Month: March 2019

The new affordable housing initiative

A lot of people are asking me what I think about the Mayor’s newly announced affordable housing plan. His press release is here. And his office has set up a web site that basically says the same thing. If you made me boil it down to a single thought, it would be: “There are parts of the plan I think I might like…doesn’t sound like anything is going to happen before FY21…let’s talk then.”

In more detail, I think that…

  • Ben Eagles had a nice Twitter thread on this yesterday. It starts here:
  • The numbers in the press release are cleverly phrased, or generously characterized, or possibly just a touch misleading. The $500 million in the press release counts about $350 million that the city was probably going to spend anyway. Ben’s thread covers this point pretty well. In the end, adding $150 million to Metro’s existing commitment level over 10 years is still a big deal. But people need to not buy into the idea that this plan commits a half a billion dollars in new spending.
  • Aside from quibbling over the spin, the most important line of inquiry is about what Metro would get for the new spending. This is unfortunately complex.
    • MDHA has claimed for years now that it is completely capable of rebuilding multiple low income housing communities on its own. Even after the announcements this week, MDHA and the Mayor persist in this position. That said, my opinion is that almost nobody who is close to the situation believes this claim. I haven’t believed it since I got in office. The first piece of legislation that I sponsored was motivated in response to MDHA’s apparent inability to finance Envision Cayce without liquidating real estate in another part of town. (I wrote about that here in January 2016.)
    • I’m not asking about MDHA’s independent ability to complete the Envision projects on its own for sport. Getting a straight answer on this should drive how you feel about the Mayor’s new program.
    • For example, if MDHA’s long-time claim that it can absolutely complete the Envision projects on its own were true, then we should analyze the new initiative against that. In this scenario, the press release claim that Metro’s money will build 10,000 units is false. Super-false. If MDHA can do Envision on its own, then nearly all the units are getting built anyway with no Metro money. The city would be paying $350 million for about 1,000 new low income housing units. That would be a bad deal.
    • On the other hand, despite the denials, we might instead understand the Mayor’s proposal as an acknowledgement that MDHA really was never going to be able to make the Envision projects happen without significant aid from Metro. This is a stark scenario where MDHA won’t get the Envision projects completed on its own for a generation at least. While startling because it is different than what we are being told, if this were the situation, perhaps Metro should be putting its affordable housing dollars into helping MDHA??? That’s a question to think about.
  • If you end up believing that MDHA does need financial assistance to complete the Envision projects, then you have to ask, “Why do we think that $35 million per year in capital will be enough? Where did that number come from?”
    • Back (last week) when MDHA was going to complete these projects on its own and get bank financing on its own, the Metro Council was more or less a cheerleader for the Envision projects. The finances were up to MDHA entirely.
    • Now, with Metro as a significant $35 million per year investor, there are a lot more questions to ask. Is $35 million per year going to get all of the Envision projects built in 10 years? (I’m suspecting not. I bet that if a reporter were to ask this question directly, the answer would be something like, “We hope so” or “Well, that will depend on federal funding” or some other answer other than “Yes.”)
  • There is also the question of when do we start? I cannot fathom that this initiative involves any spending in the next twelve months. This is an important question because Metro’s current revenue is not sufficient to pay for the new affordable housing initiative. I think that means that this announcement doesn’t turn into action for at least another year.

To wrap this up…I’ll get over the numbers being spun so much. But, by the time we get to a future budget season where this plan will require spending, I’ll want to understand whether MDHA would build the majority of these units anyway without Metro money, or if the Envision projects are a pipe dream without Metro dollars. I’ll want to see some analysis about how people determined that $350 million is the right amount to get this done in 10 years. I’ll want to see where we are with the city’s revenue at that time.

(If you want a refresher about Metro’s budget problems last year, you can read my FAQs, a summary of my budget proposal last year, and this worksheet showing Metro’s expected new costs in FY20 and FY21. Every number in these posts came from Metro Finance.)

Maybe hold back on the high fives for now??

Yesterday, the administration announced its intention to give Metro employees their overdue cost of living pay raise in the upcoming budget. I fully support that. But I think the Metro Council needs to hold back on any congratulatory high fives until the Mayor presents his budget in late April. For now, we don’t have any idea about how this is being accomplished.

The press release announcing the pay raise said that revenue is increasing. But, that’s sort of a given. The question is how much is it increasing? As data points, remember that the biggest revenue increases ever (without a tax increase) were several years ago and were in the range of $120 million. At the time, this was described as extraordinary. And during last year’s budget season, Metro Finance conservatively estimated that revenue growth for the upcoming fiscal year (FY20) would be about $65 million. For the sake of argument, let’s assume that FY20 revenue growth will be somewhere between Metro Finance’s conservative $65 million estimate and the all time record of about $120 million.

Let’s move on and consider what that new revenue will buy. My starting point is the information that Metro Finance gave us last budget season (so, that’s 9-10 months ago). We were told that certain FY20 increases in expenses were unavoidable:

  1. Replace one-time sales built into the FY19 budget, $38 million
  2. Known long term debt increases for FY20, $42.6 million
  3. Pay plan for FY20, $24.4 million
  4. Inflation (1.8%) for General Fund for FY20, $20.1 million
  5. Inflation (1.8%) for Schools Fund for FY20, $16.8 million

This means that less than a year ago, Metro Finance expected a total to $142.7 million of new obligations in FY20. Even if we were to pretend there is no inflation, the total is $105.8 million of new obligations for FY20 according to Metro Finance’s numbers last year.

So, when the press release yesterday said that revenue is increasing…well, let’s hope that the projected revenue increase of $65 million was very, very low. Otherwise, the pay plan promise the Mayor made yesterday doesn’t add up.

The bottom line is that you can’t tighten your belt and promise new spending unless something really magical has happened with the city’s revenue (or you keep selling off Metro assets to make ends meet).

NOTES: All the numbers used here came from Metro Finance. My various posts with these numbers from last budget season are here. Also, I wrote this quickly because I need to be in court for a client shortly. Please excuse any typos.