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 public health orders

As of March 29, 2020, Metro does not have all of its public health orders gathered in one place. Here they are:

Board of Health resolution declaring a public health emergency, March 15, 2020

Order 1 (about bars and restaurants), March 17, 2020

Amended and Restated Order 1, March 20, 2020

Order 2 (about gyms and workout facilities), March 20, 2020

Order 3 (“Safer at Home”), March 22, 2020

There has been some back and forth about whether there should be a time limit for how long the declared public health emergency will last. Here is a March 17 letter from 3 Council Members asking about this and other issues. Here is Dr. Alex Jahangir’s March 20 response, where he says that he intends to ask the Board of Health to amend its original public health emergency declaration “to sunset on May 31, 2020, subject to extension as needed.”

COVID-19 Issues: People, then money/budget

This is a collection of my thoughts about coronavirus issues as of March 26, 2020. Circumstances continue to evolve, and my thoughts probably will too. Unless I note otherwise, these are not official Metro positions. This is just my effort to make sense of what’s going on.

How long is this going to last?

To date, the Governor has elected to set a floor for minimum restrictions while allowing local authorities to establish tighter rules. So when the State says that there should be no school through April 24 and the State Supreme Court cancels most in-person court appearances through April 30, we can assume that the State’s best information is that tight social distancing should be in place through at least late April.

Metro has been more aggressive in its restrictions, which makes sense given the city’s higher density. The Chair of the Metro Board of Health advised Council members yesterday in a letter that its tighter restrictions will be in place until May 31, subject to further extension if necessary. I interpret that as Metro’s best information is that we’ll hopefully be back to “normal” in June.

Both of these timelines are built on the assumption that we all effectively practice social distancing and largely stay away from other people during this time.

All the conflicting information is confusing? Where is the best information about the coranavirus?

If you live in Nashville, the city’s A Safe Nashville web site has the best information. This site includes links to the latest information from the CDC and a list of the most frequently asked medical and personal safety questions.

People are hurting. Many have lost jobs. Where can they find help?

The United Way has the best collection of resources for individuals that I have seen. Their page of resources for individuals is here.

Quoting from the United Way: “If you need help accessing food, social services or other emergency assistance, 211 is your one-stop shop for community resources. Operated by United Way, this 24-hour resource and referral line can help you find community-based programs that are available. To reach the helpline you can dial 211 or 800.318.9335, text your zip code to 898-211, chat or search the online database of community resources here.”

Where can small businesses find help?

The United Way has a resource page for small business too. Also, a few days ago, Vice Mayor Shulman and Mayor Cooper announced the creation of a small business task force. The task force web site is quickly adding more resources.

(I will note that the task force is not a formal arm of the city government. At the time of writing this, the task force web page is repeating President Trump’s “15 days to slow the spread” talking point, which implies the nation will be back to business as usual shortly. For now, this web site looks to be a growing collection of small business resources. But I’d get my medical advice from the other places I’ve mentioned.)

Moving on to the Metro budget…will the Mayor propose a budget as scheduled on March 31?

I don’t think so. The situation was already confused enough, but now that the federal government is passing a $2 trillion stimulus package that is expected to provide some amount of money to Metro, there isn’t enough good information to propose a budget on March 31 as planned.

I am urging the Mayor to propose a balanced budget with the best available information sometime in late April so the Council can pass a budget before the June 30 deadline in the Charter.

Practically speaking, we can amend the budget as late as mid-September 2020. After that, property tax bills need to be prepared and sent out in October. This would give us until late July or maybe early August to gather better information and, if necessary, amend the budget that gets passed before June 30.

How much will the coronavirus hurt Nashville’s budget?

Metro Finance continues to assess the impact. Last week, I guessed $125 million and acknowledged that my guess might be too low. (Spoiler alert — my guess last week was too low.)

Now that there is going to be a huge federal stimulus package, we really have two questions. What is the gross impact from the coronavirus? And what will the net impact be after receiving federal money? The bottom line is that both are not known today.

For the first question — over the last few weeks, I have talked to the Mayor and the Director of Finance many times. And I have heard different numbers each time. I am grateful for them being willing to share real-time thoughts with me as the Council Budget & Finance Committee Chair. Frankly, I’d rather be hearing about the process of the numbers bouncing around as they try to get enough information from the State to figure this out than be in the dark.

Until I hear the same numbers in several conversations in a row, I consider this to be a work-in-progress. Frankly, I am torn about sharing what I have heard so far. On the one hand, people are entitled to know what’s being discussed. On the other, it’s not very helpful to share numbers that are changing by over $100 million dollars within a few days.

In the end, I’m going to trust you all to remember the context. Significant unknowns. Evolving conditions. Today’s best estimates may well be wrong. I believe Finance is making progress on understanding the range of possible outcomes. With all of those caveats, I’ll share that the lowest number I have heard for the overall operating budget impact from the coronavirus on the current FY20 and the upcoming FY21 is $300 million. This is also the oldest number — almost a week old — I have heard and potentially outdated.

The high end of what I have heard is about twice this amount. Whatever number this ends up being, it should be offset by an unknown amount of new federal aid.

Those numbers are enormous and Metro has a very small rainy day fund. What’s going to happen?

This is a problem that is being worked by Metro and, I understand, in consultation with the State Comptroller. The numbers are very large. The problem will be solved. The government will function and do its job.

The Cooper administration is finding itself in the same position that the Dean administration did when the Great Recession hit in late 2008. Cooper’s options will be somewhat more limited due to Metro’s super-low rainy day funds.

The basic options for any government facing declining revenue are to use savings, borrow more money, raise revenue, sell assets, refinance debt, or furlough/layoff employees. Some of these are immediately off the table — Metro has no meaningful savings and borrowing money is not feasible now.

The Dean administration opted to refinance large amounts of debt and hold down and suppress payroll costs. In many ways, a decade later, the city is still feeling the impact of those decisions.

With coronavirus, the loss of revenue is more severe and more sudden. And Metro has no savings to rely on. We will have to hear from the Mayor and the Finance Department after they know more, but I suspect that Metro will have to both raise taxes and refinance bond debt to make ends meet. When it comes to jobs and employees, I suspect that the administration will have to see what the federal government is going to do before it knows what’s possible. Hope is not a plan. But I hope the city can get clarity from the federal government quickly.

When will we know more?

The Mayor is scheduled to give his State of Metro address on March 31. I believe that will happen even if there is not a budget to present on the same day. I know the Finance Department is working hard to figure out the budget impact and a path forward. My hope is that by mid- to late-April, we will have a better idea of how long these emergency conditions will persist and also have a better idea of what we can expect from the federal government.

I will leave you with something I have been telling clients and urging in government circles. This is the best information that is available today. The only certainty we have is that today’s best information will become outdated — probably soon. Let’s not be afraid of that. It’s discomforting, but if we view this as a process of going from no information a few weeks ago to perfect information some day in the future, then the goal for today and this week is to move the ball forward in the direction of more clarity.

Stay safe, everyone. Stay safe.

Best guesses about budget, including tornado, COVID-19 impact

Last year, before the Mayor announced his budget proposal, I estimated that it would be $2.335B. It ended up being $2.332B — so I missed it by only $3 million. I’m using the same methodology this year in preparation for the Mayor’s budget being announced on March 31.

Even before the tornado and COVID-19, predicting this year’s budget was more difficult. Mayor Cooper has worked hard, and continues to work hard, on squeezing recurring revenue out of downtown. Also, contrary to conventional wisdom around the courthouse, I have believed from the start that the Mayor would propose a tax rate increase.

Now that we have to deal with the financial impact of the tornado and COVID-19, I am going to go ahead and tell you what I had been projecting for my own planning purposes, and the possible impact from the tornado and COVID-19.

My pre-March 2020 guess for the size of the FY21 budget absent any rate increase was $2.438B. Based on the Mayor’s public statements about what he wants to do next year and some data already available, I also have estimated a range of possible new costs. Using the same worksheet that I used last year, this led me to conclude that the Mayor would need a rate increase in the range of $0.48 to $0.79 cents to balance his proposed budget. (This all assumed a limited amount of non-recurring revenue and no silliness like selling off major assets).

In the last few days, I have attempted to include the impact of the tornado and COVID-19. For today, I am assuming an impact of $125,000,000. I don’t think many people are going to say that I have low-balled it. You could easily find people who think this estimated impact is too low. For the investments I’ve guessed might be in the Mayor’s upcoming budget, this would suggest that the range of a possible property tax rate increase might be $0.88 to $1.20.

With COVID-19 suppressing the city’s sales tax revenue, if the Mayor proposes anything in this range, I think many people will be disappointed in how few new services and employees this will cover.

Budgeting during a global pandemic that is attacking the city’s sales tax revenue is a major challenge. I assume the Mayor will seek and get the agreement of the State Comptroller for the budget to have a much smaller reserve than everyone wanted just a few weeks ago. That would help suppress the size of a needed rate increase. I am recommending that the city plan conservatively, but not for the absolute worst case scenario. It’s going to be a work-in-progress over the next few months to figure out exactly what that means for the budget.

I will also mention that, if the national economy goes into recession or worse, this Mayor and Council are going to find themselves in the same spot that Mayor Dean and the Council circa 2009 to 2011 found themselves — trying to decide whether to re-finance a substantial amount of debt to free up money for the operating budget. (I’m not advocating this!!! I am pointing out that, if you look at a balance sheet with falling revenue, the long term debt line item is one of the few numbers big enough to make a difference and re-financing may perhaps start to look more attractive at some point.)

Finally, a disclaimer. While I am using the same methods I used last year to predict the size of the budget very accurately, it might be way off this year. This Mayor is working hard on finding alternative revenue, and economic conditions are changing so rapidly, these thoughts and comments may have a very short shelf life.

Community budget meetings: COVID-19 Update

PLEASE SHARE

I understand that Metro public health officials may soon update their guidance about gatherings in Nashville. At this time, the Metro Public Health Department is not requiring closures or cancellations, but I have been asked to be aware of risks that can be mitigated with reasonable precautions.

I have already held the first four community budget meetings. Each has drawn approximately 50 to 85 attendees. Many attendees have been over the age of 60, which is considered high risk for COVID-19 complications.

The advice I have received is that organizers of gatherings of any size should carefully assess the necessity of the meeting itself. Organizers should ask, if there are high-risk attendees, does the meeting have to be now? Or, can the attendance list be narrowed to an essential minimum, or can teleconferencing, video conferencing or other means be used to allow remote participation by at-risk members?

Because many of our meeting attendees are in a high risk group and in consideration of this advice, we are cancelling the two remaining Community Budget Meetings, which were scheduled for:

  • Thursday, March 12, at 6:00 pm, at the Hermitage Library
  • Saturday, March 14, at 3:00 pm, at the Madison Police Precinct

I am working on arranging to conduct a live version of the Community Budget Meeting on Metro’s tv and/or YouTube channel — hopefully with the ability to take questions by email, Facebook, and/or Twitter. I will provide details about this as soon as they are available.

Because these meetings are being cancelled on short notice, please share this information.

More details about Community Foundation of Middle Tennessee

At the Council meeting on Thursday night, there were some questions from Council Member Delishia Porterfield and others about how and where the Community Foundation of Middle Tennessee (CFMT) will spend tornado donations. When she asked about it, there wasn’t anyone in the Council chamber who knew the answers. Here are some details:

The 2012 MOU between Metro and the CFMT is here.

You should know these basic terms:

  • The funds are supposed to be distributed to “benefit local disaster victims through local nonprofit organizations, religious institutions, and entities of government.”
  • The CFMT is supposed to “manage the distribution of monetary donations” to these groups “based on need…”
  • The CFMT is supposed to facilitate meetings of the “Metro Disaster Response Fund Advisory Committee.”
  • The CFMT is supposed to “Participate in the Long-term Recovery and/or Unmet Needs Committee and act as a resource, when possible.”

At this time, I don’t know who the members of the Metro Disaster Response Fund Advisory Committee are, or who are the members of the Long-term Recovery and/or Unmet Needs Committee are? I don’t know who appoints those groups.

Also, it is important to understand that CFMT is NOT obligated to spend the dollars it is receiving in Davidson County. For some donors with a regional reach (like the Titans maybe??), this might be perfect. For other donors, you should be aware that dollars given to CFMT may or may not be spent in Nashville.

CFMT is an incredibly important civic organization. I am grateful that they are helping in this time when so many are hurting. I do think it is important that everyone understands how the process works. There is still more for us to learn.

Schedule for Council budget process (as of Feb. 13)

This morning, the Mayor’s office is holding a briefing session for media about the Mayor’s portion of the budget process, which is already underway.

The Council’s Budget & Finance Committee will soon be working on the budget too. Here’s the most current information about the Council’s budget process:

  • In late February and early March, there will be six community budget meetings held at different locations around the county. The idea behind these meetings is to give the public an opportunity to see and hear the budget information that the Council has seen and heard over the last 90-days. More details about dates, times, and locations here.
  • After the Mayor releases his budget on March 31, the Council Budget & Finance Committee will have public budget hearings with Metro’s largest departments. The tentative schedule for those hearing is here.
  • Here is a planned schedule for the full Council budget process, including the target date to pass the budget of May 19.

This schedule is subject to change as we get further into the budget process. This is the best information that is available today.

Soccer standoff

As the standoff between the Mayor and the soccer team persists, I find myself wanting to be in favor of beginning stadium construction immediately. I’m not 100% there, but absent some new details about what’s going on behind closed doors, that’s my strong inclination.

Let me start by saying that I think it is fair to say that the Mayor has a mandate to change the way Metro does economic development. It is also fair to say that people expect a balance where change happens in a way that furthers the city’s success. To put it another way, you can’t make growth more equitable if you shut down growth.

Sometimes, when a party has a lot of leverage in a negotiation, one of the challenges is to know when and how to win. When you have backed someone into a corner, is it your intent to leave them a way out or is it your intent to force them to fight so you have the opportunity to crush them? If you leave them a way out, you risk being perceived as having left value on the table. If you force them to fight, anything can happen. You might crush them, but often everyone does worse. This is where I see the Mayor and team right now – at a decision point where the Mayor either can push the team further into a corner and risk a fight, or leave them a realistic path away from the confrontation.

The majority of Nashville would prefer that the stadium be built. In a very public process, the city already approved the stadium financing and the related 10 acres of development in September 2018. Since the recent election, the Mayor has said there are new facts to consider – more costs, a potential racing deal, and a need for open space. While those aren’t all new facts, the Mayor has exercised his leverage on the team and they’ve put more money on the table.

It’s less clear where things go from here. We don’t know how close the Mayor is to hitting the tipping point where the team feels forced to fight.

My sense from the sidelines is that the negotiations are very close or already at that tipping point. On paper, “Parcel 8C,” which is the several acres still in dispute, is appraised to be worth about five million dollars. Why would either side blow the deal over this parcel? Each side presented their arguments last week in a public exchange of letters. But those don’t give the rest of us a clear picture of why each side cares so very much about Parcel 8C.

With this imperfect information, we are left trying to map the current deal onto the city’s goals and make a guess about whether it’s time to keep pushing or to accept a final deal.

While some might argue about how to balance individual goals, I think there is consensus about the goals for Nashville:

  • Bring major league soccer to Nashville;
  • Fully honor historic Fairgrounds uses, including auto racing;
  • The stadium should pay for itself;
  • Be fair – don’t give away things to wealthy insiders;
  • Be fair – make sure the landmark community benefits agreement succeeds; and
  • Be fair – protect Nashville’s reputation as a reliable business partner.

Again, as of September 2018, the city democratically weighed all of these factors and approved the deal. At that time, everyone knew what the site layout was, including Parcel 8C. Everyone knew that the racetrack needs improvements. The only new factor that we know about is the added infrastructure cost, and the team has committed more money for that. This feels like enough of a win on all goals that the city should not be risking a fight, or risking its reputation as a fair, reliable business partner.

Maybe there are more facts that aren’t public yet that would change the calculus for me. Absent that, any reasonable resolution close to what has been publicly disclosed is better for the city than a fight. Finish the new deal or tell us why this needs to be pushed to a fight.

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P.S.  The idea of Nashville being a fair, reliable business partner is a big deal. The city can’t be a ‘no’ on all the economic development deals that were underway at the time of the election. I support the Mayor’s desire to change the ground rules for how economic development works in Nashville. I have long argued that the city needs to do a better job of explaining what it wants to incentivize and how it is going to measure incentives. Last term, I appreciated unanimous Council support for my incentive reform legislation. That said, it would be bad to be perceived as immediately switching with no lead time to a new set of ground rules for economic development in Nashville.

Metro should not force feed immediate change. Residents and businesses groups should not be surprised or left guessing about what’s to come. Above all, business craves predictability. To keep the economy thriving and new businesses interested in coming to Nashville, they have to feel the vibe that, although economic development and incentive standards may change, it will be manageable and they’ll be given time to react.

I suspect that part of the difficulty with negotiating over Parcel 8C is that it looks like there is nothing new to know about this. Every argument about that parcel could have been made, and was made, in 2018. And then there was a vote. I think there will be a connection between who gets this parcel now and whether Metro is viewed as trustworthy and reliable.

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Previous post about soccer stadium: Protect the community benefits agreement.

Protect the community benefits agreement

As last year’s city election season turned into fall and now into a new year, the inability to move forward on building the soccer stadium is beginning to take its toll. When the city passed legislation approving the stadium financing in 2018, there was also a landmark consensual community benefits agreement between Nashville Soccer Holdings and Stand Up Nashville.

Months before Metro approved the stadium financing, team representatives met with many Council members. When they asked me what I thought was important, I talked mostly about three issues. The first two were that Metro’s cost to build the stadium had to be capped and the team had to commit to genuinely respect the historic racing and expo activities at the Fairgrounds.

The third issue was that I challenged them to look forward ten years to when groups from other cities would come to visit Nashville and learn from us. Would they be taken on just another generic stadium tour? Or would Nashville be able to show off an integrated live-work-play community with true economic and social diversity? I suggested that the real win would be in setting a precedent for a generation of smart, inclusive community development in Nashville.

Many others – but especially Stand Up Nashville and Nashville Soccer Holdings – worked hard to make this vision a reality. The community benefits agreement is a first in the State of Tennessee. It is a voluntary contract where Nashville Soccer Holdings agreed to make 20% of the housing affordable, including a commitment to provide badly needed three bedroom units. The team also agreed to directly hire stadium workers and pay them at least $15.50 per hour. They agreed to build an on-site childcare facility that will operate with sliding scale fees. These are just some of the team’s commitments in the comprehensive agreement.

Some will argue that these benefits are a small price for the team to pay to get the significant benefit of using the Fairgrounds for a stadium and substantial development. Perhaps, but on the other side of the ledger, Stand Up Nashville drove a hard bargain too with unprecedented benefits for workers and families in Nashville.

Nearly one and a half years after Metro approved the stadium financing, we can’t get to “yes.” Instead, the administration and the team seem to be mired in an extended renegotiation. What limited information is available in the media suggests they are talking about additional infrastructure costs, the planned mixed-use development next to the stadium, and possibly the racetrack. Beyond this, details are sketchy and there is no known timeline to begin stadium construction.

With this dynamic, I wonder who’s looking out for the community benefits agreement. Stand Up Nashville hasn’t been invited to the ongoing discussions. Unfortunately, the rule in a multi-party negotiation is that if you don’t know who’s losing, it’s probably you.

Dollars and cents are important in the soccer stadium deal. But we need to remember that working Nashvillians were one of the parties to the deal. Some of the value in the soccer stadium deal is supposed to go to the people of Nashville. The community benefits agreement requires this. Whatever final result comes together in the coming days or weeks, the community benefits agreement must be honored and protected.

Community Budget Meeting Schedule

UPDATE (Feb. 29, 2020): Here’s the presentation CM Toombs and I are using for these meetings.

This is a follow-up to my earlier post introducing a tentative schedule for this year’s Council budget process. As part of the process, Budget Committee Vice Chair Toombs and I will conduct six community budget meetings around the county.

Here’s the schedule for the community budget meetings:

February 25, 6:00 to 7:30 PM: Northwest Family YMCA, 3700 Ashland City Highway, Nashville, TN 37218

February 26, 6:30 to 8:00 PM: Smith Springs Community Center, 2801 Smith Springs Road, Nashville, TN 37217

March 4, 6:00 to 7:30 PM: Studio 615, 272 Broadmoor Drive, Nashville, TN 37207

March 9, 6:00 to 7:30 PM: Church of Christ in Green Hills, 3805 Granny White Pike, Nashville, TN 37204

March 10, 6:00 to 7:30 PM: Nashville Public Library Bellevue Branch, 720 Baugh Road, Nashville, TN 37221

March 12, 6:00 to 7:30 PM: Nashville Public Library Hermitage Branch, 3700 James Kay Lane, Hermitage, TN 37076

The idea behind these meetings is to give the public an opportunity to see and hear the budget information that the Council has seen and heard over the last 90 days. During that time, the Council heard from the Comptroller for the State of Tennessee and Metro Finance Director Crumbo about the size and scope of the city’s budget problems and the types of solutions that are available. We want to make sure the public has this same information and an opportunity to talk about it before Mayor Cooper presents his budget on March 31, 2020.

Please share the schedule for these meetings and make plans to attend.

UPDATED: January 27, 2020, to add final date and location for the March 12 meeting.

Tentative schedule for Council budget process

Mayor Cooper and Finance Director Crumbo announced recently that they would like to move Metro’s typical budget process forward one month. Instead of the Council working to pass a budget by the end of June, they propose that we pass a budget by the end of May.

My position has been that as long as the public and the Council have the same two months we usually get to consider the Mayor’s proposed budget, I will try my best to accommodate the faster timeline.

Today, I am releasing a tentative schedule for the Council’s Budget & Finance Committee for the budget process.

You will see that there will be a series of community meetings in late February and early March. The logistics for these are still being planned and more details will follow. The idea behind these meetings is to give the public an opportunity to see and hear the budget information that the Council has seen and heard over the last 90 days. During that time, the Council heard from the Comptroller and Finance Director Crumbo about the size and scope of the city’s budget problems and the types of solutions that are available. I want to make sure the public has this same information and an opportunity to talk about it before Mayor Cooper presents his budget on March 31, 2020.

Metro’s audited financials for FY19

Metro’s audited financials — or Comprehensive Annual Financial Report (CAFR) — are usually done and posted online in December. I took a few minutes today looking at the CAFR for the fiscal year ending June 30, 2019. Here are a few quick notes:

  • The outside auditors provided a “clean” opinion. That means that they believe that Metro’s financials give a fair assessment of Metro’s financial results. This is good. It means that we can rely on the accuracy of the numbers in the financials.
  • For the second year in a row, there is no “going concern” opinion about the Hospital Authority. This is also good. As recently as FY2017, the auditors included a going concern note about the Hospital Authority. That’s the accounting world’s way of expressing “substantial doubt” about the ability of an entity to continue into the future. With all the other rough financial news around Metro, there is at least some good news in knowing that Metro has (for two years) figured out how to honestly and accurately fund Nashville General Hospital.
  • People are usually interested in the cost of economic incentives. As I mention a few details, please keep in mind that the scale of dollars that Metro needs to get back on track financially.  For example, just to get off the addiction of selling one-time assets each year will require about $40 million in new revenue. And MNPS has suggested that getting a reasonable pay plan would cost an additional $100 million in new revenue. I could go on, but you get the point — even if you wanted to kill off every economic incentive (which would be a bad idea), it wouldn’t fix Metro’s budget.
    • Spending on economic incentive job credits climbed from $500,000 in FY18 to $1.64 million in FY19. (See page B-103 of FY19 CAFR, and page B-104 of FY18 CAFR.)
    • Economic incentive property tax abatements climbed from $6.6 million in FY18 to $8.8 million in FY19. (See page B-110 of FY19 CAFR, and page B-112 of FY18 CAFR.)
    • Though it is reported separately, I’ll go ahead and give the last two years of reported numbers on property tax revenue used for tax increment financing (TIF). These numbers are reported annually by MDHA. In 2016, the property tax revenue used for TIF loans was $23.3 million. For 2017, it was $28.5 million. If you want to look at MDHA TIF reports, they are here.

Let me talk at more length about Metro’s unfunded retiree benefit obligations, also called “OPEB.” I have written about this before. See here and here and here. The first time I wrote about OPEB was in December 2015. Then, I said:

To find the fine print on the OPEB obligations, look for Note 8, which is at pages B-95 to 97 of the CAFR. You will see that the actuarial accrued liability for Metro retirees’ OPEB benefits is $2.16 billion, and there is an additional $473 million liability for MNPS retirees, for a total of $2.633 billion. This means that the expected cost to Metro to fully honor its post-retirement health, dental, and life insurance promises to retirees is $2.633 billion. This is funded at 0% — Metro has no money set aside for this obligation.

Here, I’ll update the language for the FY19 CAFR:

To find the fine print on the OPEB obligations, look for Note 8, which is at pages B-89 to 92 95 to 97 of the CAFR. You will see that the actuarial accrued liability for Metro retirees’ OPEB benefits is $3.48 2.16 billion, and there is an additional $1.08 billion 473 million liability for MNPS retirees, for a total of $4.56 2.633 billion. This means that the expected cost to Metro to fully honor its post-retirement health, dental, and life insurance promises to retirees is $4.56 2.633 billion. This is funded at 0% — Metro has no money set aside for this obligation.

This means that in four fiscal years the total unfunded retiree health care obligation reported on Metro’s financials went up by $1.93 billion, from $2.63 to $4.56 billion.

This puts Metro’s unfunded OPEB obligation higher than over half the States in the U.S. See this report about each State’s unfunded OPEB.

In fairness, there was a national accounting rule change between the FY17 CAFR and the FY18 CAFR that increased the reported obligation by $820 million. But even if you wanted to ignore the accounting change as confusing, there was still more than a BILLION DOLLAR increase in this liability in four years. Once the operating budget is fixed (or on its way to being fixed), this OPEB will have to be addressed.

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.