Author: Bob Mendes

Bob Mendes represents all of Nashville as a Council-At-Large member of Nashville’s Metro Council. He is Chair of the Council’s Charter Revision Committee, a member of the Metropolitan Audit Committee, and a member of the Council’s Budget & Finance Committee, Rules & Confirmations Committee, and Ad Hoc Affordable Housing Committee. Bob also practices business law at Waypoint Law PLLC. Bob’s complete bio is here. You can follow Bob @mendesbob.

Metro’s Audited Financials as of 6/30/2018

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 2018There 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 bob.mendes@nashville.gov or @mendesbob.

 

…more on the proposed AMZN incentive…

At the Council Budget & Finance Committee yesterday, the administration gave an extended description of how beneficial Amazon will be for Metro. The numbers were flying so fast, and (so far) not supported by any documentation, and it was hard to keep up. But the gist of the administration’s argument is that there will be many tens of millions of dollars of financial benefit to Metro because Amazon is coming to town and, therefore, the $500 per job proposed incentive is a no-brainer.

I pushed back on that…and that got some twitter coverage:

I’m going to try to give more nuance to my argument on this.

For context, remember during transit when the core foundation of the argument in favor of the referendum was “a gazillion people are going to move here in the next 20 years…so we better do whatever it takes to accommodate them.” Compare that to now when 5,000 of those gazillion are in fact going to move here in the next 2 to 7 years. Now, the argument is “these 5,000 people are going to create a huge amount of new property tax, sales tax, and personalty tax revenue that we really need and want, so let’s pay them an incentive.”

I view the claim that the 5,000 will create enormous new revenue that Nashville could never otherwise obtain to be false, or at least a half-truth. If someone wants to make the argument that Amazon is bringing Nashville a certain amount of new revenue more quickly than we would otherwise get it, I am all ears. But when you figure the value of them moving here, you just can’t count ALL of the revenue they create — we should only be counting revenue that we would not get in some other way.

As an example, let’s talk about property tax revenue. I feel confident that the owners of Nashville Yards fully intended to build a building on the Amazon site sometime in the next 5-7 years, at the latest. Now with Amazon coming to town, the building might be built in 3 years. So, I am open to a discussion about the value to Nashville to getting the property tax revenue for those extra 2-4 years. But don’t tell me that ALL the property tax revenue for the rest of time is due to Amazon coming to town.

Like most everyone, I’m glad that Amazon has chosen Nashville. We need a fully honest discussion of the economic benefit. Not pie in the sky overblown statistics.

Some things I think…

For a brief moment, I think there is no complicated legislation pending before the Council. Soccer, transit, transit oriented development, freezing tax increment financing, and an anemic operating budget are all in the rear view mirror. Amazon, the Church Street Park land swap, and next year’s more anemic budget aren’t here yet.

I know this lull won’t last. I’ll take this chance to throw out some quick thoughts about several topics:

  • The “no economic incentives for Amazon until employees get their raise” resolution before the Council on December 4 is a sideshow. If you’re against the Amazon incentive, just vote against it when it comes before the Council. The current fiscal year is nearly half over. Employees didn’t get their cost of living increase. I worked hard for a different result…but it’s too late to do anything about it until the next budget season. Again, my advice is to handle budget issues in the budget. And, if you can’t vote for the Amazon incentive, just vote ‘no’ whenever it comes before us.
  • In an ironic twist, I hear through the grapevine that the administration might not resist this resolution because Amazon wouldn’t get any money for a few years (i.e., not until after the 2019 Metro elections), and by then employees would have gotten a cost of living increase. It’s ironic because it is hard to imagine the cost of living increases happening without an increase in the property tax rate. So, if they say “no big deal, the COLAs will happen before Amazon gets money,” it will essentially acknowledge an intent to raise the property tax rate after August 2019 but before they pay Amazon an incentive.
  • If my colleagues want something in exchange for approving the Amazon incentive, they ought to have their eyes on the enormous amount of sales tax revenue being collected out of the Council’s control at the Convention Center Authority. Last summer, the administration raided this stockpile to the tune of $10 million per year. There’s more to be had there…and that would be a more meaningful and long-lasting win.
  • Metro’s annual audited financials will be released in a few weeks. State law allows an ongoing audit to be discussed in an audit committee executive session. So, as a member of the Metro Audit Committee, I’ve seen a draft of the audit in an executive session. Due to a change in accounting rules, Metro’s unfunded retiree benefits obligation has to be restated this year. I’ve already been talking for a while about this completely unfunded obligation going over $3B this year. With the new accounting rules, the number in the audit is going to be around $3.9 billion. That means Metro is going to cruise straight through the $3 billion range and cross over $4 billion in 2019.  That’s a lot of unfunded retiree benefits.
  • About the ongoing Tax Increment Financing Study Group, I think we are on track to recommend some meaningful changes. We’ve got a robust web page up. Follow the link there to “TIF Committee Document Library” and you’ll find just about anything you could want to know about TIF generally and also about how it is used here in Nashville. Here’s a video of our November 20 meeting.
  • While we work on the TIF study group, I think deeper changes are needed at MDHA. The Tennessean’s Nov. 21 reporting about conflicts of interest was pretty brutal. I think they need re-invention and not incremental change.
  • I get lots of people asking me who will run for Mayor in 2019. I only know rumors, which means I don’t know anything. As reported in the Scene in September, here’s what I am looking for in a candidate for Mayor:

“We Nashvillians are an optimistic bunch, and for good reason,” says Mendes. “But we need a dose of honesty injected into our politics — honesty about inequalities that hold us back and honesty about deals that move Nashville forward. I’ll be looking for a candidate who believes in a better Nashville and who believes that citizens truly are partners in government. Partial truths and con jobs need to end.”

I hope everyone has a happy holiday season!

 

Bob

Church Street Park Appraisal(s)

Metro has posted an updated appraisal of Church Street Park dated October 12, 2018 here.

The cover page of this update refers to a September 12 revision also. I asked for that. It’s not on a Metro web site. But I’ve posted it here. The values are different — about $5.5 million in the September version and about $4.6 million in the October version.

I have more thoughts about this…but I’m short on time today. So just three quick notes:

First, there is an assumption baked into the appraisal that I think a lot of people would disagree with. The appraiser suggests that there is not a demand for park space downtown. The comment is:

“…the current demand for public green space is unknown in the Central Business District. It would be nice but, other than for a select few, the park is underutilized.”

Aside from this questionable assumption about the need for park space downtown, I think we have to assume that “select few” is a really bad choice of words in referring people who are experiencing homelessness.

Second, I believe there is an error in the appraisal that impacts the appraiser’s conclusion. This needs to be fixed.

Page 32 of the most recent version looks at some comparable sales — two of them are 805 Lea and 421/425 5th Avenue South. You can see the sale dates for the two properties listed in the chart on page 32. It says 805 Lea was sold in 2016 and 421/415 5th Ave S was sold in 2018:

The same two properties are listed in another chart on page 37 with the sales dates reversed from the first chart:

Online property records suggest that the chart on page 37 is correct:

This should be corrected.

Third, the whole point of my legislation a few months ago about getting an updated appraisal was to have it take into account any changes to zoning and entitlements that the developer will seek (and get). I’m told that this information is not available at this time and that I should go ask the developer.

I probably won’t do that. Instead, I think I’ll wait for legislation to come to the Council (next year, I’m told). At that point, as required by the law the Council passed in August, I’ll look to receive an updated appraisal that reflects the zoning and entitlement improvements being sought for the developer.

The Other Charter Amendments

With early voting starting, I am getting a lot of questions about the other Charter amendments — Numbers 2 through 6.

The text of the proposed amendments is here.

A good round-up by Tony Gonzalez at WPLN is here.

(I’ve already posted about Amendment #1 on community oversight. I am voting FOR #1. My previous post is here.)

My thoughts on #2 through #6 are:

#2 — This amendment adds a new provision about what would happen if both the Mayor and Vice Mayor were unable to serve. Currently, the Charter is silent about what would happen. This is definitely a very low-probability event, but earlier this year, it became clear that if David Briley had been unable or unwilling to serve as Mayor for any reason, the seat would have remained vacant until the next election. This amendment fills the hole. If passed, the new provision would have the Council choose a temporary mayor. The person selected would not be allowed to run for the office. This is supposed to keep the Council from getting too bogged down in the politics of trying to figure who would get a head start in an election. I am voting FOR #2.

#3 — This amendment talks about when a special election will take place when various seats are vacant. Most of this amendment is just clarifying language. The biggest change in this one is about when to hold a special election for a vacant district council seat. Currently, if a vacancy will be less then 12 months, there is no special election. The amendment would change this threshold to 8 months. There are pros and cons both ways. With the current 12 months, an individual district may suffer from having no leadership for up to a year. The problem with shortening it up to 8 months is that there could be scenarios where a Council member might resign with 8 months and a day until the next scheduled election. Under the new language, that would trigger a special election. The special election would take about 70 days to organize, and then another few weeks for the Election Commission to certify the result. In that case, the winner would be getting sworn in with just about 5 months until the next election (and therefore immediately begin campaigning). On this one, I am close to indifferent and may let “if it ain’t broke, don’t fix it” guide me to vote AGAINST #3.

#4 — This amendment would change the oath of office for Metro positions to include a promise to uphold the Metro Charter. I am very indifferent on this because we are obligated to uphold the Charter whether it is in the oath of office or not. That said, I believe I will vote FOR #4.

#5 — This amendment would extend term limits for Council members from 2 terms to 3 terms. The argument behind this one is that term limits are said by some to have further watered down the power of the Metro Council and tilted our form of government even more in favor of the Mayor. I have two reasons why I’ll vote against this one. First, voters in Davidson County reject the idea of extending term limits every chance they get and I want to be responsive to that. Second, I suspect that Council members would not gain much more skill or influence or knowledge in years 9 to 12 than they do in years 5 to 8 in the Council. I’ll vote AGAINST #5.

#6 — This amendment would update the Charter to use gender neutral terms throughout. If you read the Charter now, it is striking how dated the terminology is. I will for FOR #6.

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.

No Free Lunch

Is it possible to have A+ top-notch civic services and amenities AND a super-low property tax rate (both historically & compared to other Tennessee cities) AND no income tax?

There are two potential answers: “Of course not! That doesn’t make sense.” and “I don’t know. Maybe it works with enough tourism money and people moving to town??” The Metro government by its choices is going with the second of these and trying to make it work.

I think the lesson we’re learning is that “there’s no such thing as a free lunch.” The city does keep adding top-notch amenities and the tax rate is super-low. But, this is not free by any means. Let’s look at the evidence.

Metro has had to renege on pay plan promises to employees:

The city’s debt as a percent of its budget keeps growing even during a boom time:

Metro’s FY19 Treasurer’s Report disclosed that Metro’s long term debt per capita has risen to be the second highest of any big city in America:

Meanwhile, Metro’s unfunded retiree benefit obligation (OPEB) keeps growing. This is now a $3 billion obligation that is NOT included in the long-term debt numbers:

For comparison, the State of Tennessee has an operating budget more than a dozen times bigger than Metro’s budget, while the State’s unfunded retiree benefit obligation is smaller than Metro’s (at $2.6B):

People will continue to argue about whether to blame a low tax rate, economic incentives, or both. But for now, does it matter? The Metro government already has chosen by its actions to have very tight revenue for at least the next few years. I believe that any new discretionary spending must give Metro a reasonably good short term financial return. Otherwise, I don’t see how Metro can rationalize spending the money.

Let me wrap up by reminding everyone that Nashville has a broadly booming economy. This situation comes with a lot of opportunity. The city must reassess and fix economic incentives and the tax rate. Both need to be right-sized so that the city government can excel at providing schools, police and fire protection, and other basic government services.

I’ll vote in favor of the community oversight referendum

The Election Commission voted today to put the Community Oversight Board referendum on the upcoming November 6 ballot. I’ll vote in favor of the referendum.

Nationally, community oversight and advisory boards comes in many shapes and sizes. All have strengths and weaknesses. There probably are not any examples that make everyone happy.

If you want to learn about the different approaches and models, and their pros and cons, you can start with this PBS Frontline article from 2016. From there, just google something like “community oversight board strengths and weaknesses” or “civilian review board effectiveness,” and you’ll zero in on the basic arguments for and against the several predominant models. I think this is useful background information for everyone to have in thinking about the referendum.

It is important to me that there is broad consensus that Nashville should have some kind of civilian community board. On November 8, 2017, in an email to Council members, the FOP told us: “The Fraternal Order of Police is not opposed to some manner of an advisory board that is compliant with current law.” At a major NOAH event on October 29, 2017, Mayor Barry also said that she would support a community oversight board if it resulted from a discussion among all interested groups. And now Mayor Briley has also supported the concept in general.

Of course, now we have a specific proposal and it will be on the ballot. The language is here.

Is the referendum compliant with current law? I guess we will find out if a lawsuit is filed, but I think it is. This referendum language fixes several previous legal objections. For example, a complaint made about the legislation that was before the Council last year was that the scope of the subpoena power was unlawfully broad. The current referendum language definitely defeats this objection. The referendum does this by making the power to compel evidence and testimony a part of the Metro Charter. And advocates also are now armed with a Tennessee Attorney General Opinion from March 2018 that suggests the referendum language about compelling evidence is legal.

There was a second significant legal objection to the prior legislative version. The bill the Council considered last year would have required in some instances that the police department follow the direction of the oversight board. This was potentially in conflict with the Metro Charter, which gives the police chief wide discretion and authority to run the police department. To address this concern, the referendum would only allow the proposed oversight board to issue recommendations and reports. Under the referendum, the police department would not be required to accept the oversight board’s recommendations.

There are a few other factors to keep in mind. Civilian oversight of our protectors – locally or at the state or federal level – is a core principle of democracy. Metro already has civilian oversight of the police department. While the police chief has wide latitude under the Charter to run his department how he wants, that power is limited by civilian control. The Charter explains that the police chief “…shall make regulations, with the approval of the mayor and in conformity with applicable ordinances, concerning the operation of the department, the conduct of the officers and employees thereof, their uniforms, arms and other equipment for their training.” Nashville has about doubled in population since the Charter was drafted. It’s not unreasonable or anti-police to add another layer of formality to the existing civilian oversight of the police department. To the contrary, we should all be able to agree that sunlight, transparency, oversight, and checks and balances lead to better results.

Finally, it is Dr. King’s Letter from Birmingham Jail that most compels me to vote for the referendum. His words have as much meaning today as they did in 1963. Here’s the key point:

I must confess that over the last few years I have been gravely disappointed with the white moderate. I have almost reached the regrettable conclusion that the Negro’s great stumbling block in the stride toward freedom is not the White Citizens Councillor or the Ku Klux Klanner but the white moderate who is more devoted to order than to justice; who prefers a negative peace which is the absence of tension to a positive peace which is the presence of justice; who constantly says, “I agree with you in the goal you seek, but I can’t agree with your methods of direct action”; who paternalistically feels that he can set the timetable for another man’s freedom; who lives by the myth of time; and who constantly advises the Negro to wait until a “more convenient season.” Shallow understanding from people of good will is more frustrating than absolute misunderstanding from people of ill will. Lukewarm acceptance is much more bewildering than outright rejection.

Any “yeah, but…” argument that the referendum language could be better just furthers the “myth of time” that Dr. King exposed in his letter. The better path is to embrace modernizing Nashville’s civilian oversight as an important step forward for the city.

Statement about shooting video

The video released today of the officer-involved fatal shooting of Mr. Hambrick is troubling. The video appears to show Mr. Hambrick being fatally shot in the back while running away from the officer. I will reserve final judgment until the investigation is complete and all of the evidence is released. But, this video suggests that MNPD’s active interdiction policies led to a traffic stop for “erratic driving” which in turn led to a fatal shooting in the back.

Nashville prides itself on coming together as a community to solve difficult problems. I call on Mayor Briley and Chief Anderson to not just conduct a policy review, but to immediately, openly, and transparently examine whether MNPD’s interdiction policies are having a racially discriminatory impact in Nashville. I call on Mayor Briley and Chief Anderson to immediately support the creation of a community board to participate lawfully in police policy-making and in reviewing officer discipline matters.

America is an experiment in democracy. America strives to be a more perfect union. Nashville has been and remains an active part of the experiment. Just as America wrote slavery into her Constitution, Nashville from the beginning was built on the backs of enslaved people. In the 1800s, the institutions of Nashville’s government allowed enslaved people to be sold on its public grounds and to be hung from its bridges. From the Hermitage to Belle Meade to Ft. Negley to the State Capitol, forced labor, bondage, and slavery literally built Nashville.

When the Civil War ended slavery, prejudice held fast. We know it took another 100 years before Congress passed the Voting Rights Act and the Civil Rights Act. Did legal desegregation end all systemic government discrimination? We know intuitively that it did not.

Beyond intuition, we know that the 2016 Gideon’s Army report documented that African Americans in Nashville are pulled over for traffic stops more frequently than white drivers. The claim by some is that this difference is entirely due to policing strategies that focus on high crime areas. But talk to black Nashvillians. I won’t recount their stories here, but know that they get pulled over more often and in more places than I do.

This is a difficult topic. For black citizens, it is husbands and sons, and wives and daughters, being pulled over. For officers, the perceived implication that there might be intentional bias is insulting. For all, it is intensely personal and further evidence of a need to unite everyone by creating just policies and review.

Everyone agrees that active discrimination must be rooted out and eliminated. The real challenge is how to talk about implicit, unconscious bias. And unfortunately, while MNPD trains its officers about implicit bias, its highest leadership previously has denied that officers or policies ever exhibit any implicit bias. This approach is confusing. MNPD leadership acknowledges that unconscious racially discriminatory bias exists generally in our society, but has denied it exists in MNPD.

There are strong historical and current reasons to want to ask whether there is a racial bias either in setting policing strategies in Nashville, or in the impact those policies have. As a city, Nashville must insist on asking where and how bias and prejudice may be baked into our institutions. Does the policy choice to create flex units or task forces that intentionally seek confrontation as a strategy to interdict crime have a racially discriminatory and deadly impact? Asking and answering these questions is required if we want a more perfect union.

This is not an academic question. Twice in 18 months in Nashville, these interdiction policies led to traffic stops where white officers shot and killed black men. At the highest levels, the city must examine whether policy choices are a contributing cause of these shootings, and the city must examine whether the impact is racially discriminatory. Confronting these issues head on  will lead to a more just Nashville for all of us.

Will the Council get the Donelson TOD right?

I’m prepping for the Council meeting this week and see the proposed Donelson transit-oriented development district up for 3rd reading again.

I’ve worked hard trying to make this legislation better over the last half year or so. I have decided however to vote against it. I hastily put together two posts about this before the 4th of July holiday. One critiques the financial assumptions underlying the plan, and the other explains why I’ll vote against it. The summary is that this legislation would intentionally spur $300 million of development over a decade without Metro getting any revenue for important services in return. I think this would be irresponsible. A few weeks later, I’m still a ‘no’ on this…but I want to take another crack at talking about how weak the financial assumptions are.

This Metro Council and prior Councils are often accused of too easily letting tax revenue get side-tracked into development dollars. This Council and prior ones also are accused of just going along to get along – especially on complicated financial matters. This legislation is a good example of what successive Councils have passed. A year ago, I think this Council would’ve passed this too. I hope we go a different path now.

To get projects like this created, you start with a great goal. Here, Donelson understandably and deservedly wants a library and coherent development for its historic downtown area. That is a great goal. And then you present the Council with a 22 page single space plan that has lots of details and looks very official. From there, momentum is gathered and legislation is passed.

But let’s look at the financial assumptions behind the proposed plan

This proposed tax increment district will capture ALL new property tax revenue in the district. This is true for existing buildings and new construction in the district. All increases in tax revenue will be side-tracked and none can be used for Metro’s operating expenses until development loans get paid off. This is a new way to do tax increment financing in Nashville. Every other TIF district in Nashville only captures new revenue from individual properties that have TIF loans on them. In calculating the revenue from this new approach, MDHA has assumed that tax revenue will grow by 6% per year for each of the first 10 years, and then 5% per year for the remaining 20 years of the proposed plan. These assumptions are wrong.

(Please be careful to distinguish between appraised property values and tax revenue…they are not the same thing…the former is the value of the property if it gets sold, and the latter is how much tax revenue Metro gets from the property each year…)

First, common sense and our recent collective experience tells us that 5-6% compounding annual growth in tax revenue for every property is not realistic. Metro’s operating budget crunch has been caused in large part by property tax revenue for existing buildings being lower this year than last year. Metro has increased its tax rate only once in a dozen years. Intuitively, it doesn’t make sense to assume 5-6% tax revenue growth compounding year after year for 30 years.

Second, just for a data point, I took a look at the tax records for One Nashville Place, the R2D2 high rise office building downtown at 4th and Commerce. Built in the mid-1980s, its total appraised value in 1990 was $33,299,200.00. With the tax rate at the time of $4.81, the property tax revenue should’ve been $640,677 for 1990.

In 2018, the building’s total appraisal value was $89,245,284.00. Higher for sure, but with the tax rate now at $3.155, the property tax revenue is 2018 was $1,126,275.

In the dead center of downtown Nashville, over these 28 years, this would mean that the appraised value of One Nashville Place increased by about 3.6% per year while tax revenue increased about 2.0% per year. If this is what nearly 30 years of explosive growth downtown gets us, assuming 5 or 6% per year of compounding property tax revenue growth just doesn’t makes sense.

You may ask, “So what? Who cares if some sheet of numbers is wrong?” Here’s why – once you use more realistic tax revenue growth assumptions, there is no new money for Metro’s operating expenses coming from this area for many, many years – probably more than a decade I estimate. This project would intentionally spur $300 million of new development over the next decade and generate no new money for Metro to provide basic government services like schools, police, or fire protection. This would be irresponsible. When coupled with a poorly set property tax rate, this is how Nashville gets A+ gleaming development and has to renege on employee raises.

Finally, remember that these districts are beyond the Council’s control once they are created. If we pass this legislation, the Council will never be consulted on a single TIF loan in the district. If we pass the legislation, the Council can never make changes to the Donelson transit-oriented development plan unless MDHA also agrees to the change. Because of these factors, this legislation has more permanence that most of what the Council does.

I appreciate all of the hard work that has gone into this legislation, but I can’t support it.

I’m a ‘no’ for the Donelson TOD

Tomorrow, the proposed Donelson transit-oriented redevelopment district is back before the Metro Planning Commission. I have been working for many months to see whether the legislation could be improved so that I can support it. I don’t think I am going to get there and I want to explain why.

There’s not much time left before the Planning Commission meeting tomorrow…so I’ll do this in bullet points:

  • Here’s my April 16 update about the Donelson TOD. At that point, I was feeling good about the general direction of the legislation. Since then, Metro has been through the budget process. The final budget the Council passed on June 19 has Metro relying on selling one-time assets, repealing an employee pay plan, and shortchanging schools on their requested budget.
  • I have also now seen the financial assumptions supporting the proposed Donelson TOD. My thoughts about those assumptions are here. In summary, there’s no question that, in the early years of a Donelson TOD, there would not be any new revenue for Metro to cover the new operating expenses that would go along with a few hundred million dollars in new buildings. Given the current budget crunch, I cannot see how it is a good idea to voluntarily take on new budget requirements where there is no offsetting revenue to Metro.
  • Since the last Planning Commission meeting on May 24, the Planning staff has conducted a review of the affordability of the area immediately surrounding the proposed Donelson TOD. According to the staff, of the housing units in the area currently, “90% are affordable at 100% of [Area Median Income, or “AMI”], 75.4% are affordable to moderate income (80% of AMI) households and nearly 62% are affordable to low income (60% of AMI) households.” In other words, the Planning Department believes that the area is currently relatively affordable. We can expect that concentrating government incentivized large scale development will erode the affordability of the area.
  • One of the main arguments in favor of transit-oriented development is that it provides options to include affordable housing. However, surely Nashville won’t want to create a transit-oriented development district in order to provide affordable housing to replace the affordable housing that will be lost due to transit-oriented development?
  • The legislation being reviewed by the Planning Commission tomorrow would allow MDHA to set affordable housing goals in the district. I believe those goals should be set by the Mayor’s office in consultation with the Council. Also, the goals for affordable units to be preserved and built in the district should be established before the Donelson TOD is passed into law. No goals have been set at this time.
  • The legislation being reviewed by the Planning Commission tomorrow would allow the “design review committee” to be selected, in part, by the Mayor. As I understand it, MDHA wants to have the exclusive ability to appoint the members of the design review committee. This issue is currently unresolved.

Councilmember Jeff Syracuse has worked tremendously hard to balance all of the competing interests. I certainly appreciate all of his hard work. But for now, I have to respectfully choose to be a ‘no’ on the Donelson TOD legislation. I don’t think Metro can afford to take on new operating expenses with no revenue in return. The area is currently relatively affordable. There is no goal proposed for preserving or adding to affordability in the area. There is no pressing time concern. To me, this just isn’t the right time for this district.

 

Financial assumptions behind Donelson TOD

This is the first of two posts about the proposed Donelson Transit-Oriented Redevelopment District. I have been working for many months to see whether the legislation could be improved so that I can support it. I don’t think I am going to get there and I want to explain why.

This post will talk about some of the nerdy financial assumptions behind the plan. First, the proposed plan asserts that $300 million of new appraised real estate value will be added as a result of the plan. The proposed plan further asserts that only 30 percent of the anticipated new property tax revenue from the district will be needed to pay for a proposed $30 million in new tax increment financing loans.

The MDHA financial assumptions behind the claim that only 30 percent of the expected new tax revenue will be needed to support the proposed $30 million in TIF loans is here. The claim that only 30 percent of anticipated new revenue will be needed to support the TIF loans is critical. The argument is that the proposed Donelson TOD will create enough value to not only pay the TIF loans, but also provide a lot of money for Metro to provide other important government services.

I question the assumptions. First of all, the entire spreadsheet is built around the idea that tax revenue will increase in direct proportion to increases in property value. However, Nashville just learned the hard way during the budget season that this is demonstrably false. Property tax revenue does not track directly with appraised property values.

In fact, I picked four parcels in the proposed Donelson TOD district at random and checked on the taxes they paid in 2014 compared to this year. Two parcels had their taxes go down, and two had their taxes go up. One parcel had its appraised value go up by 40% since 2014 while the tax bill went down by 1.6%. Another property had its appraised value go up by 24% since 2014 while the tax bill went down by 13%. For these properties, the appraised value skyrocketed in just a few years, but there was no corresponding increase in tax revenue.

If Nashville sticks to its current practice (i.e., property value reassessments every 4 years which drive the tax rate down, but only one offsetting rate increase since 2006), the spreadsheet supporting the Donelson TOD is completely busted and, frankly, entirely speculative.

There are other assumptions that seem odd to me. For example, columns (c) through (g) are all about tax revenue from existing buildings. The chart suggests that 2019 revenue will be higher than 2018 for existing buildings, and that the revenue will go up again each year after that. Again, during the budget process, we just got done seeing that, for existing buildings, revenue for 2019 (and probably 2020) will be the same as in 2018. So, column (g) should not be going up for 2019 or 2020. And for the years after that, it is guesswork.

The bottom line for me is that, during the early years of the proposed Donelson TOD, I don’t think the district will generate enough new tax revenue to pay the new TIF loans. And for the first 3-5 years at least, there will not be any extra revenue going to Metro for additional police, fire, school, or infrastructure costs. If Nashville were to decide to create the Donelson TOD, we would be signing up to take on more operational costs for the city without getting any corresponding income to pay for it.

As always, I am happy to entertain counter-arguments. And I would acknowledge that, on a 20 or 30 year time horizon, Metro might be able to recoup these costs assuming the city figures out again how to periodically set its property tax rate correctly. But, there’s no question that, in the early years of a Donelson TOD, there definitely would not be any new revenue for Metro to cover the new operating expenses that would go along with a few hundred million dollars in new buildings.

Updated FAQs about proposed 50 cent rate correction

As we get into the last few weeks of the Metro budget process, I have updated my frequently asked question list. You can see it here.

Also, for a longer discussion of the budget, check out the Nashville Sounding Board interview that Council member Tanaka Vercher and I gave a few days ago.

The new FAQs list is pretty thorough, but if you want to read my previous posts about the budget process, they are here:

um…about the budget… (May 11)

Out of step with historic practice (May 18)

The budget problem and the proposal (May 18)