Month: September 2018

Update on BL -1319 about tax increment financing…

There’s a tax increment financing reform bill (BL2018-1319) on 3rd and final reading next week. The bill is here. Council Director Jameson’s analysis is here. My prior posts about -1319 are here and here. It might also be useful to read this about the issues from the proposed Donelson transit-oriented development that fell just a few votes short of passing in August.

The summary is that -1319 would re-balance how much of new property tax revenue from redevelopment districts is used to pay development loans versus how much is used for Metro’s operating budget. In 2016, the Council passed a bill to have Metro withhold “debt services taxes” from new TIF loans. So, since 2016, for new TIF loans, Metro has been required to set aside about 15% of property tax revenues from the new TIF projects to pay for Metro’s own long term debt. This has left the other 85% of new tax revenue being available to pay development loans. I know everyone would agree that this 2016 law hasn’t created the slightest speed bump to Nashville’s economy. Now, -1319 would expand on this principle so that Metro would also keep “schools fund taxes” for new TIF properties. This would expand the hold back from 15% to about 46% — with the other 54% still being available to pay development loans.

As Metro continues to look hard at radically expanding the use of tax increment financing in transit oriented development all across the city, it is critical that we have a balance between supporting development and paying for basic government functions.

Before -1319 passed unanimously on 2nd reading last week, two Council members asked why -1319 can’t wait until the recently passed tax increment financing study group completes its work (which should be late spring 2019). I responded by saying that, no matter what the  study group comes up with, it will be important to re-balance how the new tax dollars are split between development loans and the operating budget. I still feel this way, but wanted to explore the objections of my two colleagues.

As a result, I negotiated with MDHA (through a lawyer they have working on this) for a TIF moratorium through June 30, 2019. We agreed that for that time there would be no new TIF loans (unless Council, MDHA, and the Mayor all agreed) and there would be no new redevelopment district legislation introduced. From my perspective, if I was being asked by some to hold off on -1319 while the study group does its work, then I would want to know that everyone’s pencils would be down and there would be no new loans and no new TIF district legislation while the study group does its work. MDHA agreed. But the Mayor’s office would not.

The clear implication is that there are plans in the works to introduce a new redevelopment district between now and June 30. Presumably, the intent is for this new redevelopment district to exist for decades into the future under today’s ground rules rather than a new set of ground rules. As a result of the Mayor’s office saying no, I expect:

  1. MDHA will likely fall in line with the Mayor’s office and work against -1319 even though I had a compromise worked out with MDHA.
  2. Some will argue that “well, this won’t actually get any more money for schools.” I haven’t yet figured out how this can possibly be. If you specifically hold back money for schools instead of development loans, then how can it not result in more money for schools??
  3. Some will argue that -1391 will kill tax increment financing as a useful development tool. For those people, I’d note that taking out the 15% for debt services taxes a few years ago didn’t slow down the economy at all. And if -1319 passes, a majority of the tax revenue from new TIF properties would still be available for development loans. This isn’t anti-development by any means.

I will pursue passage of -1319 next week.

(written in a hurry…please excuse typos…)

Metro Debt Dashboard

From time-to-time, I hunt around for precise numbers about Metro’s long term debt. I decided to collect the stats in one place. Here’s my Metro Debt Dashboard.

I know some of you like to look at source documents. For the six charts on the dashboard, here are the source documents:

  1. General Obligation Bond Debt
  2. Revenue Bond Debt
    • For Water & Sewer revenue bond debt, see FY2019 Treasurer’s Report presentation (link above), at slide 8.
    • For Convention Center Authority revenue bond debt, see FY2019 Treasurer’s Report presentation (link above), at slide 10.
    • For Sports Authority revenue bond debt, see FY2019 Treasurer’s Report presentation (link above), at slide 10.
    • For Sports Authority soccer stadium debt, see RS2017-910.
  3. Savings as % of budget
    • FY2019 operating budget ordinance, BL2018-1184, at page 4.
  4. Debt per capita among 50 largest cities
  5. Debt service as % of operating budget
    • For this one, Metro Finance hasn’t always calculated the statistic the same way, and the statistic has not been published for all fiscal years.
    • I calculate this statistic by looking at the operating budget ordinance and dividing “Debt Services Funds” by “Net Appropriation By District.” For some years, this matches Metro Finance’s published number precisely. But for some, my calculation is a few tenths of a percent different than Metro Finance’s.
    • For FY13 and FY19, the number is my calculation.
    • For FY14 to FY18, the number is from slide 35 of the FY18 budget presentation by Metro Finance.
  6. Retiree benefit obligations

 

About TIF reform

In getting my thoughts together about my upcoming tax increment financing reform legislation, I put together a memo about how TIF works, how our 2016 reform impacted TIF, and how some of my proposed 2018 reform would work.

Here’s the memo.

The abbreviated version is…tax increment financing diverts property tax revenue from some property mostly in the downtown area. Absent diverting the funds, that money would ordinarily be divvied up among Metro’s several operating “Funds” (e.g., the “General Fund,” the “Schools Fund,” etc…). Instead, the property tax revenue from these TIF properties is used to pay for development loans. I don’t think this is inherently good or bad. It is a tool that can be used well or poorly.

In 2016, the Council passed a law that, for new TIF loans, required Metro to retain about 15% of these tax funds instead of diverting all of the funds to pay development loans. Metro will now have to keep that 15% and use it to pay long term bond debt.

The current legislation would expand this concept and require Metro to also retain the “Schools Fund” portion of the taxes from new TIF properties (about 31% of the property tax revenue). Metro would keep the 15% to pay bond debt and the 31% to fund our schools. After this, the majority of the tax funds from new TIF properties would still be available to pay for development loans.

I won’t go into detail here, but this isn’t a crazy concept. All over the country, cities and counties are reassessing whether tax increment financing should use all of the new tax money from development or leave some meat on the bone for an operating budget. Here’s one article from a few days ago to get you started.