Metro’s Audited Financials for Fiscal Year 2018 were posted online yesterday. This post will run through the top dozen or so things I look at in the audited financials. I’m not going to do a lot of commenting. I’m just trying to lay out where to find accurate technical information for some of the financial topics that get a lot of attention.
The audited financials for FY18 are here. When I make page references, they are to this document.
The auditors gave a “clean” opinion. That’s typical for Metro, reflects well on Metro Finance, and is a good thing.
Balance Sheet. Don’t freak out until you read this full section. The city’s balance sheet, or “Government’s Net Position” is sort of ugly looking this year — with liabilities exceeding assets for government activities by $3.2 billion. That’s nearly $2.5 billion worse than the previous year. It is critically important to understand that there was a change in accounting rules this year which account for nearly all of this change. This year, for the first time, Metro (like all government entities) is required to include its entire retirement benefit obligation on its balance sheet. So that mammoth-looking decrease in net position is because the city’s known retiree benefit obligation must now be shown on the balance sheet.
There is no practical impact on Metro because of this accounting rule change. Auditors and cities and bond rating agencies have known for several years that this accounting rule was coming. Think of this as requiring a different and more accurate presentation of city finances…but there is no change in the underlying information and no day-to-day impact on Metro.
This balance sheet summary is at page A-3:
What happened with revenue in 2018? There is a formal description of what caused Metro’s revenue shortfall in FY2018 on page A-9:
There is perhaps a teaser for the upcoming budget season in this description. At the end, the note says that actual expenses for FY18 came in $54 million under budget due to “targeted savings” achieved by Metro. This suggests that Metro’s departments were successful in cutting back on expenses in the second half of FY18. We’ll see if that translates into Metro being able to give promises employee raises in FY20.
Debt. There is a summary of changes in long-term debt in FY18 at page A-1:
There is also more detailed information about changes in Metro’s general obligation bond debt in FY18 at page A-11:
And there is also a description of the commercial paper program liabilities on page A-11:
Pension and OPEB. Metro’s pensions are well-funded. For example, the biggest of Metro’s several pension funds has $3.117 billion in assets to cover $3.196 billion is liabilities. That’s 97.45% funded. See page B-80. For all of Metro’s pension funds together, the unfunded net pension liability is about $212 million. See page B-76. That page also has a “sensitivity analysis” to show what the net pension liability would be in the actuarial assumptions are off by 1%:
The retiree healthcare benefit obligation (or OPEB) situation is dramatically worse. Metro’s total OPEB liability is $3.9 billion. That’s really big. Here’s the summary at page B-91:
Like with the pension, the audit notes include a sensitivity analysis to see what the OPEB liability might be if certain healthcare costs assumptions are wrong by 1%. This chart shows a range of potential unfunded OPEB obligations as of June 30, 2018. That range is $3.3 billion to $4.6 billion. Here’s the chart:
Folks — at the high end of this range, Metro’s unfunded retiree benefit obligation is now approximately two times the city’s annual operating budget. That is way too high.
Convention Center Authority. There are two tidbits tucked away in the audit notes that are worth remembering. First, the Convention Center Authority can absolutely return some of its enormous dedicated tax funding to Metro if it wants to. This city has somehow managed to give a huge amount of money to a non-elected body and there’s almost nothing we can do as a city to un-ring that bell unless whoever sits in the Mayor’s office renegotiates the deal with the Convention Center Authority. At page B-16, here’s the language that makes it clear the Convention Center Authority can return money to Metro if it wants to:
And, second, what is the Convention Center Authority doing with its money? Among other things, it bought a parking lot at 719 4th Avenue South for $3.9 million. Allegedly, according to page B-113, this is to “be used as a marshalling yard for events and additional parking to supplement the garage as the Music City Center.” However, this property is precisely where the southern end of the downtown tunnel would have been if the transit plan had passed. For people interested in good government, is it a coincidence that the Convention Center Authority (which the Council can’t control at all) bought property in August 2018 that could someday be used for a transit tunnel? Would that expenditure have been approved by the Council?
Here’s the language:
Other interesting stuff.
- Nashville General Hospital did not get a “going concern” note this year. A “going concern” note is bad. Removing that from Metro’s audit this year doesn’t mean that the hospital’s problems are solved in any way. It does mean that the hospital’s books and records were reliable, accurately reflected their finances, and that the auditors expect that the hospital can operate within its current funding budget from Metro.
- Most of Metro’s economic incentives are listed in Note 13(G) on pages B-103 to 106. This list does not include economic incentives that might be listed in the separate audits of Metro’s component units (like MDHA). I’ve asked for all of the economic incentives to be described in next year’s audit. I think that will happen.
- Many of Metro’s tax abatements are listed in Note 16 on pages B-111 and 112. Like the last point, this note doesn’t include information about tax abatements that are included in MDHA’s financials. Again, I think next year, we’ll get all of Metro’s tax abatements listed in this single audit note.
- Finally, take a look at Section H toward the end of the audit. That’s the statistical section and it shows 10 year financial trends.
Let me know any questions at email@example.com or @mendesbob.