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.

Body worn cameras — what’s the status?

There is confusion about the status of deploying body worn cameras in Nashville. Samantha Max at WPLN had a good story earlier this week that lays out the history of delays. Other media also have reported extensively about the evolving time line and cost. Before I get into my perspective about what has happened, I should explain some context for my perspective.

The context

The information I am relying on has been gathered over the last few years. It comes from some who are new to government, and many who have been in government through three or more mayors. It comes from multiple departments. I don’t think I am relying on any one person for any information I lay out today.

My purpose in writing this is not to assign blame. I have guesses about the (mostly good) personal motivations of the individuals involved, but that doesn’t matter. What matters is moving forward. And we’ve reached the point where I don’t think the government or the public will be able to effectively move forward on body cameras without a broad understanding about what has happened.

While I don’t seek to assign blame, some will want to draw conclusions about blame. I am trying my hardest to not worry about the intent of anyone involved. First, to move forward, the city needs a process that is bigger and better than any one person’s intent. Second, I have a hard time looking into another person’s soul to decide intent. I’ll use a sports metaphor to make this point.

If there is a point guard in basketball who shoots a lot more than he passes, the team will almost always be bad. From the outside, it looks like an intent to hurt the team. And sometimes, the point guard is selfish and doesn’t care much about the team. But other times, the point guard genuinely thinks that every shot is an awesome shot and he just can’t help himself but to launch the ball without passing every time down the court. For me, when I see a point guard doing that, I’m not sure I care whether he’s fundamentally a jerk or just thinks every shot is a good shot. Either way, I know the coaching stinks. The problem can always be solved by some combination of benching the player or coaching the player. Bottom line — I’m not getting into intent or blame today, but I will talk about the coaching.

So, what happened?

The inability to deploy body cameras in Nashville before now is another fundamental failure of leadership. The dynamics behind this failure are similar to the reasons why the budget is a mess. It’s easy to have press releases and talking points. It is more difficult to build and guide a functioning team to accomplish needed change. From my seat in the Metro Council, it is easy to feel like “leadership” means the full-time Mayor with full-time staff. But, I know that from the public perspective, “leadership” means all of us who are at the top of the organization chart.

I believe that, at this moment, MNPD has spent a portion of the capital money that it was appropriated (mostly on servers, storage, and other IT infrastructure) and wants to move forward with more purchases (mostly of cameras), but many of the other parties involved are concerned whether MNPD may be throwing good money after bad. There are concerns about whether the infrastructure that MNPD has built will work, whether it is the correct infrastructure for the job, and that there is not an adequate plan about how the infrastructure will work with other departments. There is also significant concern that the new operating costs of a complete deployment are not known and are not feasible given the current budget crunch. It appears that MNPD may have a preference for pointing to the budget issues for the current delay. Others would point to the other concerns I have mentioned as the reasons for the current delay.  I think the Mayor’s Office is working very hard, aggressively even, to get a reasonable, effective deployment in the field as soon as humanly possible.

Let me get into some of this in more detail.

It seems clear to me that there has not been effective teamwork among the Mayor’s Office (over the last few years), MNPD, the DA, the PD, and the courts. MNPD has what appears to be its own game plan and has been executing it. The DA has been louder than most of the others in letting us know that he has important questions about process and cost. The others have raised similar issues, but more quietly. I have heard some say that there has been no coaching or central control or team captain for this process. I have heard others say that MNPD has been in charge. Either way you look at it, the teamwork has been poor. And the result is that MNPD has moved in a direction that the others have questions about.

I’m told by multiple sources that the technical architecture of the system is unique. The federal government and others use cloud storage. MNPD has purchased physical servers. Those servers are subject to laws that don’t allow non-law enforcement people to use them. That means there is no current way for defense lawyers to review information on the system that is being built. I could go on, but you get it. MNPD believes they are building a better mouse trap. Others are less sure. Either way, the system is apparently unique and never been tested in real-time. I think this factor alone would make a large scale immediate deployment foolish. Before MNPD moves forward with purchasing the thousands of vehicle mounted and body worn cameras that it wants to buy, the other departments in the system need to have some confidence that it will work and that they will be able to interface with what MNPD has designed and built.

The poor teamwork has created other problems too. I believe that, as of today, there is no plan for where and how defense lawyers would review video. There are also multiple approaches around the country for how to deal with redacting personal information or the images of minors in households. There are pros and cons for each approach. But there has been very little conversation in Nashville about what approach to take. The answers to these and other open questions will in large part drive the new annual operating costs of the system. In fact, the main reason why nobody can tell us what the ongoing operating costs will be is because the poor teamwork has prevented these issues from getting anywhere close to solutions.

This narrative gets to the core of several key question…here’s the summary:

Where’s the money? MNPD has spent capital dollars so far mostly on servers and storage. I think they want to move forward with purchasing a large number of cameras. Others aren’t sure MNPD’s system will work without sufficient real-time testing.

Where do we go from here? Nashville is good at implementing whatever its 2 or 3 most important projects are. The poor teamwork that has plagued this project has to stop. There needs to be a coach who is calling the plays, and the players need to run the plays. If we (the public, the media, the Council) are not really clear about who is calling the plays, then we know that nobody is and this ineffectiveness will continue.

When I look at all of these factors together, I believe that the best approach would be to buy just enough cameras to have a meaningful test of the technical infrastructure that has been built. That would get the apparently novel storage infrastructural operational. An initial deployment would also give the various other departments involved a chance to work through the unresolved issues without grinding the gears of justice to a halt. It would also provide real information about any new operating costs.

I may get criticized for parts of this analysis from multiple angles. If that happens, so be it. I’m trying to wear my problem solving hat today. At this point, ideas about how to make the system perfect are less important than getting the beginning of a good system fielded absolutely as soon as possible.

MNPS 3% for Jan. 1 — what just happened?

This morning, the Mayor announced that he had identified a mechanism to pay MNPS employees the 3% raise that Mayor Briley promised them would start on January 1, 2020. Before I explain how it is being funded, some background:

  • The Briley announcement happened in July right AFTER the budget was finalized. He claimed that there would be recurring revenue of $7.5 million per year and that it wouldn’t need Council approval. The source was going to be a re-financing of some MDHA tax increment financing loans with Regions Bank. The announcement was criticized widely as a campaign gimmick. Even inside Metro, nobody understood how it was going to be recurring and nobody understood how to get all $7.5 million to MNPS.
  • This entire conversation about a post-budget, no Council approval, supposedly recurring mid-year raise for MNPS happened only because the Metro government has systematically short-changed employees on pay for many years now.

What was Briley’s plan?

Briley’s administration announced that the $7.5 million would come for an MDHA TIF loan restructuring. I wrote about the details of this funding mechanism in July. There were two things that weren’t known at the time — was it really recurring, and how would MDHA get all of the refinancing proceeds.

About the “recurring” issue, the current administration tells me (and the Mayor said this morning) that this is not recurring. Even back in July, MDHA acknowledged that this funding would require an annual waiver by Regions of its rights to keep the $7.5 million themselves. At best, both in July and now, you could say that you expect that it will continue to happen. But there is no legal right for Metro to get the $7.5 million in future years. That is up to the discretion of the bank, I am told.

About the “how does MNPS get the full $7.5 million” issue…this is complicated. This $7.5 million is property tax money. To understand why the prior administration’s assertion that all $7.5 million would go to MNPS was questionable, you have to understand how property tax money flows through the operating budget. Boring stuff. But important here.

I wrote a TIF step-by-step post in 2018 that explains the process. In summary though, all property tax revenue is automatically divided between Metro’s six “Funds.” Focus on the word “automatically.” Upon receipt of property tax revenue, the money is automatically divided among the six Funds. So the Briley idea that all $7.5 million would go to one of the six Funds — the School Fund — was inconsistent with the way Metro handles property tax revenue.

Under the current operating budget, the School Fund gets about 31.5% of all property tax revenue — so roughly one-third of property tax revenue. Under the Briley plan, nobody ever explained how the other two-thirds that would be allocated automatically to the other five Metro Funds would make its way over to MNPS — especially without Council approval as had been suggested.

What is Cooper’s plan?

At the press conference today, the administration explained that there are two sources to pay for the $7.5 million needed for the January 1 MNPS raise — the MDHA TIF refinancing and “Fund Balance” money.

They told us that $2.5 million would come from the MDHA loan deal with Regions Bank. This matches up with how the automatic allocation of property tax revenue works. That means that the waiver from Regions was worth $7.5 million and, of that amount, approximately one-third ($2.5 million) was allocated to MNPS.

(We should pay attention to the other $5 million that went to other Funds. I believe this means that the city just got $5 million closer to closing the $41.5 million gap in the current year operating budget.)

The administration also told us today that the rest of the $7.5 million is coming from Fund Balance money. The Fund Balance is basically money that has been appropriated in prior years but is unspent. It is typically impossible to get a budget to be spent precisely to the dollar. For obvious reasons, it is better for a department to come in better than budget rather than over budget. When a department ends a year without having spent all the money it was appropriated, the unused money is called “Fund Balance.” Ideally, you would have the Fund Balance accumulate slowly over time.

The Comptroller had two slides that referred to MNPS’s Fund Balance. Like the rest of Metro’s operating budget, for several years now, we have making ends meet at MNPS by using up the accumulated Fund Balance. The audited numbers show that, as of June 30, 2016, the MNPS Fund Balance was about $74 million. Two years later, as of June 30, 2018, the MNPS Fund Balance had eroded to about $35 million. Mayor’s Cooper’s plan is to use Fund Balance money to pay for the rest of the January 1 raises.

Handling the raise this way will require both school board and Council approval in December 2019.

What does it all mean?

Mayor Cooper was clear today that these are not recurring revenues. He committed to work with MNPS and the Council to find recurring revenue in the next full year budget to make this pay increase permanent.

The threshold question we are all facing is whether the city will honor Mayor Briley’s promise to provide the January 1 raises to MNPS. There are nothing but bad answers here — we can either disregard the promise as a flawed gimmick and further push MNPS morale in a bad direction, or we can pay for it with non-recurring revenue (coupled with a verbal promise to make it recurring in the next budget).

I support the decision to fund this. As a city, we have to start on the road to repairing employee compensation somewhere. They deserve this and more.

I support this mechanism for funding the January 1 raise. Briley came up with a mechanism that was not recurring and that was inconsistent with how Metro’s finances work. Cooper has a mechanism that he is transparently saying is not recurring, but at least makes sense within the framework of Metro’s finances.

Do I wish this raise had been funded in the June 2018 budget process? Yes.

Do I wish this raise had been funded in the June 2019 budget process? Yes.

Do I wish the former Mayor hadn’t unilaterally volunteered a raise that wasn’t covered in his own budget? Yes.

Is it good to continue to spend down Fund Balance money? No, not really.

But we are where we are — the promise was made. Employees have counted on it. My decision is that I’d rather pay for these raises and deal with finding recurring revenue in the next full year budget than yet again have Metro renege on a pay promise to employees.

Optimism AND reality

I am optimistic about Metro fixing its finance problems. It also is important that we be realistic too.

For each of the last two years, I and others in the Council have proposed a 50 cent property tax rate increase. I said each time and will repeat now — a 50 cent increase would not have paid for any new government services whatsoever.

Instead, the 50 cents — which would have generated about $162 million per year — was to stop Metro’s financial slide backwards. That new revenue would have provided money to fund promised pay raises for Metro employees, fund our schools, pay known and anticipated debt, replenish Metro’s 5% fund savings, and cover basic minimal inflation. Again, the 50 cent increase would not have paid for any additional sidewalk funding or extra employee or new anything.

So far, the known new revenue found since the election is $12.6 million from the Music City Center. I completely agree with Mayor Cooper’s goal of finding as much new revenue as possible and eliminating inefficiency in government. But, you can see that it will be difficult to find enough revenue or cut enough expenses to equal the $162 million per year that the 50 cent rate increase would generated.

I have pushed so hard for a rate change — including in an election year — because I have believed for some time that we would need one rate change to stop the city’s finances from sliding backwards and a second to start moving forward in providing needed new services for our growing city.

In these situations, it is always a challenge to find the right path forward. Often, footing shifts, and you have to change paths. Finding just the right mix of things to carve back and things to expand, old things to end and new things to start, is a challenge.

For now, my general ground rules are:

  • Any new significant spending for the operating budget is not practical. To be blunt, as an example, assuming the city could get rid of CoreCivic from the jail on Harding Place, there is no way to pay for the additional cost at this time. We need to see the city paying raises for employees, funding our schools, paying known and anticipated debt, replenishing Metro’s 5% fund savings, and covering basic minimal inflation before we can consider any new net costs in the operating budget.
  • The same goes for capital spending that comes with recurring new operating costs. So rebuilding a bridge is okay. But buying things that would require new employees to operate is not practical today.
  • Capital spending on necessary infrastructure must continue. Capital spending is supported by bond debt over 20 to 30 years. This makes the cost of roads and bridges and buildings get spread out over a long time. It’s affordable that way. Also, delaying needed capital improvements just ends up costing more money. (Your water heater costs less to replace before it breaks and causes water damage in your house…the same works for government…normal capital replacement costs less than running things until they fail.) It is very important to maintain scheduled infrastructure capital spending.
  • Economic development is a difficult, mixed bag.
    • I have criticized that this city does not have any written or unwritten policy about what economic development we want to support and where. Without that, Metro gets the widespread criticism that there is now.
    • Very few people think that there should be zero economic incentives. Most everyone would agree that there should be some economic development incentives so long as we have civic agreement about what we are investing in.
    • We have seen the city’s reputation with employees get trashed over the last few years when Metro reneged on its promised pay raises. Do we want to export that reputation outside of Nashville by backing away from deals we have already made with different businesses? I don’t think so. The most difficult developing story is the fact that there seem to be extra costs and handshake deal parts of various ongoing development projects. I think the city is going to struggle with how to honor its word in situations where only a few people in a former administration really understood what Metro was promising.
  • Over the last three operating budgets, Metro departments have already found over $30 million of recurring savings. As much as this stings some departments, I believe that the Cooper administration should keep pushing the departments for more. I am hopeful that Cooper’s team will find some transformative changes that will save money.
  • Some argue that Metro has mismanaged money and can’t be trusted with ANY new revenue until ALL mismanagement has been purged. To them, I would acknowledge that all government including Metro has waste. The fact that the various departments have squeezed more than $30 million of cuts out over the last several years is some evidence of that. But, this is a BOTH problem and not an EITHER/OR problem. I am all in favor of cutting fat and mismanagement. At the same time, revenue has been choked back also over the last decade and not allowed to keep pace with our growing city. That has to be fixed.
  • I have heard a few people appear to argue for an all-at-once $1.50 rate increase. I don’t think this is realistic. I believe that letting the property tax rate remain artificially low has been terrible for Nashvillians. It has overheated how attractive we are for out-of-town residential real estate investors, which fuels gentrification. But it would be unfair to Nashville’s taxpayers to force the full rate correction into one year. The better approach is to do the hard work of stabilizing the city’s finances first and then assess what additional services the city wants to invest in after that.

This is a difficult balance — but it boils down to keep attacking fat and inefficiency, find as much new revenue as possible before a rate increase, no new operating expenses for now, maintain infrastructure capital improvement spending, judge every existing economic development project based on whether it uses operating dollars (bad), capital dollars (better), or revenue bond dollars (best), and judge every potential new economic development project based on goals and policy (none known to exist today). Every budget season for the next several years, all of these should be plugged into a cash forecast (I believe the Finance Department is working on one) and let it tell you what the city’s cash needs are. From there, we need the political will to move the property tax rate toward meeting those needs.

This approach has something for everyone to dislike. No new operating expenses is hard for a growing city. Cutting is hard. Big projects — whether infrastructure or economic development projects that have already started — feel scary or dangerous. Raising the property tax rate costs people money. I’m optimistic because I know Nashville can do this (and because of the Comptroller’s watchful eye, we have to do it). The realities I have laid out are also reason for optimism. We have options. We don’t unlimited paths forward, yet there are clear steps to take and guidelines to follow to get Metro’s finances in better shape to serve all our neighbors.

Statement about Comptroller’s presentation today

Today, the Metro Council has heard presentations from Metro Water Services about expected water rate increases and from the Comptroller for the State of Tennessee about the city government’s financial condition. (Comptroller presentation here.)

The Comptroller has given us the basic facts. Over nearly a decade, Metro has spent more money than it has earned. The city has balanced its budget by spending down savings and selling one-time assets — all while dropping the property tax rate lower than any other city in the State. This can’t continue. It’s that simple. We know it must change.

It would be easy to be intimidated by the size of the challenge. In these situations, there will be a few who will deny or minimize the issues, and there will be a few who say drastic cuts are necessary. The rest of us — most of us — will want to keep a level head. It took years to get here and it will take years to get out.

While it is fair for people to wonder whether we can fix this, the answer is yes. Nashville has many blessings. We are in the middle of an ongoing economic boom with a growing population, low unemployment, and a historically low property tax rate. We have the tools to balance the budget and rebuild reserves. Nearly any city in America would gladly trade their problems for our struggle to keep up with growth.

It is important that everyone hears the hard and direct facts that the Comptroller delivered today. Then after we have absorbed that information, we will still have the reality that Nashville is strong. Our citizens are strong. Our economy is strong.

At its best, a city government helps people live their best lives. That means safety, education, and jobs. Our challenge isn’t our city, its people, or its economy — it is whether our elected leaders can bring this shared vision to life — and whether we can provide the discipline, honesty, and effort, to have Nashville move together to a brighter future. I think we will.

Next steps

We don’t have a date yet, but the new Director of Finance has told me that he is willing to come back to the Council in December to lay out the framework for a plan of action for Metro’s finances. The administration has been on the job for less than 6 weeks. I expect that the response will continue to be a work-in-progress for some time. But it will be good to hear a preliminary game plan from the administration.

 

 

Reading list for Nov. 13 Comptroller presentation

The Comptroller for the State of Tennessee will make a presentation to the Metro Council on November 13, 2019, about Metro’s finances. In advance of that, I went back and read some of my blog posts about the city’s finances:

Pre-Budget Process Thoughts (May 1, 2016): This was my first budget-related post. I questioned why the portion of the budget being spent on debt was increasing during boom times. I said, “You would like to think that if you absolutely kill it on the revenue side, the percentage of your budget that goes toward debt might go down?  If one were a cynic, one would observe that record-breaking revenue increases can’t go on forever, and ask whether we will be able to anticipate when our revenue increases inevitably recede well enough to also pull back on large increases in new long-term debt.”

Math is Hard (April 27, 2017): I noted that from year to year, Metro kept using different numbers to describe what portion of the budget was going to pay debt. I am still not sure why this was happening. But by 2017, there was no consistent way to measure how much of the budget was going toward paying long-term debt.

Unfunded OPEB liability to cross $3B mark this year (October 9, 2017): This is one of several posts over the year making the point that Metro’s completely unfunded obligation for retiree health benefits has consistently grown more rapidly than the city’s budget. That’s a problem.

Storm has been brewing for a while… (May 5, 2018): After the transition to Mayor Briley, the Council was presented with a bad budget. This was the budget that reneged on employee raises and was called “belt-tightening” by the Mayor. This post talks about how it took multiple years to build up to this bad budget.

um…about the budget… (May 11, 2018): I started this post by saying, “The proposed FY19 Metro budget has been out for ten days now…and it’s not good…and this is just the first year of a multi-year problem.” In response, the administration doubled down on its “there’s no problem” campaign. I and the other Council members who tried to address the problems were painted as alarmists.

No Free Lunch (August 19, 2018): After having lost the 2018 budget battle by one vote, this post tried to show the city’s increasing debt problem along side the city’s increasing unfunded retiree benefit obligations.

Metro Debt Dashboard (September 15, 2018): Like the last post, this one tried to collect data to show how out of bounds Metro’s finances had gotten. This post created some back-and-forth between the mayor and me. Briley told the Tennessean, “And I’m even more surprised that Bob Mendes would put out these numbers about our debt and debt service that are just so fundamentally wrong.” This exchange is relevant only to understand how powerful it is when the mayor’s office with its full-time professional finance and communications staff dismiss facts. In large measure, as recently as one year ago, everything that is now considered “fact” about Metro’s finances was dismissed by the Metropolitan Government as “fundamentally wrong.” That aggressive denial is part of why the city’s finances are where they are now.

Metro’s Audited Financials as of 6/30/2018 (December 15, 2018): This one is long…maybe skip it. But if you want to see the latest about the retiree benefit obligations, read it.

Maybe hold back on the high fives for now?? (March 19, 2019): I wrote this post after the administration announced pay raises for employees and was attempting to portray that like the budget was back on track.

The myth that “belt tightening” could fix the budget (May 4, 2019): The title is self-explanatory.

FAQs – FY20 Better Budget (June 6, 2019): This post collects all of my several posts about the budget Nashville is currently operating under.

Met with Comptroller and Mayor today… (October 3, 2019): This one is my last post related to the budget and what the I expect the Comptroller to discuss on November 13.

As a final note, I want to remind everyone that, while it is easy to focus on Metro’s budget problems, these issues are mostly about growing pains. Nashville has an awesome economy. To fix the city government’s budget, it will take discipline, honesty, and effort. We can do this.

Follow-up on reallocating the Gulch bridge dollars

This is a follow-up on yesterday’s post about Mayor Cooper’s announcement to reallocate $17.95 million of capital spending from the stalled Gulch pedestrian bridge to other infrastructure projects around the city. Here’s my post from yesterday. Here’s a good story that WPLN’s Tony Gonzalez put out today.

As the day ended yesterday, I had several open questions. I can report that the Cooper administration has pinned down the details for me.

The first question was about what had been spent already on the bridge project out of the originally approved $18 million. I’m told that it was about $15,000 for engineering and planning, about $21,000 for appraisal services, about $9,000 to a contractor for repairs and maintenance, and about $2,000 for a right of way easement. That leaves approximately $17.95 million of the original $18 million.

On this first question, I also wanted to know how a $2.66 million payment for additional easements fit in the mix. I’ll be really blunt about this. How the $2.66 million was handled in 2016 is complete crap and an example of why people have a hard time trusting the government. On September 27, 2016, the administration sent an email to the Metro Council with a memo that said the money was coming out of the $18 million approved for the bridge. The memo said, “One key fact is that this legislation [to spend $2.66 million on an easement] does NOT appropriate additional funding for the project. Funding was approved by the Council through RS2013-710 which authorized $18 million in G.O. Bonds.”

In reliance of this memo and its representations about the source of the money, the Council passed the legislation in mid-October 2016. But then when the city paid the money a short time later on December 8, 2016, it took the money from another account. That’s why there is still $17.95 out of the original $18 million left for the bridge funding even though there was a $2.66 million payment for an easement in 2016. This is the Mickey Mouse shell game financing nonsense that drove the mayor’s campaign to a 70% win. I hope this administration does better.

The second question was whether there is $17.95 million sitting in a bank account somewhere, or whether this is approved debt that has not yet actually been borrowed by Metro. The answer is that this is approved debt that hasn’t been actually borrowed yet by Metro. Given the strong need for the various infrastructure projects, I don’t expect this to create much or any objection in the Council.

The third question was whether Council approval is necessary to reallocate money to the new proposed projects. To the administration’s credit, when I requested that we sidestep the debate and just err on the side of bringing this to the Council for approval, they agreed. WPLN quoted a spokesperson saying, “in the interest of full transparency and out of respect for the Council process,” they would bring the spending changes to the Council.

In the end, I think most people are only going to think about this in terms of whether they like the infrastructure projects that will be built. I think almost everyone will like them. But these details about how it works are important.

 

 

About reallocated capital spending dollars

(UPDATED: Oct. 31, 2019 at 4:00 PM, updates are underlined)

(ALSO SEE THIS FOLLOW-UP NOV. 1 POST)

Mayor Cooper announced today that he will reallocate approximately $18 million of capital spending dollars approved during the Dean administration for a Gulch pedestrian bridge to other infrastructure spending around the county. I’m getting a lot of questions about the mechanics of how this works and whether Council approval is needed. The short answer is “No Council approval is required as long as the new proposed spending was included somewhere in the 2013 enabling legislation. Some of the smaller proposed spending items (traffic calming, garbage cans, street lighting) may not fit into a category that was authorized in the 2013 legislation and therefore might have to come to the Council for approval. This is an open question for me as of Oct. 31 at 4PM.

This will necessarily get in the weeds.

The conventional wisdom is that the $18 million for the pedestrian bridge was approved by a Capital Spending Plan in June 2013 by RS2013-710. However, the legislation does not actually ever mention a pedestrian bridge. It simply approved $300 million worth of general obligation bonds that could be spent on a long list of types of projects listed in Section 1 of the resolution.

At the time, the practice was that the Finance Department would issue a memo describing how the money would be spent. Here’s the May 29, 2013, memo that relates to RS2013-710. This memo is where $18 million for “Bridges” was listed. (Even this never mentioned the Gulch pedestrian bridge specifically…just “Bridges.”) This memo and its itemized list of how to spend the money was NOT ever made part of the legislation. I wasn’t in the Council at the time. I’m told that the Council trusted that the administration would spend the $300 million formally approved in the resolution on the things listed in the separate side memo.

Then Mayor Barry and a new Council were elected in August and September 2015. One of Mayor Barry’s early wins was that she found $15 million for sidewalks projects in November 2015. The mechanism was that previous bond resolutions had (like RS2013-710) simply approved a sum of money without specifying in the legislation what exactly would be purchased with the money. This allowed the new mayor to legally shift some previously approved capital spending from what had originally been described in a side memo to sidewalks instead.

In June 2016, when the new Council was considering its first capital spending plan resolution, we wanted to tighten up this process. The idea of shifting money around to whatever capital projects the Mayor wants seemed too loose to us. I asked to have the contents of the traditional side memo to be included with the 2016 legislation. And then-Councilmember Cooper and I worked on adding specific language to the resolution to not allow reallocating funds from one listed category of spending to another without further Council approval.

And then in the most recent capital spending plan resolution that the Council passed in October 2018, I added a further amendment to list out the specific projects that were being funded.

The takeaways are:

  • For capital spending plan resolutions approved before 2016, the mayor has broad legal authority to spend the authorized funds on any project in the city’s approved Capital Improvements Budget and authorized generally by the resolution without regard for what was listed in the side memo that accompanied the legislation. Politically, Mayor Barry caught a little heat for doing this, but spending the “found” money on sidewalks was broadly popular. I’d expect that Mayor Cooper’s announcement today will similarly receive widespread support.
  • For capital spending plan resolutions approved in 2016 and later, reallocating funds would be more difficult. Since the side memo itemization is now part of the legislation, shifting spending could only happen if the new spending were to fit within the same listed category as the originally intended project.
  • Since today’s announcement relates to $18 million approved as part of RS2013-710, I believe that the Mayor has the power without further Council approval to spend whatever is left unspent from that $18 million an any project listed in the City’s Capital Improvements Budget and authorized generally by the resolution. Basically, he can spend whatever is left of that $18 million on pretty much any capital project he wants as long as the general category of spending was included in Section 1 of RS2013-710.

Separate from this analysis, I am still working on learning more about two things:

  • The press release from the Mayor’s office today says there is $17.95 million of the original $18 million left. I’m asking for an itemization of what was spent and what it was spent on. In particular, there was reportedly $2.66 million paid for land easements in 2016 — I’d like to know how that fits into the mix.
  • I’d like to understand whether $18 million of bonds already were issued for this and there is still $17.95 million sitting today in a Metro bank account somewhere, or if this is $17.95 million of approved debt that has not yet actually been borrowed by Metro.
  • Does all of the new proposed spending fit into a category listed in Section 1 of RS2013-710. In particular, does traffic calming ($1.5 million), garbage cans ($500,000), and lighting ($500,000) fit into a category? If not, those new spending items may need to come before the Council.

I expect I’ll get answers to these additional questions soon enough. But I wanted to get this update posted because I am getting a lot of questions about the mechanics of this and whether Council approval is needed…and it is not needed for the majority of the spending, but may be needed for a few of the smaller dollar items.

Please pardon typos. I wrote this quickly.

 

Sheriff decides to no longer house ICE detainees

Today, Sheriff Hall announced that Nashville’s jail will no longer house ICE detainees. This is a welcome change. Thank you, Sheriff Hall.

Our goal is for every one of Nashville’s residents to have faith and trust in their ability to fully interact with city government, whether that’s through schools, the health department or the justice system. Sheriff Hall’s announcement moves our city closer to that goal.

I have been working with Tennessee Immigrant & Refugee Rights Coalition toward the goal of no longer housing ICE detainees in Nashville’s jail for several years. In 2017, I and seven co-sponsors introduced BL2017-743, but that was deferred after first reading. After ICE’s well-publicized actions in Nashville this summer, I approached Sheriff Hall again about this. Under Tennessee law and the Metro Charter, the sheriff has the final say over who is housed in Nashville’s jail.

I along with fifteen co-sponsors were prepared to introduce legislation asking Metro to terminate the contract by which Metro gets paid to house ICE detainees. With Sheriff Hall’s announcement that the jail will no longer house ICE detainees, there is no need for the legislation.

While this important policy change won’t solve all of the immigration concerns in Nashville, today, we can celebrate our city’s commitment to focus first and foremost on the work of local government and making Nashville a safer place for all our neighbors.

We’re a month into the new term…

We are headed into the second month of the new Council term. There’s a lot brewing. Today I’ll talk about some of the money and budget issues facing Metro, but let me start with a handful of the more significant non-money issues:

Non-money issues

  1. New Mayor, New Finance Director, New Legal Director: We have a Mayor who ran on change and now the top three positions on the first floor of the Courthouse have a cumulative six weeks of experience in Metro’s executive branch. They are highly skilled, diving in, and working hard. I assume that we may see some learning curve issues for a while??
  2. Transit: From conversations I’m having with people all over the county (not just the core), I think there’s some appetite to get back to transit sooner rather than later. I continue to believe that a focus on comprehensively good bus service along with substantial gains in sidewalks and bike lanes would be a winning place to start the conversation. I also think that Metro should pick out the worst traffic snarls in the outer third of the county and fix them. For the most part, these are formerly rural roads carrying too much volume and need to be upgraded no matter what the city does with transit.
  3. Policing: The Community Oversight Board has not been effectively established yet. My assessment is that it will take the Mayor’s office making it a priority if the city is going to properly implement the board. On top of this, there is confusion about the game plan for body cameras. And, there has been no public indication yet about what the relationship will be between Mayor Cooper and Chief Anderson. I won’t be pessimistic just a few weeks into this new term…but this topic has me worried.
  4. Sidewalks: Last term, Metro’s sidewalk program got bogged down with allegations of procurement irregularities and free sports tickets from vendors. The resulting Metro audit work is not done yet. We’ll be looking to the new administration to find a way to get these issues resolved and get more sidewalks built a lot faster than last term.
  5. Soccer, Fairgrounds, and the 10 acres: This topic has the feel of two fighter circling and sizing each other up. I don’t know whether we are going to end up with a genuine fight or a handshake. For now, here’s what I think is going on:

Mayor Cooper and his team are trying (I think) to come up with a total price tag for all work out done to date at the Fairgrounds, and a total expected price tag, and to compare that to the original projections.

Apparently, the development team for the 10 acres can’t get financing for their new building due to the “Freeman Amendment.” This was added to one of the soccer stadium bills. The Freeman Amendment requires the 10 acres to be returned to Metro if there is no professional soccer on the site for any 24 month period during the first 30 years of the 99 year lease. Will the Mayor agree to fix this to allow the financing to go forward? Will the Mayor want a price to be paid for this? Will a Council member file legislation to fix this without the Mayor agreeing to it? All open questions.

There’s also some talk that the cost of non-stadium work on the site is over-budget. I have no idea whether this is correct or not. So far, it’s just a rumor.

As we get through the end of 2019, I imagine we’re going to learn a lot more about whether these issues will turn into a fight or an agreed path forward.

Money issues

  1. Comptroller: Here’s my October 3, 2019, post about meeting with the State Comptroller. The Comptroller will be in the Metro Council Chamber on November 13, 2019, from 4:30 to 6:30 PM to give a presentation and answer Council questions about Metro’s finances. I’ll provide more analysis after the presentation. For now, I’ll repeat that it took years to get to where we are today. Fixing it is very doable, and it will take several years of discipline, honesty, and effort. Not austerity. Not squeezing constituents on services or employees on pay — just discipline, honesty, and effort.
  2. Water rates: In the next several weeks, the State of Tennessee will order Metro to raise its water rates. It is embarrassing that the State has to order Metro to get its act together. Metro Water Services will also be present at the November 13 meeting to make a presentation about what is happening and why. On this one, in addition to the inevitable finger pointing about “how did this happen,” I think a lot of Council members are going to be upset about the fact that the Council never got told that the city was getting in trouble with the State. I and several co-sponsors will be introducing legislation to increase the Council’s annual oversight with Metro Water to make sure no future Council is kept in the dark like this.
  3. Mayor’s efforts to find more money downtown: A few weeks ago, the Mayor and Convention Center Authority (CCA) announced that the CCA will begin to make large annual payments that are the equivalent of property taxes on the Music City Center. Today, that is $12.6 million per year. There are still open questions about how this relates to the current $10 million per year that the CCA is paying Metro under a Memorandum of Understanding. Once that MOU expires in a year, I think the CCA and the Mayor will need to talk about whether the CCA will keep paying the $10 million to Metro each year (in addition to the $12.6 million property tax equivalent payment), or whether the CCA will pay some other amount, or if the CCA will instead start paying for capital improvements around downtown.
  4. Other places to find money: The rumor mill in Metro is going full speed about other ways the Mayor might find money. Some of the rumors could potentially make sense. Others sound outlandish. Since I really can’t tell what is potentially true and what is completely made up, I won’t spread these rumors. My point is that a central effort in the Mayor’s office these days is to honor his campaign promise to look for additional sources of revenue before talking about property tax rates.
  5. Under One Roof: Mayor Briley had announced that, if he won the election, he would propose spending hundreds of millions of dollars on the MDHA Envision projects. This “Under One Roof” program was never fully-baked and no funding for it was ever requested or approved. Now Mayor Cooper has announced that he is not going to pursue that plan. I agree with this approach. It is critically important that Nashville have high-quality low-income housing. If we spend hundreds of millions, we all need first to understand the expected cost of the Envision projects, what the total investment would be, and how the cost is calculated. None of that has been done yet. I think we will learn more in the coming months.
  6. MNPS: The needs of the school systems aren’t going away. As reported in the media in the last few weeks, MNPS may need more than $100 million per year in new operating funds to modernize their pay structure.

Again, this is a partial list of issues. Our election lull in the Council is about over. Though there is a lot of hard work to do, these are high class problems. Nashville is a dynamic, growing city. We will work through these issues and build a better future.

Met with Comptroller and Mayor today…

I am sending this message to Metro Council members today…

On August 6, 2019, the Tennessee Comptroller of the Treasury sent a letter to Mayor Briley and the Metro Council. The letter raised substantial questions about Metro’s finances. The letter acknowledged receiving Metro’s FY 2020 operating budget and that Comptroller was “in the process of discussing a number of fiscal concerns that need to be clarified or addressed.” The Comptroller’s concerns are not resolved at this time. More work is necessary.

This morning, newly-elected Mayor John Cooper and I went to meet with the Comptroller and his staff about the August 6 letter and next steps. I was invited because the Vice Mayor Jim Shulman appointed me last week to be the chair of the Council’s Budget & Finance Committee.

The Comptroller made an extensive presentation about Metro’s finances including long term trends for revenue, expenses, and debt service. It was a lot of information and the Comptroller offered to also make a presentation to the full Council. Mayor Cooper and I agreed that this would be valuable for everyone. This is likely going to happen in November. That will give the new Mayor, new Council, and new Finance Director time to get in place and up-to-speed.

I don’t want to over-simplify the information, but in summary, the presentation told us a lot of what we already know. Over many years, Metro has increased spending faster than revenue has grown. To make ends meet, the city has spent down its savings and relied on non-recurring revenue from one-time asset sales. As both the Mayor and I have been saying for some time, this approach can’t last forever and must be fixed. We also discussed the need for the Council to approve a new cash management policy. I believe we are on pace to consider this in November 2019.

Nashville is a vibrant, successful city. The Comptroller shared the twin messages that the situation is fixable, and that it has to be fixed now. I look forward to working with the Mayor, the Metro Council, and the Comptroller to improve the city’s budget.

When we are able to schedule a presentation from the Comptroller for the Council, I will let you know.

 

Bob Mendes, Chair, Budget & Finance Committee

Letter from the State Comptroller

The Mayor and Council Members received this letter from the State Comptroller today. I am hurrying to get thoughts out before our Council meeting this evening. Please excuse any typos. Please email me about anything that doesn’t make sense.

What’s the context of this letter?

Sometime in the last approximately 6 months, the State let Metro know that a long-time financial practice was not being handled correctly. Metro has for many years shifted money from one fund to another to pay bills while waiting for property tax money to come in. Then, before the end of the fiscal year, Metro would settle up this inter-fund lending. Pretty boring stuff.

The State let Metro know sometime recently (I don’t remember when) that Metro needs to prepare “Tax Anticipation Notes” or “TANs”to document this inter-fund informal shifting of money. And the State told Metro that the TANs need to be approved by the Council and the State.

The Metro Council approved the first of the TANs in June and then Metro apparently then sought State approval. Today’s letter is in response to the request for State approval.

In summary, I think the practice of borrowing money by one Metro fund from another during a fiscal year is fine. The State recently told Metro to follow a different practice in documenting the loans and that’s what led to this letter.

What does this letter mean?

It’s pretty technical stuff, and I’ll be happy to have someone from the administration tell me otherwise, but I think that the letter is definitely not “good news.” I think it presents a situation that is serious, but manageable.

The entire first page and most of the second page look to be a summary of facts explaining in technical terms the same things that I am explaining here — Metro has funds that borrow from one another, Metro has approved some TANs to document the borrowing, and now the State is responding to a request for approval of the TANs.

Beginning toward the end of the second page, the letter says that Metro’s TANs are approved if the State receives two things by September 20, and a third thing in November.

By September 20, the State wants to receive: (1) updated cash flow forecasts for all Metro funds; and (2) “A summary that explains the impact of the sale of assets, including property and parking rights, on the fiscal year 2020 budget in addition to the actual status of these sales.”

Taken together, I interpret the State to be saying that it plans to keep a careful eye on whether Metro’s own cash flow forecasts match up with the possibility that the planned sale of assets (including parking rights) might not happen. In other words, I read the letter as basically asking how Metro plans to balance its budget if the planned asset sales don’t happen as laid out in the Metro operating budget.

Then, in addition, by November, the State wants Metro to approve a cash management policy “establishing minimum cash balances needed for Metro’s operating and debt service funds that are sufficient to meet unplanned fluctuations in revenue and expenditures.” I read this to mean, “Hey Metro, your cash reserves are too low for a city that is relying on the future sale of assets to make ends meet…so we’re going to need you all to provide us with a written cash management policy.”

The letter wraps up with a reminder that state law requires Metro to maintain a balanced budget.

What happens next?

Metro has until September 20 to respond to the first two demands — for a current cash flow forecast, and a summary that explains the planned property sales.

Metro Finance will do the cash flow forecast, I would assume. The September 20 timeline is very interesting. That will be after the mayoral runoff, but before the mayor is sworn in. One would expect that the cash flow forecast would depend a lot on whether the Mayor intends to pursue the parking enforcement outsourcing or not. We’ll need to ask the administration how they intend to respond to this.

Similarly, coming up with a summary of the budget impact from the proposed sale of assets and the current status of the sales will depend a lot on who is going to be mayor. We’ll need to ask the administration how they intend to respond to this one too.

I suspect that the November deliverable — a cash management policy — will also be impacted by who wins the election.

Does this mean anything for the mayoral runoff?

I don’t know. This is some dense, technical stuff. The most accurate, non-political thing I can say about the letter is that the State of Tennessee’s Comptroller has questions about Metro’s cash balances and Metro’s reliance on the one-time sale of assets to balance the budget. Beyond that, I imagine both sides of the Mayor’s race will have a lot more to say.

Are there any other conclusions to be drawn?

I think this should a wake up call that this city just can’t keep balancing its budget using tens of millions of dollars per year of revenue from potential asset sales.

I think this also is the State implying that Metro’s cash balances are too low.

Earlier I called the situation “serious, but manageable.” By this, I mean that we should take notice that the Comptroller is paying attention to Metro and making demands for more information and more policies. It will take political will to address the factors that have led to this unwanted attention from the Comptroller.


This post reflects my initial thoughts about this. I’ll post more if I learn more.

Thank you!

Thank you!

On Thursday, August 1, 2019, the voters of Davidson County elected me to a second term as an At-Large Member of our Metro Council. I am especially humbled to have finished in first place and have received enough votes to avoid the September 12 runoff election. Thank you! Thank you! Thank you!

While my election seasons is over, the most important position in Metro government is still up for grabs. I have seen many trying to interpret what the August 1 results mean and what we should expect for the runoff. My view is that voters are craving vision and authenticity.

About “vision,” for a generation, it has been easy at any given time to know what the city government’s number one objective is. At different times, it has been football, hockey, soccer, a stadium, a convention center, transit, or to drive our tourism industry forward. Today, if you ask voters what we are trying to accomplish as a city, you get shoulder shrugs. Voters want to hear a vision about where we are headed as a city.

About “authenticity,” in our local politics, people (most times) can smell BS a mile away. Let me offer a positive example. Zulfat Suara has run a good campaign for Council At-Large on many fronts. But one of her core strengths is that she comes across as very authentic. When people talk to her, they feel like they know her and that she’s offering an unfiltered view into who she is as a person.

For the upcoming mayoral runoff, I’m looking forward to hearing out the candidates as they share their vision for Nashville.

 

TIF legislation update

I have two tax increment financing (TIF) bills I am trying to pass before the Council term ends in August. Both bills are up for the 2nd of three readings tonight. I am expecting that they should be approved on 3rd reading on August 6, 2019. Here’s what the two bills do:

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%.

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.

For more information about the path that led to this point, here’s a timeline:

  • April 2016: The Council passed a first round of TIF legislation described here. This reform created an annual TIF reporting requirement. It also required Metro to hold back money from new property tax revenue to pay its own bond debt instead of using all of the revenue to pay development loans. It also required that TIF property taxes be returned fully to Metro after the first development loan is paid. This was meant to address the situation where, for example, the AT&T building’s taxes are still being used to pay other development loans some 30 years after construction was complete.
  • August 2018: Legislation to create a Donelson Transit-Oriented Development District failed in the Council. To many, it felt like the city’s approach to creating new TIF districts needed to be updated before moving forward.
  • September 2018: I introduced three pieces of legislation to start the conversation about updating the city’s approach to TIF districts. Here’s a brief description of this 2018 proposed legislation.
  • October 2018: MDHA, the Mayor’s Office, and I agreed that all efforts to make new TIF loans or create new TIF districts would be frozen until June 30, 2019, while a TIF Study  Committee did its work. More info about that here.
  • May 2019: The TIF Study Committee releases its unanimous report. More here. The committee gave a presentation to the Council about its findings and recommendations.
  • May 2019: To implement the committee’s recommendations, I filed four pieces of legislation.
  • June 2019: Two of these bills (-1644 and -1613) passed and became law.
  • July 16, 2019: The other two bills (-1630 and -1645) are set for 2nd of three readings. Here is the handout I have provided to Council members for this evening’s meeting.
  • August 6, 2019: Hopefully, this is when the two remaining bills are approved by the Council on 3rd and final reading.

Let me know any thoughts or questions you have.

 

Bob

The TIF restructuring to find $7.5M for MNPS salaries

I’ve been working on getting the details of the TIF loan restructuring that is going to allow another $7.5 million for MNPS salaries.

MDHA has been very helpful in giving me details this week. I’m going to give you an incomplete update just so I can get it out before the holiday weekend. I’ll correct or update further once I know more.

Here’s what I know and think about the restructuring:

  • This involves four loans — three related to the Omni Hotel, and the last one related to the Sounds Stadium.
  • As I understand these loans, Regions Bank is entitled to receive 100% of the tax increment from about 22 properties in and around downtown. Regions deposits all of these tax increment funds in a reserve account from which its loans get paid.
  • Media reports say that the most recent annual amount of tax increment collected for these properties was $11.2 million. When I look at MDHA’s most recent annual TIF report, I see $12.2 million instead. I’m still trying to figure out that discrepancy. (MDHA’s annual TIF report describes what happened the year before…so the discrepancy might be a matter of timing between the backward looking reports and real-time actual numbers.)
  • Up until now, Regions has applied the full amount of the tax increment dollars to the loan balances. This has resulted in very rapid principal pay down. Before this week, I was guessing for example that the Omni loans might be paid in full by 2021, or 2022 at the latest. More details here. From MDHA’s reporting, I’m guessing that the Regions stadium loan was on track to be paid in full by 2023 or 2024.
  • The deal announced this week will have Regions returning $7.5 million to Metro (for Metro to give to MNPS) instead of Regions keeping the full amount it collects.
  • MDHA has let me know that Regions will be keeping about $3.88 million to pay toward the four loans — that’s roughly $3.09 million to principal and $790,000 to interest. I don’t know enough details yet to be sure, but I think that would extend the pay off period for the loans from a few years to around 8 years.
  • Another way to look at this is to think about the percent of the tax increment dollars being used to pay the development loans compared to the percent being kept by Metro. Up until now, 100% of the tax increment was used to pay the development loans. Under this new arrangement, the bank would be keeping about 35% of the tax increment and the remaining 65% will be going to Metro.
  • Shifting gears a little, there has been some tension this week between the fact that the Mayor’s press release called this a “recurring” arrangement while MDHA has told the media that Regions is providing a one year “waiver.” I tend to believe it is a one year waiver, but that it is highly likely that Regions will continue to provide the waiver in future years. Since Regions has the right to collect the entire $11+ million per year in tax increment, Regions is in a very desirable position. With that very high level of collateral, I’m guessing they’ll be happy to continue to earn interest for more years.
  • About whether this deal is “good” or “bad”…
    • I need to wait to learn the rest of the details before I decide for sure.
    • That said, I have argued for a year now that we need a more equitable sharing of development dollars between TIF loans and Metro’s own needs. This new initiative implements something that I was the first to suggest. I can’t complain much about that!!
    • Legislation I proposed last August would have required new TIF loans to leave about 45% of tax increment available for Metro. At the time, the administration argued that this would make TIF deals extinct because taking 45% of the tax increment off the table supposedly would be too limiting.
    • The legislation I currently have pending would require new TIF loans to leave 25% of tax increment available to Metro.
    • With me having previously suggested that Metro keep either 45% or 25%, at first glance, the idea that Metro would be keeping a whopping 65% of these tax increment dollars is striking. A few days ago, I worried whether keeping such a high percentage for Metro would string out the loan payoff dates too far into the future. But if my guess above about the loans still being paid in full in about 8 years is correct, that wouldn’t bother me.
    • On balance, I am leaning toward thinking it’s a “good” deal for Nashville — even if the roll-out was poorly communicated and oddly timed.

As I learn more, I’ll update this information.

Omni economic incentives facts

(Originally posted on June 30, 2019. The next day, the Mayor announced changes to certain TIF loans that impact this post, and a reader helped me with some details. I updated the post on July 1, 2019.)

During this election season, a lot of incumbents and candidates are talking about the Music City Center and Omni Hotel financing. I have spent a ton of time working to figure out the facts, but haven’t had time to get them collected for you. This is the first of at least two posts to try to provide some basic facts.

I’m going to start with the Omni Hotel, which received two three types of incentives — a tax increment financing, or TIF, loan and a property tax abatement and an annual development agreement payment. Let’s look at both these.

Tax increment financing loan

For the basics of how TIF works, you can:

The Omni Hotel was awarded a TIF loan of nearly $62 million in 2011. The property tax increment collected from nearly 20 other downtown properties is pledged to pay for the Omni TIF loan. Because of the property tax abatement we’ll talk about below, the Omni doesn’t pay any all of its property taxes itself at this time. Instead, its TIF loan is paid solely from the property taxes of these other properties.

According to a Nashville Business Journal article, the loan balance by 2012 had been reduced to about $54 million. Except for media reports, I don’t have data about the loan balances before 2016.

In early 2016, the current Council passed legislation requiring extensive annual TIF reporting. So, starting then, I can use data from those reports. According to MDHA’s annual reporting…

In 2015, the tax increment collected to pay the Omni TIF loans was approximately $6.6 million.

As of September 30, 2016, the outstanding Omni TIF loan balance was about $48 million.

In 2017, the tax increment collected to pay the Omni TIF loans was up to approximately $11.4 million for the year.

As of September 30, 2018, the outstanding Omni TIF loan balance was down to about $30 million. The MDHA reports are dense and hard to get through, but here is a summary of their data for tax increment collected in 2017 and the balance as of September 30, 2018.

With the loan balance around $30 million and the tax increment collected from the supporting properties over $11 million per year, these loans should be paid in full within several years.

NOTE: On July 1, 2019, the Mayor announced certain changes that will extend how long it takes to payoff the Omni TIF loans. Instead of using the $11.4 million in collected tax increment to pay the loan as quickly as possible, MDHA is getting a one-year waiver to pay only interest and a modest principal payment. This will significantly reduce the payment on the Omni TIF loans and allow $7.5 million of tax increment to be used for MNPS salaries instead. In turn, this will extend how long it takes to fully repay the loans.

Property tax abatement

In addition to the large TIF loan, the Omni received a 20 year property tax abatement that runs through December 31, 2030. This means that the hotel does not have to pay any property taxes until 2031.  Under the abatement, the hotel pays 37.5% of the regular taxes that would be due.

As a member of the Metro Audit Committee, I asked Metro’s auditors to list the value of all property tax abatements in the annual audit. In the most recent audit, the value of the Omni property tax abatement in FY18 was $2,282,645.

So while Metro will be able to keep the full property taxes from the 20 or so properties that are supporting the Omni’s TIF loan in just a few years once the loans are paid, Metro won’t receive any will only receive 37.5% of the regular property taxes from the Omni itself until 2031.

Development Agreement Payments

According to the Metro audit, there was a development agreement signed in 2010. I’m quoting the description from the audit:

On October 19, 2010 the Convention Center Authority (the Authority) entered into a Development and Funding Agreement with Omni Nashville, LLC (Omni) to facilitate the development of a premier headquarters hotel adjacent to the Music City Center. Under the terms of the development and funding agreement, the Authority will pay Omni annual economic development payments and incentives from excess tourism tax revenues collected…The amount remitted to Omni during the year ended June 30, 2018 was $12,000,000. The schedule of future annual payments is expected to be as follows:

2019-2026: $ 12,000,000 per year
2027-2033: $15,000,000 per year

These are big numbers. But it is worth keeping in mind how bad the economy was back in 2010. I’m told that another major hotel chain won the RFP, but couldn’t get financing. That ultimately led to the Omni Hotel deal. In hindsight, it is easy to argue that maybe the city or the Convention Center Authority should have owned the hotel instead of committing to these payments. But in 2010, there was no appetite for that risk because the economy was so bad.

Takeaways

Here are my takeaways about this information:

  • If you want to quantify the property tax impact from the Omni deal, the most recent numbers are that the Omni deal cost Metro about $13.6 million in FY18. That’s $2.2 million of  property taxes never received from the Omni because of the abatement, and about $11.4 million of taxes from the other properties that were used to pay the Omni TIF loan. Apparently, due to the newly announced deal, in FY20, things will be different because $7.5 million of these dollars will stay with Metro.
  • If you want to quantify the benefits received from the Omni deal, you cannot really do this because Nashville has never seriously attempted to reach a consensus about how to measure the benefits from economic incentives. If I get re-elected later this summer, figuring out a consensus way to measure the benefits will be a major objective.
  • If MDHA keeps using all of the tax increment from the nearly 20 other downtown properties, the Omni TIF loans should be paid approximately by the end of 2021. If that happens, because of legislation passed by this Council in 2016, ALL of the property taxes from those approximately 20 other properties would go permanently to Metro instead of being used for development loans. (NOTE: As of today’s announcement this won’t happen. While Metro will get to keep some of the tax increment dollars to run the city, that in turn will extend how long it will take to pay off the Omni TIF loans.)
  • There is something important to watch for in the upcoming year. There is a relationship between these numbers and the Mayor’s proposed parking modernization proposal. The Mayor and MDHA may attempt to refinance some of these TIF loans to allow more money to flow back to Metro. Of course, that would stretch out how long it will take to pay the loans. This point may be stale now. Instead of using TIF money to cover for the parking deal, the Mayor is pushing that toward education salaries.

I hope this post helps people understand the economic incentives provided for the Omni Hotel. In my next post, I’ll tackle the financing for the Music City Center. Please let me know any thoughts or questions.