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.

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.

Budget wrap-up

I am disappointed about how the budget turned out this year. I guess I’m glad for the debate. At least there now is a broad consensus that we will be right back in this same situation a year from now. I really hate that Metro is choosing to not fix a known, identified problem even though the delay squeezes employees on pay and constituents on services.

I want to thank everyone who has written or called this week with kind words and support. Please know that I consider it a privilege to be one of the voices carrying your message.

Looking forward to next year…

If you follow my posts, you know that I predicted the size of this year’s budget to within a few million dollars. I predicted $2.335 billion, and it came in at $2.332 billion. That wasn’t luck. The size of a budget is pretty predictable when it is playing defense — you pay what you must and not more. Despite some of the packaging and spin, this year’s budget was another status quo defensive exercise.

Using the same principles that I used this year, we can look forward to get a glimpse at what next year will bring. As you look at this, keep in mind that new Metro revenue (aside from the one-time sales) for this year was about $100 million. Here’s the minimum new spending that will be required in FY21:

  • Make up for relying on one-time non-recurring revenue, $41.5 million
  • Pay known existing new bond debt payments, $14.5 million
  • Pay for new bond 2020 bond issuance the Finance Dept. has told us about, about $25 million
  • 3% cost of living adjustment and a step increase for Metro employees, $25 million
  • Increase for MNPS that is the same as this year (i.e <3% cost of living adjustment and no step), $28 million

That’s $134 million of new spending required in FY21 before getting into any expansion of the government at all. This amount wouldn’t allow for the already-announced increase in Barnes Fund funding, or get WeGo Transit back to full funding, or help employees gain ground on what they’ve lost in the last several years, or expand any government service at all, or even cover inflation.

On the Council floor on Tuesday night, I argued that allowing the administration’s budget to go in effect would lay the groundwork for another tough budget season next year.

In my projections, the Finance Dept. had me assume that revenue will grow by $85 million in the upcoming year. Let’s assume they are conservative and the new revenue will be $100 million again. That would mean FY21 would have $100 million in new revenue and at least the $134 million in the basic new expenses listed above. The budget would again be looking at a shortfall of at least $34 million. Like the last few years, the only ways to fix this will be some combination of one-time non-recurring revenue (i.e., selling off more assets), cuts, and new property taxes.

Multiple district council members told me that in the days and hours before the vote the Mayor and his office told them that he would raise the tax rate next year. He’s denied that to the press. I guess you all can draw your own conclusions about what to make of that.

I continue to view this budget problem as a three-headed monster. There’s revenue, expenses, and determining the impact of economic incentives.

On revenue — that’s talking about property taxes. I think everyone knows where I stand on that issue.

On expenses — the Finance Dept. has been aggressive on that since before Mayor Briley took office. With the new budget in place, Metro will have cut at least $36 million in expenses over about two and a half years. Many departments have gotten rid of whatever fat there was and are now cutting into constituent services. I trust the Finance will continue to be aggressive about this.

On the impact of economic incentives — I will continue to work hard on tax increment financing reform. Beyond that, there continues to be a lot of information and misinformation the convention center. If I am re-elected, I think that topic will need more attention.

I’ll keep working on all three of these. Thanks again to everyone who helped trying to get a better budget passed this year. I genuinely appreciate the support.

New CM Vercher budget amendment

This morning, CM Tanaka Vercher, who is Chair of the Council Budget & Finance Committee, has released a proposed amendment to her Substitute Budget. I have reviewed her amendment and support it.

As a starting point, here’s my post from a few days ago about the five budget proposals.

In a nutshell, she and I were 5.2 cents apart on the proposed tax rate. Her amendment essentially splits the difference and she now is proposing a rate adjustment of 49.8 cents, which would move Metro’s combined property tax rate to $3.653. Her amendment would:

  • provide $50 million new MNPS funding (which is about $22 million more than the Mayor’s proposal); this is adequate to provide a 4% cost of living increase and a step increase in salaries;
  • fund 9 new firefighter and 20 new police positions;
  • allow for extended community center hours;
  • provide an additional $6.15 million in funding for WeGo Transit;
  • provide new Codes Department positions; and
  • expand support for important non-profits in Nashville.

I’ve updated my chart comparing the various proposals here.

This is not exactly what I wanted to achieve, but it is pretty close. And I have to give Chair Vercher credit — her final product covers fire, police, library, transit, plus 4% COLA and a step increase for MNPS, plus stockpiling money for the expected 2020 next Metro bond issuance, and saves a material amount for next year’s raises. I think that’s a good final product.

Here’s the statement of support I am issuing through the Metro Council office:

I have seen Chair Vercher’s amendment and support it. 
 
I appreciate Chair Vercher’s commitment to properly fund the Metro government both for this year and next year. We have been debating a tax rate adjustment since May 2018. It has taken a year of public discussion, but I am glad to see a growing consensus that status quo isn’t good enough. 
 
I believe Chair Vercher’s budget moves Nashville forward. Please join me in supporting her budget as amended.
CORRECTION: I updated the first bullet point to be accurate…my first post said there was $50 million more than the Mayor’s budget…but it is $50 million in new funding, which is about $22 million more than what the Mayor proposes.

5 budgets???

Mayor Briley proposed his budget just before the May 1 deadline set out in the Metro Charter. I got mine out on May 28. Another three were sent to Council members on Friday afternoon. One of them was expected — from Budget & Finance Committee Chair Tanaka Vercher. One had been rumored for a few days (CM Glover). And the last one was apparently a surprise to just about everyone (CM Pulley).

Then the Mayor dropped a Facebook press release around 5pm on Friday afternoon complaining about there being too many budget choices.

It is a lot to sort through…but here’s a summary of the similarities and differences between the plans.

When you are looking at the summary, keep your eye on several key points:

  • Which proposals rely on one-time non-recurring revenue? This is a sloppy practice.
  • The school system is clear that, without at least $55 million in new revenue, they cannot achieve even 5% raises. Details here. Only the Mendes/Davis plan does this.
  • Look to see if a plan provides funding for next year (FY21) or is limited to this year only. Only the Vercher and Mendes/Davis plans create adequate funding for FY21.
  • Look to see if a plan has the flexibility to fix the under-funding of the MTA budget.
  • Look at each proposed property tax. Three plans have a rate increase. Two don’t.

Finally, for more info, here’s a link to all my budget posts…and my FAQs about the Mendes/Davis budget proposal.

FAQs – FY20 Better Budget

As we get into the last few weeks of the Metro budget process, I put together a list of frequently asked questions and links to my budget blog posts.

The FAQs are here.

Here are previous posts about this year’s budget:

Maybe hold back on the high fives for now?? (March 19)

Proposed FY20 budget expected tomorrow (April 30)

1st thoughts about Mayor’s proposed FY20 budget (May 3)

The myth that “belt tightening” could fix the budget (May 4)

Impact of economic development spending on property tax rate (May 16)

A better budget for Nashville (May 28)

What about the $9M for transit? (May 28)

For last year’s budget posts, see:

Updated FAQs (June 10, 2018)

What about the $9M for transit?

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

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

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

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

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

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

A better budget for Nashville

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

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

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

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

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

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

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

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

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

Impact of economic development spending on property tax rate

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

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

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

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

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

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

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

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

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

New TIF legislation

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

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

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

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

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

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

I will provide updates as these bills move forward.

TIF Study & Formulating Committee report is out today

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

The committee’s report was released today.

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