aside.

The good news is that the net pension obligation numbers are much smaller. For FY16, the net pension obligation was $401 million (or 20% of the FY16 Metro budget). That’s a big number, but manageable compared to the $2.79 billion unfunded OPEB obligation.

On the chart, you’ll see that it looks like the net pension liability quadrupled from FY13 to 14. But there was a complex accounting rules changes that went into effect that year, which forced the net pension obligation to be calculated differently. Since the rules change, the net pension obligation has ranged from 14 to 20% of the Metro budget.  So for every $100 that Nashville has grown its revenue/budget over the last 3 years, the net pension obligation increased by just under $20.

It is hard to put just the right context on numbers this large — especially the $2.79 billion unfunded OPEB obligation. I mean, panic isn’t the right response. But, Metro does need a serious plan for addressing the trend lines. The Mayor just proposed a $2.21 billion budget for FY18. If that 1.4 multiple holds true, the unfunded OPEB obligation will go over $3 billion in 2018.

Math is hard

For the 2017 fiscal year, Metro’s general obligation bond debt service was either 10.1%, 10.85%, or 11.35% of the budget — depending on what document you look at.

According to the 2017 Budget Presentation given a year ago, it was 10.85%. See page 17.

According to the 2018 Budget Presentation given a few days ago, it was 11.35%. See page 35.

According to the Council Director’s analysis for our meeting two weeks ago, it was 10.1%. See page 2.

It seems like there are different methodologies being used to calculate a single metric. These numbers really aren’t too terribly different, but there is a roughly 10% swag factor depending on which of these is correct. I’m working with the various Metro folks involved trying to understand the differences.

Jackson Law – rubbish or not?

Last November, CM Nick Leonardo introduced an ordinance for Nashville to adopt the State’s “Jackson Law.” If adopted, the Jackson Law would require new and expanding landfills to be approved by a Metro Council ordinance before a state permit could be issued. The legal and policy ins and outs of this proposal are complex. I don’t really have a good reason, but I have put off getting fully up to speed until the bill reached 3rd reading.

Now, 3rd reading is scheduled for May 2. So, I spent the time to learn what I needed to learn. I have decided to support adoption of the Jackson Law. I am going to let you read the ordinance on your own. Council Director Jameson has also provided deep analysis — you can go herehere, and here and search for “Jackson” to see what he has to say. Metro Legal Director Cooper has at least one memo about the Jackson Law also. I am going to run through the major differences. For each issue, I’ll let you know whether I think the existing law or the proposed Jackson Law is better policy for Nashville.

More vs. Less Factors For Council To Consider: Existing law: (1) allows the Council to consider only one factor — location; (2) if the Council’s decision is challenged later, it is easier to uphold; (3) in addition to the Council having one reading, the Board of Zoning Appeals would need to have a public hearing; and (4) there is no way to avoid the Commissioner of a State agency (TDEC) controlling one step of the appeal process.

The Jackson Law would: (1) allow the Council to consider many more relevant factors (GOOD); (2) if the Council’s decision is challenged later, it is more difficult to uphold (BAD); (3) the Council would have three readings (GOOD), but the BZA wouldn’t be involved (BAD); and (4) the TDEC Commissioner would be required to automatically approve the Council’s decision (GOOD).

My perspective is that, if we had parallel universes — one with existing law, and one with the Jackson Law, and everyone performed their respective roles properly, there would be little or no difference in the results under the different laws. However, we know that not everyone will act perfectly, and I simply can’t predict whether the weak link in any future hypothetical scenario would be the Council, the BZA, our Solid Waste Region Board, the TDEC Commissioner, a Davidson County trial court judge, or a State of Tennessee Court of Appeals. Without a crystal ball telling me who among these is going to possibly mess up, I can’t predict what extra protections I prefer. Either of the two technical processes might turn out to be better, or worse, than the other in some unknown future scenario. For this reason, this issue is a TIE.

More vs. Less Formal Notice Mailed To Neighbors: Existing law does not have a strong notice requirement. The Jackson Law has a very strong notice requirement. Obviously, more notice is better than less notice. However, when a landfill is involved, word gets out fast and thoroughly. Practically, I don’t consider a difference in notice provisions significant enough to pick one law over the other. This issue is a TIE.

What Kind Of New Landfills Must Go Before The Council: Existing law requires a Council resolution approving a new Class I landfill (municipal solid waste), but NOT for Class II, III, or IV landfills (industrial, and construction and demolition waste). Under existing law, new Class II, III, and IV landfills get approved by our Solid Waste Region Board, subject to review by the TDEC Commissioner.

Under the Jackson Law, new Class I-IV landfills all must be approved by a Metro Council ordinance. This is clearly superior to existing law. This issue goes easily to the Jackson Law.

What Kind of Landfill Expansions Must Go Before The Council: Under existing law, if a landfill wants to laterally expand its footprint, the Council does not get a say in the process. These expansions get approved by our Solid Waste Region Board, subject to review by the TDEC Commissioner.

Under the Jackson Law, lateral expansions of existing landfills all must be approved by a Metro Council ordinance. This is clearly superior to existing law. This issue goes easily to the Jackson Law.

Solid Waste Transfer Stations: A transfer station is a local site to temporarily store waste until it can be shipped, usually in larger vehicles, to a permanent landfill. Under existing law, a new solid waste transfer station must get the same Council/BZA approval required for a new Class I landfill.

Under the Jackson Law, a new solid waste transfer station is exempt. The advice I have received tells me that the most likely result is that our existing law would continue to apply to requests for a new solid waste transfer station. Because this is “most likely” and not a certainty, this issue goes slightly in favor of existing law.

Solid Waste Processing Facilities: A processing facility is used to change the physical characteristics of the waste, or to remove particular components from the waste. Under existing law, the Council does not get a say in the process of approving a solid waste processing facility. These get approved by our Solid Waste Region Board, subject to review by the TDEC Commissioner.

Under the Jackson Law, processing facilities all must be approved by a Metro Council ordinance. This is clearly superior to existing law. This issue goes easily to the Jackson Law.

The Jackson Law Is All-Or-Nothing: State law does not allow us to pick and choose which parts of the two laws we like. We have to take all of the Jackson Law or none of it. Because the balance of the other factors weigh in favor of the Jackson Law, this issue also goes to the Jackson Law.

Overall, I think the Jackson Law is the better policy for Nashville. If nothing else, adopting the Jackson Law will give the community and the Council more control over new Class II, III, and IV landfills, lateral expansions of existing landfills, and solid waste processing facilities. This makes the Jackson Law the better choice.

April 4 Council Agenda

For the April 4 Metro Council agenda, here’s what I am looking at:

For public hearing

There are two bills (-641 and -642) that were disapproved by the Planning Commission. Since the media coverage in January about how the Council approaches disapproved bills, I don’t think we have passed any disapproved bills on 3rd reading. Usually, disapproved items get approved on 2nd reading on the night of the public hearing, or the sponsor defers to do some more work on the bill. Here, the sponsor of both of these bills is CM Robert Swope. I do not believe he has previously asked the Council to go against the Planning Commission.

CM Angie Henderson’s sidewalk bill (-493) is also set for a public hearing. I am one of twenty-two co-sponsors. Henderson has done an incredible amount of work on this. The bill is complex. I’ll quote Council Director Jameson’s summary of the bill:

The ordinance under consideration would amend these Code sections to support walkable neighborhoods and access to and use of Nashville’s transit system. Overall, the ordinance would close a loophole wherein sidewalk installation has not been required for single- and two-family infill development on major and collector streets in the USD and on neighborhood streets in the UZO or within ¼ mile of a center designated in the general plan. For multi-family and nonresidential development, it would also reduce instances where “in-lieu” payments may be applied and require more physical construction of sidewalks throughout the city as development occurs.

You can read Jameson’s full analysis here (see page 3 for discussion about -493).

Resolutions

There is a non-binding resolution asking Judge Moreland to resign (-642). Since Moreland has now resigned, I am not sure if the sponsors will go forward with this. If they do, I’ll need to abstain from voting. As I explain here, I have had a formal role as a neutral fact-finder in an attorney disciplinary proceeding where Judge Moreland was a witness. I need to maintain that neutrality.

2nd Reading

I am a co-sponsor of CM Jeremy Elrod’s bill that would require additional Council approval for any construction that would require closing or obstructing a Metro right-of-way for more than a year (-498). For me, the goal it to try to address the fact that it remains nearly impossible to walk across downtown without getting stuck having to backtrack to a pedestrian crossing that you already passed, or to cross the street mid-block. We can do better.

We’ve got CM Freddie O’Connell’s bill requiring U.S. Presidents and candidates for the office to provide Metro with their tax returns before they can use Metro facilities (-644). I’ll need to talk to the sponsor about this before I can support it. I’m all for fighting the good fight…but I’m not sure this is it.

CMs Pardue and VanReece have a bill that would allow alcohol to be consumed by passengers in horse-drawn carriages (-645). I want to hear more about this one also. I’ve seen some ‘pedal tavern’ groups that were clearly over-served and pretty boisterous. I’m not sure that level of partying and horses fit well together. I haven’t made my mind up on this one either way.

CM Dave Rosenberg has a bill that would regulate the use of surveillance devices by Metro in the public right-of-way. I’ll say this for CM Rosenberg, I appreciate him thinking about evolving technologies and how they might be used in Metro. This bill is worth reading. Jameson’s analysis says that Rosenberg has been in touch with MNPD about this, and that we should expect a “comprehensive amendment.” I’m looking forward to seeing that.

3rd Reading

CM Erica Gilmore and I are the lead sponsors (along with 24 other co-sponsors…thanks to all of them) for a bill requiring annual reporting by MNPD about traffic stops in Nashville (-483). Instead of having private third party groups trying to compile relevant traffic stop data, Metro would provide the information. This bill passed 2nd reading on a voice vote (so — it was unanimous…), and I expect this to pass 3rd reading.

Our bill to update storm water fees (-588) has reached 3rd reading. I am a co-sponsor. I expect this to pass.

Not on our agenda, but important…

If you are interested enough in the Council to read this post, then you also saw the story in the Scene last week about the impasse between Chief Anderson and the TBI. The bottom line is that the TBI (supported by District Attorney Glenn Funk) want the TBI to be able to conduct a truly independent investigation of any use of force situation involving MNPD. And Chief Anderson disagrees — he wants his officers to be able to conduct a simultaneous parallel investigation at the same time as the TBI’s investigation.

I have three positions on this. First, MNPD clearly has excellent investigation skills. I think we have the best police force in the State of Tennessee. There’s no question about that.

Second, despite MNPD’s capabilities, the best practice in law enforcement is for there to be a single investigation. To say you want parallel investigations is the same thing as saying you don’t want the TBI involved. That can’t be — the Mayor wants the TBI involved, our DA want the TBI involved, and our citizens want the TBI involved. I would bet that our MNPD officers want the TBI involved. I would urge Chief Anderson to accept a single independent investigation by the TBI in these situations.

Second, speed matters. Having this impasse linger is bad for everyone. Let’s get to the finish line on this now.