Month: April 2019

Proposed FY20 budget expected tomorrow

The Mayor’s proposed FY20 budget is expected to be out tomorrow. This post is about what I am expecting to see in it. There’s no way to talk about that without a lot of numbers. My apologies in advance for that.

Before I get going — keep in mind that this isn’t a discussion of numbers just for the sake of numbers. The budget is a moral document that is hard proof of the city’s priorities. There’s no way to debate the priorities without understanding the numbers.

I’ve been prepping for this budget season with my own sort of Spring Training. In March, in writing this about proposed pay raises, I commented that the FY20 budget would need to have at least $105 million in new expenses:

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.

And yesterday, I predicted the same $105 million increase in the overall operating budget, up to $2.335 billion for FY20:

At the State of Metro address today, the Mayor told us that the proposed FY20 operating budget would be $2.33 billion. So my prediction was off by $5 million (or 0.2%).

I haven’t seen any part of the upcoming proposed budget yet, but having my prediction be this close gives me some confidence of what I think will be in this budget.

Revenue: My predictions are based on there being $90 million of new tax revenue, using $10 million from the Funds Balance (which is the city’s savings account), and $40 million from one-time non-recurring revenue. These numbers work together. I might be off on a few, but I think the total of all of them will be pretty close.

For example, the parking privatization deal (if approved) is supposed to generate one-time revenue of $34 million by June 30, 2020. Depending on when Metro would book that revenue, it might impact both my Funds Balance and one-time revenue predictions. In the end, these timing issues don’t really matter.

What’s important is that I am expecting the FY20 budget to rely on and need the $34 million from the parking deal by June 30, 2020 to make ends meet.

Schools: I assumed that the proposed budget would fund a 3% raise. That’s what the Mayor announced today in the State of Metro address. The requested MNPS budget was for 10% raises. This request is apparently being rejected.

One unknown is whether the Mayor will attempt to make the 3% raises contingent on the school board entering into a Memorandum of Understanding with Metro. At the State of Metro address, the Mayor repeated his request that the school board enter an MOU with Metro to give Metro more control over “finances, operations, and human resources.”

Most Metro insiders do not know what this would look like. I don’t know whether the school board will agree to this. I don’t know whether the Council would require the MOU. We don’t know yet whether the Mayor will demand the MOU in exchange for the 3% raise .

New spending: I assumed that the Mayor would propose very limited new spending. I guessed $4 million. At the address today, he mentioned about $1.5 million in new non-salary spending. We’ll see the details when the budget comes out.

Ongoing departmental “targeted savings”: One continuing challenge is that inflation is running at about 1.9%. Metro isn’t immune to this. Normally, you’d expect to see an operating budget increase to cover inflation at least. I have assumed that Metro is ignoring inflation and not increasing any spending (aside from employee wages). How do you get away with ignoring inflation?

The answer is that, through this current fiscal year, Metro Finance has continued to demand “targeted savings” (aka cuts) from each department. I am told that the total targeted savings for FY19 across all departments are in the range of $11.5 million. This isn’t enough to cover inflation. For this reason, I would expect that the departments will be told to target even more savings (aka cut more) during the upcoming FY20.

Metro employee raises: The Mayor has been telling the media since March that he intends to give employees their cost of living increase this year. I have numbers from last year for what that would cost. So that part of my budget guess was pretty reliable.

Increased debt service payments: FY20 was always going to have a dramatic increase in the amount of annual debt service payments. This has been known for several years. During the speech today, the Mayor mentioned this briefly. He acknowledged that the debt service payments would be 15% higher in FY20 than the current year.

What does it all mean? Again, I’m not going through these numbers for fun. The goal is to see what’s being valued in the proposed budget.

On the plus side, even if it a year late and several percentage points short, there will be employee raises in the Mayor’s proposed FY20 budget. On the down side, it looks like this will be another fundamentally under-funded budget that relies on $30 to $40 million in one-time revenue coming in by June 30, 2020, having departments find even more “targeted savings,” and still being behind on employee wages. If my sense of what to expect bears out when we see the budget in the coming days, we’ll all have to reflect on whether these choices match our values as a city.

I’ll keep you posted on my thoughts as the budget season unfolds.

More on the announced affordable housing plan

A few days after the Mayor announced his affordable housing plan, I posted this initial assessment. Since then, the Council’s Ad Hoc Affordable Housing Committee met with MDHA for two hours on April 15. After that long meeting, I’d like to expand on a few points from my initial post.

Timing of new funding.  Matt Wiltshire from MDHA (and formerly from the Mayor’s office) confirmed that no new money will be allocated to affordable housing this year. The earliest we would see any new operating spending proposed under the Mayor’s proposed plan would be in Fiscal Year 2021. Part of me wants to more or less ignore the entire proposal until there is an effort to approve new spending. But it is worth at least noting some important points that might get lost between now and next year.

Going from cheerleader to investor. The biggest point I want to underline is that this proposal would move Metro from being a very interested cheerleader for the Envision projects to being a major investor. This shift demands that Metro learn more and be more actively involved.

Timing of building the Envision projects. Up until a few weeks ago, every public statement from MDHA about timing indicated that they would complete all six Envision projects relatively quickly. In fact, one (Cayce) is already out of the ground, and two more are well into the planning process. MDHA has always been careful to not state a specific timeline, but their public statements and the fact that they have started working on three Envision projects have suggested strongly that the Envision projects certainly would be finished in about a decade.

With the new affordable housing proposal, though, the Mayor’s office and MDHA are telling us that the reason why Metro should spend $350 million over 10 years is to hurry all of the Envision projects to completion. In this Tennessean opinion piece, MDHA’s director says: “The city’s investment in this work will enable us to add more subsidized housing than was originally projected and will also help us accelerate the timeline.” (I added the emphasis.)

There are a few other data points about timing. At the Council committee meeting on April 15, Mr. Wiltshire repeatedly told us that, without Metro spending $350 million over 10 years, the Envision projects would be “multi-generational.” Also, when asked whether the $350 million would allow all Envision projects to be completed in 10 years, Mr. Wiltshire said “no.” He was not able to guess what percentage could be completed in 10 years with $350 million from Metro, but he was sure that they would not all be completed in that time.

These timing questions are not academic. We have to explore where the truth is. Up until a few weeks ago, every indication was that everyone involved thought that all of the Envision projects could be completed by MDHA. Now, we are told it will be a multi-generational effort without Metro’s help. Separately, on one hand, the Mayor’s pitch clearly indicates that all the affordable units would be built in 10 years. On the other, MDHA has clearly told the Council that they will not be built in 10 years even with the $350 million from Metro.

My personal theory is that Mr. Wiltshire — the new guy at MDHA — is correct when he says that without Metro spending substantial money the Envision projects cannot be completed for a long time and that even $350 million over 10 years is definitely not enough to complete the projects.

What is the real cost? Up until a few weeks ago, nobody had ever suggested that Metro would use its general obligation bonding capacity to build affordable housing units for MDHA. Even when MDHA has provided a super-detailed list of potential financing strategies for Envision projects, it has never included Metro money to pay for unit construction costs. For example, check out MDHA’s 115 page Envision Napier and Sudekum Transformation Plan from June 2018, at pages 109-111. They list 10 financing strategies. Metro is only mentioned as a possible source that “may be able to include funding for…parks and infrastructure…”. Metro is never mentioned even as a potential source of building construction financing.

With the new proposal though, we hear that Metro would contribute $350 million in construction financing over 10 years, and that this won’t be enough to finish the projects. When the Council ultimately is asked to approve spending, we should ask for more information about what exactly Metro is getting for its investment.

Why does it matter? Listen, I don’t mind a developer having to look for a new partner once a project has started. Things change. Markets evolve. But, I do expect that the new partner (Metro) is entitled to a no-BS explanation about why the developer (MDHA) is looking for a new partner. To put it in terms Nashville understands, let’s imagine a downtown developer had spent five years telling the market about a full city block that he was planning, and developing, and even breaking ground on. And, then he starts shopping for a new partner. Immediately, you have questions. Why now? Did something change? What’s wrong? Did you misjudge the project? Were your public statements about the project not entirely on target? When you get asked to invest in a partially complete project, you really need to understand in detail what happened and why.

If MDHA had been saying all along that the Envision projects were going to be “multi-generational,” we might all be evaluating the proposal on its merits. Here though, we need to make sure we have a full understanding of the new facts before we evaluate whether it is a good investment of Metro’s bond spending dollars.

Metro’s Health & Ed Board

Over the last four years, I’ve worked to shine light on the darkest corners of Metro government. The toughest nut to crack so far has been an organization called “The Health and Educational Facilities Board of The Metropolitan Government of Nashville and Davidson County, Tennessee.” This post is to let you know where I am with this project. I’m going to do my best to state facts. You can draw your own conclusions.

What is Metro’s Health & Ed Board?

Under Tennessee state law, a health and education facility corporation — or health & ed board — may be created under certain circumstances. To create a health & ed board, a city must first pass legislation authorizing the creation, and then the city must choose the directors.

Once created, a health & ed board may issue tax exempt bonds for certain purposes for the public good. While state law requires that a city cannot be liable for any bonds issued by a health & ed board, the bonds are issued on behalf of the city.

The Metro government granted permission for the formation of a health & ed board in Davidson County by Council resolution adopted July 16, 1974. The Health and Educational Facilities Board of The Metropolitan Government of Nashville and Davidson County, Tennessee was created on August 12, 1974 upon the filing of a Certificate of Incorporation with the Tennessee Secretary of State by the law firm of Griffith and Stokes, which is a predecessor firm to the Nashville office of Adams and Reese LLP.

Is it a part of the Metro government?

Metro’s Health & Ed Board has a presence on Metro’s web site. The Metro Council appoints the directors of the Health & Ed Board. The Board meets in the Council committee rooms. The tax exempt bonds are issued on behalf of Metro by the Health & Ed Board. Despite all of these indications that it is a part of the Metro government, it is a separate entity created under state law and is not included in Metro’s financial statements.

Also, the best information I have is that Metro has never provided any significant administrative assistance to the Metro Health & Ed Board. Instead, Adams and Reese and its predecessor law firms have provided administrative assistance and record-keeping from 1974 to the present at no charge. They do charge for any legal services they provide to the board.

Why should you care?

About one year into the current Council term, in October 2016, a vacancy on the Metro Health & Ed Board needed to be filled. The Council Rules Committee had several first term Council Members at the time, including me. When we were doing our homework before the meeting, several of us realized we had no idea what the Health & Ed Board was and we couldn’t find any information online other than a list of the board members.

Starting then, and for approximately six months, I attempted to work through the board’s only staff — its outside private lawyer — to get agendas and minutes posted on the Metro web site. I was ignored. Ultimately, I threatened a public records request and the Metro Health & Ed Board finally started posting its agendas and minutes on its Metro web page.

The fact that my request was stiff armed for so long got me interested in figuring out what was motivating the resistance. Of course, I don’t know the answer to this. But my suspicion then and now is that the law firm must be making money and didn’t want to risk that. For that reason, I have consistently encouraged the Health & Ed Board to make all of their board materials publicly available, and also conduct a periodic RFP or RFQ process for their admin and legal services. To date, the Health & Ed Board has rejected these requests.

The only remedy the city has to force transparency is to wait for board members to roll off and make new appointments who will increase the transparency of the Metro Health & Ed Board.

In fairness, I will mention that the lawyers for the board are quick to mention that even though “Metro” is in the title, the Metro Health & Ed Board is not part of the Metro government. My consistent response is that with Metro fully responsible for making board appointments and with Metro’s name being used to issue tax exempt bonds, the citizens of Davidson County are entitled to the same level of transparency that would exist if this board were fully a part of Metro.

What’s the latest?

Because my requests over the years to provide more information went unanswered, CM Dave Rosenberg and I passed a resolution by unanimous vote on January 15, 2019. The resolution asked the Metro Health & Ed Board to post its board materials online and to also make its debt reports to the State of Tennessee available online. The state-required Report of Debt Obligation is a form that provides basic information about each bond issuance — including how much the lawyers make from the deal.

As I understand it, the Metro Health & Ed Board has declined the requests made in our resolution…

I’ll keep asking for their board materials to be posted. But I’ve decided to stop asking for the debt report forms. I went to the State of Tennessee and got the debt report forms for the last two years. These aren’t available online with the State…you have to ask the State for them. I’ve posted a summary and the two years of forms on this page. In the most recently available two year period, my math shows that the law firm was paid approximately $624,000 for legal services related to the Metro Health & Ed Board issuing bonds.

I’ve got another three years of the debt report forms in my Metro Inbox if anyone wants to do a records request for them. I haven’t looked at them yet.

 

 

HEFB Report on Debt Obligation Forms (2/17 through 1/19)

These are the Report on Debt Obligation Forms filed by the Metro Health & Education Facilities Board from February 2017 through January 2019, plus a summary that shows the legal fees reportedly paid to Adams & Reese.

Here is the summary showing fees reportedly paid to Adams & Reese

Metro HEFB Report of Debt Obligation filed with the State of Tennessee on:

  1. 02/06/17
  2. 02/23/17
  3. 02/23/17
  4. 06/01/17
  5. 07/16/17
  6. 07/27/17
  7. 08/02/17
  8. 09/13/17
  9. 11/17/17
  10. 11/17/17
  11. 11/21/17
  12. 11/27/17
  13. 12/20/17
  14. 12/20/17
  15. 04/23/18
  16. 04/30/18
  17. 05/01/18
  18. 07/23/18
  19. 07/23/18
  20. 07/24/18
  21. 08/27/18
  22. 09/21/18
  23. 09/20/18
  24. 09/20/18
  25. 09/20/18
  26. 10/04/18
  27. 12/03/18
  28. 02/05/19