Month: May 2019

What about the $9M for transit?

Some Council Members and I are proposing an alternative budget that would improve school employee pay, allow the city to pay its debts without selling off one-time assets, and allow a small cushion to get through to the next scheduled property value reassessment in two years. Read about that here.

Some are asking whether the alternative budget makes up for the $9M shortfall for transit funding in the administration’s proposed budget.

It does not include the $9 million for transit…but here is where I am coming from:

There are severe timing problems that squeeze any alternative budget. Creating a substitute budget is time-consuming and that work had to start two weeks ago within days of the Mayor’s budget being proposed. Also, the Council rules are designed to favor a choice between 2 budgets — the Mayor’s budget and the Substitute from the Budget & Finance Committee Chair. My alternative — a “Second Substitute” — is not allowed to have any amendments under the Council Rules. It must be take-it-or-leave-it according to the Council rules.

Together, this means that any Second Substitute has to be created in early May and is not allowed to have any amendments at all. Again, this puts a tremendous squeeze on what is possible. To be perfectly honest, I had to start work on the alternate before I knew about the shortfall on transit funding.

When I started, I assumed that there would be some surprise cuts — I just didn’t know what they would be. To deal with this, my alternative focuses on only the most basic concepts — pay employees, pay debts, and don’t sell off one-time assets. HOWEVER, my proposed alternative would replenish the city’s Funds Balance savings account with $27 million. It would be possible (IF WE CAN GET CONSENSUS IN THE COUNCIL) to do a supplemental MTA appropriation in July to make up for the shortfall.

A better budget for Nashville

The FY20 operating budget proposed by the administration falls short. I along with other Council members will propose a better budget for Nashville. Council Member Anthony Davis has agreed to be a co-sponsor. We are inviting others to sign on too.

(For background, my posts from last year’s budget season are linked here. And here are this year’s budget posts from March 19, April 30, May 3, May 4, and May 16.)

The administration’s budget doesn’t work because it is still focused on cutting costs and selling assets when the city is expanding rapidly. After repealing employee pay raises last year, selling at least $16 million of one-time assets this year, slashing about $15 million in expenses over the  last 18 months, and planning to cut another $19 million of expenses in FY20, the budget is still a mess and has to rely on $41.5 million of one-time non-recurring revenue to make ends meet.

The conventional wisdom in the courthouse is that the administration will propose a property tax increase next year — after the election. The administration’s proposed budget squeezes employees on pay and citizens on services in the meantime. It deepens problems when it should be creating capacity. It worries about opposition when it should be inspiring change.

A better budget for Nashville would improve school employee pay, allow the city to pay its debts without selling off one-time assets, and allow a small cushion to get through to the next scheduled property value reassessment in two years. To do this, we will propose a 52.5 cent property tax rate adjustment. This would:

  • increase new MNPS funding from $28 million to $55 million
  • pay for anticipated new debt obligations
  • not rely on collecting a $30 million one-time payment from outsourcing parking enforcement
  • not rely on collecting a $11.5 million one-time payment from selling the district energy system
  • replenish the city’s savings account, or “Funds Balance”
  • allow for reasonable employee raises next year
  • allow for basic 1.9% inflation without having to continue department cuts into FY21

You can see the details here. Like our proposal last year, there’s nothing fancy here. There are no new initiatives here. The reality is a 52.5 cent property tax adjustment is required to maintain basic government functions without relying on cuts or selling off one-time assets. For every $100,000 of home value, 52.5 cents translates into $131.25 per year, or just under $11 per month.

The next steps are for the Council to continue it’s budget process. We have 2nd reading on June 4 and 3rd/final reading on June 18. We will place this alternative budget in the “Amendments Package” for 2nd reading, but most of the deciding and voting will be at 3rd reading.

Your emails and calls matter. The budget process is designed to favor a choice between 2 budgets — the Mayor’s budget and the Substitute from the Budget & Finance Committee Chair. Our other alternative — a “Second Substitute” — is not allowed to have any amendments under the Council’s own rules. If you support this better budget, please reach out to the Council and let us know what you think. You can find individual contact information here or email us as a group at CouncilMembers@nashville.gov.

Impact of economic development spending on property tax rate

When I proposed an increased property tax rate last year, one of the arguments against was that the city should stop all the corporate giveaways before thinking about a rate increase.

My response then was that, if we could wave a magic wand and cancel all current economic incentives, we would still need to fix the improperly set tax rate. I didn’t offer evidence beyond that statement. The truth is that I didn’t want to be seen as defending the way Nashville does economic incentives.

As we enter budget season, this same argument is coming up again. This time, I have decided to dip my toes into debating this topic. Before getting to that…I want to be clear. Economic incentive tools are not inherently “good” or “bad.” There is no one right answer. Nashville should offer economic incentives when it helps the city achieve its goals. My objection is not to the idea of incentives.

Incentives should be made according to a policy that is known and agreed upon collectively. Nashville hasn’t done this. Incentives should be measured and graded by consistent standards. Nashville doesn’t do this. Since I’ve been in office, I have tried to create more transparency, more information, and more responsiveness to the public about how incentives are considered and awarded.

Turning toward the budget, the numbers don’t lie. If we immediately undid every existing incentive, it would not be enough to properly fund the Metro government for our growing city. This statement is not a defense of how Nashville sets or executes incentive policy.

At a macro level, the rate adjustment that was needed last year would have generated approximately $150 million per year. Just applying a “feels like” test, I don’t think there is anyone who would argue that Metro spends more than $150 million per year on corporate economic incentives. Yes, killing all incentives would make a dent in $150 million of need. But from even a top level cursory review, it isn’t plausible to argue that eliminating incentives would fix Metro’s budget problem.

Getting in the weeds, I took a quick stab at finding the total impact of economic development on the operating budget. Ignoring all potential benefits to Nashville, and just focusing on the costs, I found about $41 million of impact on the operating budget, which translates to about 13 cents of the property tax rate. You can see my quick, approximate spreadsheet here.

For a $300,000 home, 13 cents of property taxes is about $100. Would anyone want to trade lowering their property taxes by $100 for getting rid of every corporate incentive currently in effect in Nashville? For me, I’d want to explore the benefits side of that equation before I made that deal. It sucks that the city has no agreed upon way to measure and grade economic incentives. But either way, we should be able to agree that eliminating all incentives wouldn’t fully or even mostly fix the improperly set tax rate.

Finally, remember that I am NOT saying that economic incentives cost the city 13 cents of the property tax rate. I am saying that, even if one were to assume that Nashville gets NO benefits whatsoever from these economic incentives, it would translate into about 13 cents of the property tax rate.

New TIF legislation

The Metro Tax Increment Financing Study and Formulating Committee released its report last week. The TIF committee will give a presentation about the report in the Council Chamber on May 20 at 3PM. I hope you can be there.

There are now four pieces of legislation to implement the committee’s recommendations. The four bills are:

BL2019-1645: This bill would amend the TIF provisions of 8 existing redevelopment plans. The key amendments would be: (1) a new requirement to have a periodic (every 7 to 10 years) reassessment by MDHA and the Metro Council of the impact and goals for TIF loan investments in each redevelopment area; (2) new language that would let the Council initiate TIF plan amendments in the future; and (3) a new requirement that the standard amount of tax increment to be used on new loans will be 75%. First reading is on May 21, with a public hearing and second reading on July 2.

BL2019-1630: This bill would create certain requirements for any new or amended TIF districts passed in the future. The requirements would match the changes to existing TIF plans made in BL2019-1645. This is to make sure that the terms of any future new TIF districts will match the changes we make to existing districts now.

BL2019-1644: This bill creates two reporting deadlines. MDHA, Metro Finance, and the Mayor’s Office would have to let the Council know by Oct. 31, 2019 which agencies or departments will be assigned to implement the committee’s recommendations. And by Dec. 15, 2020, they would need to report on the status of implementing the recommendations. First reading is on May 21. Second reading is anticipated to be June 4.

BL2019-1613: This bill is mostly administrative. The committee recommended two minor initial changes in MDHA’s annual TIF reporting. This bill would change the due date for MDHA’s annual report, and require the report to include MDHA’s goals and results for DBE contractor participation on projects with TIF loans. This is set for 2nd reading on May 21.

I will provide updates as these bills move forward.

TIF Study & Formulating Committee report is out today

Since last November, I have been the chair of the Metro Tax Increment Financing Study and Formulating Committee. This is a new group to study how Metro uses tax increment financing and to formulate recommendations for its implementation in a more transparent, equitable, effective, and understandable manner.

The committee’s report was released today.

I’ll be writing more about this in the coming weeks. For now, here is the report and the press release that went along with it.

The myth that “belt tightening” could fix the budget

A year ago, many of us argued that Metro’s property tax revenue was out of step with the city’s historical practices and that this was the leading cause of Metro’s budget problems. Links to my posts from last year are here.

The counter-narrative from the Mayor’s office and a slim majority of the Council was that the city could “tighten its belt” on expenses to solve the budget problems.

The Mayor’s budget for the current FY19 — which the Council ended up approving last June — called for Metro departments to cut $11.5 million in expenses through the course of this year. You can see that at p. 18 of last year’s budget presentation:

and at page 5 of this year’s presentation:

For the Council, this amount of belt tightening wasn’t enough and a “Blue Ribbon Commission” was created to find more cuts. After working on this project since last fall, the Blue Ribbon Commission has suggested that another approximately $19 million of expenses should be trimmed from the Metro and MNPS budgets. See page 32 of this year’s presentation.

I have confirmed that the Mayor’s proposed budget accepts and adopts all of the Blue Ribbon Commission’s recommendations about cutting expenses for the upcoming FY20.

The upshot is that even after slashing $11.5 million in expenses in FY19, and planning to cut another $19 million in FY20, the budget is still a mess and has to rely on $41.5 million of one-time non-recurring revenue to make ends meet.

Last year, the numbers didn’t lie. There was no reasonable way to cut enough expenses to pay all the bills of a growing city. The Mayor wanted to give it a try anyway. But, now that we know chopping $30 million in expenses does not fix the city’s budget, I hope we can get focused on the revenue side instead.

1st thoughts about Mayor’s proposed FY20 budget

Late in the afternoon on May 1, the Council received a PowerPoint presentation about the Mayor’s proposed FY20 operating budget. I pushed out a series of tweets that evening with my first thoughts. Here they are:

I’ll get more information out about the budget and potential next steps in the coming weeks.