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.

The myth that “belt tightening” could fix the budget

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

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

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

and at page 5 of this year’s presentation:

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

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

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

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

1st thoughts about Mayor’s proposed FY20 budget

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

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

Proposed FY20 budget expected tomorrow

The Mayor’s proposed FY20 budget is expected to be out tomorrow. This post is about what I am expecting to see in it. There’s no way to talk about that without a lot of numbers. My apologies in advance for that.

Before I get going — keep in mind that this isn’t a discussion of numbers just for the sake of numbers. The budget is a moral document that is hard proof of the city’s priorities. There’s no way to debate the priorities without understanding the numbers.

I’ve been prepping for this budget season with my own sort of Spring Training. In March, in writing this about proposed pay raises, I commented that the FY20 budget would need to have at least $105 million in new expenses:

Even if we were to pretend there is no inflation, the total is $105.8 million of new obligations for FY20 according to Metro Finance’s numbers last year.

And yesterday, I predicted the same $105 million increase in the overall operating budget, up to $2.335 billion for FY20:

At the State of Metro address today, the Mayor told us that the proposed FY20 operating budget would be $2.33 billion. So my prediction was off by $5 million (or 0.2%).

I haven’t seen any part of the upcoming proposed budget yet, but having my prediction be this close gives me some confidence of what I think will be in this budget.

Revenue: My predictions are based on there being $90 million of new tax revenue, using $10 million from the Funds Balance (which is the city’s savings account), and $40 million from one-time non-recurring revenue. These numbers work together. I might be off on a few, but I think the total of all of them will be pretty close.

For example, the parking privatization deal (if approved) is supposed to generate one-time revenue of $34 million by June 30, 2020. Depending on when Metro would book that revenue, it might impact both my Funds Balance and one-time revenue predictions. In the end, these timing issues don’t really matter.

What’s important is that I am expecting the FY20 budget to rely on and need the $34 million from the parking deal by June 30, 2020 to make ends meet.

Schools: I assumed that the proposed budget would fund a 3% raise. That’s what the Mayor announced today in the State of Metro address. The requested MNPS budget was for 10% raises. This request is apparently being rejected.

One unknown is whether the Mayor will attempt to make the 3% raises contingent on the school board entering into a Memorandum of Understanding with Metro. At the State of Metro address, the Mayor repeated his request that the school board enter an MOU with Metro to give Metro more control over “finances, operations, and human resources.”

Most Metro insiders do not know what this would look like. I don’t know whether the school board will agree to this. I don’t know whether the Council would require the MOU. We don’t know yet whether the Mayor will demand the MOU in exchange for the 3% raise .

New spending: I assumed that the Mayor would propose very limited new spending. I guessed $4 million. At the address today, he mentioned about $1.5 million in new non-salary spending. We’ll see the details when the budget comes out.

Ongoing departmental “targeted savings”: One continuing challenge is that inflation is running at about 1.9%. Metro isn’t immune to this. Normally, you’d expect to see an operating budget increase to cover inflation at least. I have assumed that Metro is ignoring inflation and not increasing any spending (aside from employee wages). How do you get away with ignoring inflation?

The answer is that, through this current fiscal year, Metro Finance has continued to demand “targeted savings” (aka cuts) from each department. I am told that the total targeted savings for FY19 across all departments are in the range of $11.5 million. This isn’t enough to cover inflation. For this reason, I would expect that the departments will be told to target even more savings (aka cut more) during the upcoming FY20.

Metro employee raises: The Mayor has been telling the media since March that he intends to give employees their cost of living increase this year. I have numbers from last year for what that would cost. So that part of my budget guess was pretty reliable.

Increased debt service payments: FY20 was always going to have a dramatic increase in the amount of annual debt service payments. This has been known for several years. During the speech today, the Mayor mentioned this briefly. He acknowledged that the debt service payments would be 15% higher in FY20 than the current year.

What does it all mean? Again, I’m not going through these numbers for fun. The goal is to see what’s being valued in the proposed budget.

On the plus side, even if it a year late and several percentage points short, there will be employee raises in the Mayor’s proposed FY20 budget. On the down side, it looks like this will be another fundamentally under-funded budget that relies on $30 to $40 million in one-time revenue coming in by June 30, 2020, having departments find even more “targeted savings,” and still being behind on employee wages. If my sense of what to expect bears out when we see the budget in the coming days, we’ll all have to reflect on whether these choices match our values as a city.

I’ll keep you posted on my thoughts as the budget season unfolds.

More on the announced affordable housing plan

A few days after the Mayor announced his affordable housing plan, I posted this initial assessment. Since then, the Council’s Ad Hoc Affordable Housing Committee met with MDHA for two hours on April 15. After that long meeting, I’d like to expand on a few points from my initial post.

Timing of new funding.  Matt Wiltshire from MDHA (and formerly from the Mayor’s office) confirmed that no new money will be allocated to affordable housing this year. The earliest we would see any new operating spending proposed under the Mayor’s proposed plan would be in Fiscal Year 2021. Part of me wants to more or less ignore the entire proposal until there is an effort to approve new spending. But it is worth at least noting some important points that might get lost between now and next year.

Going from cheerleader to investor. The biggest point I want to underline is that this proposal would move Metro from being a very interested cheerleader for the Envision projects to being a major investor. This shift demands that Metro learn more and be more actively involved.

Timing of building the Envision projects. Up until a few weeks ago, every public statement from MDHA about timing indicated that they would complete all six Envision projects relatively quickly. In fact, one (Cayce) is already out of the ground, and two more are well into the planning process. MDHA has always been careful to not state a specific timeline, but their public statements and the fact that they have started working on three Envision projects have suggested strongly that the Envision projects certainly would be finished in about a decade.

With the new affordable housing proposal, though, the Mayor’s office and MDHA are telling us that the reason why Metro should spend $350 million over 10 years is to hurry all of the Envision projects to completion. In this Tennessean opinion piece, MDHA’s director says: “The city’s investment in this work will enable us to add more subsidized housing than was originally projected and will also help us accelerate the timeline.” (I added the emphasis.)

There are a few other data points about timing. At the Council committee meeting on April 15, Mr. Wiltshire repeatedly told us that, without Metro spending $350 million over 10 years, the Envision projects would be “multi-generational.” Also, when asked whether the $350 million would allow all Envision projects to be completed in 10 years, Mr. Wiltshire said “no.” He was not able to guess what percentage could be completed in 10 years with $350 million from Metro, but he was sure that they would not all be completed in that time.

These timing questions are not academic. We have to explore where the truth is. Up until a few weeks ago, every indication was that everyone involved thought that all of the Envision projects could be completed by MDHA. Now, we are told it will be a multi-generational effort without Metro’s help. Separately, on one hand, the Mayor’s pitch clearly indicates that all the affordable units would be built in 10 years. On the other, MDHA has clearly told the Council that they will not be built in 10 years even with the $350 million from Metro.

My personal theory is that Mr. Wiltshire — the new guy at MDHA — is correct when he says that without Metro spending substantial money the Envision projects cannot be completed for a long time and that even $350 million over 10 years is definitely not enough to complete the projects.

What is the real cost? Up until a few weeks ago, nobody had ever suggested that Metro would use its general obligation bonding capacity to build affordable housing units for MDHA. Even when MDHA has provided a super-detailed list of potential financing strategies for Envision projects, it has never included Metro money to pay for unit construction costs. For example, check out MDHA’s 115 page Envision Napier and Sudekum Transformation Plan from June 2018, at pages 109-111. They list 10 financing strategies. Metro is only mentioned as a possible source that “may be able to include funding for…parks and infrastructure…”. Metro is never mentioned even as a potential source of building construction financing.

With the new proposal though, we hear that Metro would contribute $350 million in construction financing over 10 years, and that this won’t be enough to finish the projects. When the Council ultimately is asked to approve spending, we should ask for more information about what exactly Metro is getting for its investment.

Why does it matter? Listen, I don’t mind a developer having to look for a new partner once a project has started. Things change. Markets evolve. But, I do expect that the new partner (Metro) is entitled to a no-BS explanation about why the developer (MDHA) is looking for a new partner. To put it in terms Nashville understands, let’s imagine a downtown developer had spent five years telling the market about a full city block that he was planning, and developing, and even breaking ground on. And, then he starts shopping for a new partner. Immediately, you have questions. Why now? Did something change? What’s wrong? Did you misjudge the project? Were your public statements about the project not entirely on target? When you get asked to invest in a partially complete project, you really need to understand in detail what happened and why.

If MDHA had been saying all along that the Envision projects were going to be “multi-generational,” we might all be evaluating the proposal on its merits. Here though, we need to make sure we have a full understanding of the new facts before we evaluate whether it is a good investment of Metro’s bond spending dollars.

Metro’s Health & Ed Board

Over the last four years, I’ve worked to shine light on the darkest corners of Metro government. The toughest nut to crack so far has been an organization called “The Health and Educational Facilities Board of The Metropolitan Government of Nashville and Davidson County, Tennessee.” This post is to let you know where I am with this project. I’m going to do my best to state facts. You can draw your own conclusions.

What is Metro’s Health & Ed Board?

Under Tennessee state law, a health and education facility corporation — or health & ed board — may be created under certain circumstances. To create a health & ed board, a city must first pass legislation authorizing the creation, and then the city must choose the directors.

Once created, a health & ed board may issue tax exempt bonds for certain purposes for the public good. While state law requires that a city cannot be liable for any bonds issued by a health & ed board, the bonds are issued on behalf of the city.

The Metro government granted permission for the formation of a health & ed board in Davidson County by Council resolution adopted July 16, 1974. The Health and Educational Facilities Board of The Metropolitan Government of Nashville and Davidson County, Tennessee was created on August 12, 1974 upon the filing of a Certificate of Incorporation with the Tennessee Secretary of State by the law firm of Griffith and Stokes, which is a predecessor firm to the Nashville office of Adams and Reese LLP.

Is it a part of the Metro government?

Metro’s Health & Ed Board has a presence on Metro’s web site. The Metro Council appoints the directors of the Health & Ed Board. The Board meets in the Council committee rooms. The tax exempt bonds are issued on behalf of Metro by the Health & Ed Board. Despite all of these indications that it is a part of the Metro government, it is a separate entity created under state law and is not included in Metro’s financial statements.

Also, the best information I have is that Metro has never provided any significant administrative assistance to the Metro Health & Ed Board. Instead, Adams and Reese and its predecessor law firms have provided administrative assistance and record-keeping from 1974 to the present at no charge. They do charge for any legal services they provide to the board.

Why should you care?

About one year into the current Council term, in October 2016, a vacancy on the Metro Health & Ed Board needed to be filled. The Council Rules Committee had several first term Council Members at the time, including me. When we were doing our homework before the meeting, several of us realized we had no idea what the Health & Ed Board was and we couldn’t find any information online other than a list of the board members.

Starting then, and for approximately six months, I attempted to work through the board’s only staff — its outside private lawyer — to get agendas and minutes posted on the Metro web site. I was ignored. Ultimately, I threatened a public records request and the Metro Health & Ed Board finally started posting its agendas and minutes on its Metro web page.

The fact that my request was stiff armed for so long got me interested in figuring out what was motivating the resistance. Of course, I don’t know the answer to this. But my suspicion then and now is that the law firm must be making money and didn’t want to risk that. For that reason, I have consistently encouraged the Health & Ed Board to make all of their board materials publicly available, and also conduct a periodic RFP or RFQ process for their admin and legal services. To date, the Health & Ed Board has rejected these requests.

The only remedy the city has to force transparency is to wait for board members to roll off and make new appointments who will increase the transparency of the Metro Health & Ed Board.

In fairness, I will mention that the lawyers for the board are quick to mention that even though “Metro” is in the title, the Metro Health & Ed Board is not part of the Metro government. My consistent response is that with Metro fully responsible for making board appointments and with Metro’s name being used to issue tax exempt bonds, the citizens of Davidson County are entitled to the same level of transparency that would exist if this board were fully a part of Metro.

What’s the latest?

Because my requests over the years to provide more information went unanswered, CM Dave Rosenberg and I passed a resolution by unanimous vote on January 15, 2019. The resolution asked the Metro Health & Ed Board to post its board materials online and to also make its debt reports to the State of Tennessee available online. The state-required Report of Debt Obligation is a form that provides basic information about each bond issuance — including how much the lawyers make from the deal.

As I understand it, the Metro Health & Ed Board has declined the requests made in our resolution…

I’ll keep asking for their board materials to be posted. But I’ve decided to stop asking for the debt report forms. I went to the State of Tennessee and got the debt report forms for the last two years. These aren’t available online with the State…you have to ask the State for them. I’ve posted a summary and the two years of forms on this page. In the most recently available two year period, my math shows that the law firm was paid approximately $624,000 for legal services related to the Metro Health & Ed Board issuing bonds.

I’ve got another three years of the debt report forms in my Metro Inbox if anyone wants to do a records request for them. I haven’t looked at them yet.



HEFB Report on Debt Obligation Forms (2/17 through 1/19)

These are the Report on Debt Obligation Forms filed by the Metro Health & Education Facilities Board from February 2017 through January 2019, plus a summary that shows the legal fees reportedly paid to Adams & Reese.

Here is the summary showing fees reportedly paid to Adams & Reese

Metro HEFB Report of Debt Obligation filed with the State of Tennessee on:

  1. 02/06/17
  2. 02/23/17
  3. 02/23/17
  4. 06/01/17
  5. 07/16/17
  6. 07/27/17
  7. 08/02/17
  8. 09/13/17
  9. 11/17/17
  10. 11/17/17
  11. 11/21/17
  12. 11/27/17
  13. 12/20/17
  14. 12/20/17
  15. 04/23/18
  16. 04/30/18
  17. 05/01/18
  18. 07/23/18
  19. 07/23/18
  20. 07/24/18
  21. 08/27/18
  22. 09/21/18
  23. 09/20/18
  24. 09/20/18
  25. 09/20/18
  26. 10/04/18
  27. 12/03/18
  28. 02/05/19

The new affordable housing initiative

A lot of people are asking me what I think about the Mayor’s newly announced affordable housing plan. His press release is here. And his office has set up a web site that basically says the same thing. If you made me boil it down to a single thought, it would be: “There are parts of the plan I think I might like…doesn’t sound like anything is going to happen before FY21…let’s talk then.”

In more detail, I think that…

  • Ben Eagles had a nice Twitter thread on this yesterday. It starts here:
  • The numbers in the press release are cleverly phrased, or generously characterized, or possibly just a touch misleading. The $500 million in the press release counts about $350 million that the city was probably going to spend anyway. Ben’s thread covers this point pretty well. In the end, adding $150 million to Metro’s existing commitment level over 10 years is still a big deal. But people need to not buy into the idea that this plan commits a half a billion dollars in new spending.
  • Aside from quibbling over the spin, the most important line of inquiry is about what Metro would get for the new spending. This is unfortunately complex.
    • MDHA has claimed for years now that it is completely capable of rebuilding multiple low income housing communities on its own. Even after the announcements this week, MDHA and the Mayor persist in this position. That said, my opinion is that almost nobody who is close to the situation believes this claim. I haven’t believed it since I got in office. The first piece of legislation that I sponsored was motivated in response to MDHA’s apparent inability to finance Envision Cayce without liquidating real estate in another part of town. (I wrote about that here in January 2016.)
    • I’m not asking about MDHA’s independent ability to complete the Envision projects on its own for sport. Getting a straight answer on this should drive how you feel about the Mayor’s new program.
    • For example, if MDHA’s long-time claim that it can absolutely complete the Envision projects on its own were true, then we should analyze the new initiative against that. In this scenario, the press release claim that Metro’s money will build 10,000 units is false. Super-false. If MDHA can do Envision on its own, then nearly all the units are getting built anyway with no Metro money. The city would be paying $350 million for about 1,000 new low income housing units. That would be a bad deal.
    • On the other hand, despite the denials, we might instead understand the Mayor’s proposal as an acknowledgement that MDHA really was never going to be able to make the Envision projects happen without significant aid from Metro. This is a stark scenario where MDHA won’t get the Envision projects completed on its own for a generation at least. While startling because it is different than what we are being told, if this were the situation, perhaps Metro should be putting its affordable housing dollars into helping MDHA??? That’s a question to think about.
  • If you end up believing that MDHA does need financial assistance to complete the Envision projects, then you have to ask, “Why do we think that $35 million per year in capital will be enough? Where did that number come from?”
    • Back (last week) when MDHA was going to complete these projects on its own and get bank financing on its own, the Metro Council was more or less a cheerleader for the Envision projects. The finances were up to MDHA entirely.
    • Now, with Metro as a significant $35 million per year investor, there are a lot more questions to ask. Is $35 million per year going to get all of the Envision projects built in 10 years? (I’m suspecting not. I bet that if a reporter were to ask this question directly, the answer would be something like, “We hope so” or “Well, that will depend on federal funding” or some other answer other than “Yes.”)
  • There is also the question of when do we start? I cannot fathom that this initiative involves any spending in the next twelve months. This is an important question because Metro’s current revenue is not sufficient to pay for the new affordable housing initiative. I think that means that this announcement doesn’t turn into action for at least another year.

To wrap this up…I’ll get over the numbers being spun so much. But, by the time we get to a future budget season where this plan will require spending, I’ll want to understand whether MDHA would build the majority of these units anyway without Metro money, or if the Envision projects are a pipe dream without Metro dollars. I’ll want to see some analysis about how people determined that $350 million is the right amount to get this done in 10 years. I’ll want to see where we are with the city’s revenue at that time.

(If you want a refresher about Metro’s budget problems last year, you can read my FAQs, a summary of my budget proposal last year, and this worksheet showing Metro’s expected new costs in FY20 and FY21. Every number in these posts came from Metro Finance.)

Maybe hold back on the high fives for now??

Yesterday, the administration announced its intention to give Metro employees their overdue cost of living pay raise in the upcoming budget. I fully support that. But I think the Metro Council needs to hold back on any congratulatory high fives until the Mayor presents his budget in late April. For now, we don’t have any idea about how this is being accomplished.

The press release announcing the pay raise said that revenue is increasing. But, that’s sort of a given. The question is how much is it increasing? As data points, remember that the biggest revenue increases ever (without a tax increase) were several years ago and were in the range of $120 million. At the time, this was described as extraordinary. And during last year’s budget season, Metro Finance conservatively estimated that revenue growth for the upcoming fiscal year (FY20) would be about $65 million. For the sake of argument, let’s assume that FY20 revenue growth will be somewhere between Metro Finance’s conservative $65 million estimate and the all time record of about $120 million.

Let’s move on and consider what that new revenue will buy. My starting point is the information that Metro Finance gave us last budget season (so, that’s 9-10 months ago). We were told that certain FY20 increases in expenses were unavoidable:

  1. Replace one-time sales built into the FY19 budget, $38 million
  2. Known long term debt increases for FY20, $42.6 million
  3. Pay plan for FY20, $24.4 million
  4. Inflation (1.8%) for General Fund for FY20, $20.1 million
  5. Inflation (1.8%) for Schools Fund for FY20, $16.8 million

This means that less than a year ago, Metro Finance expected a total to $142.7 million of new obligations in FY20. Even if we were to pretend there is no inflation, the total is $105.8 million of new obligations for FY20 according to Metro Finance’s numbers last year.

So, when the press release yesterday said that revenue is increasing…well, let’s hope that the projected revenue increase of $65 million was very, very low. Otherwise, the pay plan promise the Mayor made yesterday doesn’t add up.

The bottom line is that you can’t tighten your belt and promise new spending unless something really magical has happened with the city’s revenue (or you keep selling off Metro assets to make ends meet).

NOTES: All the numbers used here came from Metro Finance. My various posts with these numbers from last budget season are here. Also, I wrote this quickly because I need to be in court for a client shortly. Please excuse any typos.

Metro Internal Audit – Collier and MNPS reports

The Metro Audit Committee meets next on February 12. We will consider the Metro Auditor’s reports about Collier Engineering and various allegations related to MNPS. Both are getting media attention and I think it is appropriate for me to comment transparently.

In connection with two investigation reports in 2018, I said in Audit Committee meetings that I think the internal audit department findings were inadequate. To put a finer point on it — I think the internal audit reports on investigations recently have pulled punches and sought to move on rather than fully address the allegations.

If you want to read more info about my thoughts about the internal audit function generally, read this.

In connection with Collier, I think the supplemental report we will consider this week is inadequate. Regarding the MNPS investigation report, I don’t have an opinion yet. (It’s voluminous, it came out just a few days ago, and I just haven’t gotten through it yet.)

On Collier…here is the basic internal audit timeline…

The Auditor’s initial report was issued on October 26, 2018. That version doesn’t seem to be online any longer. The Audit Committee discussed this report at our November 27, 2018 meeting. I thought the report was inadequate and I made six motions asking for the report to be supplemented and updated. You can see the motions on pages 9 and 10 of this package. The motions passed unanimously and that sent the Auditor back to work further. For context, in 3+ years on the Audit Committee, this was the first time we ever did anything like this.

The Auditor’s supplemental report is dated January 24, 2019 (although it wasn’t posted online until January 30, after I asked about getting it online).

I consider the supplemental report to still be inadequate. My email to the Auditor dated January 30, 2019, explains my reasoning. The summary is that I think the supplemental report is holding back and downplaying the seriousness of the evidence. I’ll continue to ask these questions at the Audit Committee meeting on Tuesday.


The Auditor releases a 69 page report about various allegations related to MNPS a few days ago on February 6, 2019. As I mentioned above, I haven’t had the time to dig in on this the same way that I have done with the Collier reports.

I know two things at this point.

First, I currently do not have full faith in the willingness of Metro’s internal audit function to shine the right amount of light on alleged bad acts.

Second, I know there are people asking good faith questions about issues related to MNPS. As just one example, I saw that yesterday Phil Williams put out a 74 tweet opus about these allegations and the audit report. I’ve only skimmed his tweets, but it looks like he’s asking some of the same questions that I have about the willingness of the internal audit function to shine a bright line on controversial topics.

I have got a full schedule between now and the Audit Committee meeting at 4pm on Tuesday. I’ll try to get through this report by then. If I don’t, I’ll ask the Audit Committee to push off considering this report until our next meeting. I am not sure we can expect any of the committee members to meaningfully get through this important report in just 3 or 4 business days.

General thoughts about Metro’s internal audit function

I’ll warn you right now…this post will be hard to keep interesting. But as Metro’s Internal Audit function has been more in the forefront on issues like Collier Engineering, various MNPS allegations, and looking into the former mayor, I need to get some thoughts out. In this post, I’m going to cover some basic information about Metro’s internal audit function, what traits I think make for successful internal audit, and then some areas of possible improvement. If I have time today, I plan to work on a second post about the ongoing Collier and MNPS investigations being conducted by the Internal Auditor.

Here are some basics:

  • The Metro Auditor is set up under the Charter to be independent. The Auditor serves an 8 year term. I believe (but am not sure) that the current term runs through 2022. The Auditor reports to but is not controlled by the Metro Audit Committee.
  • The Metro Audit Committee has 6 members, who are the Director of Finance, the Vice Mayor, two Council members selected by the Council, a person chosen by the Nashville Area Chamber of Commerce, and a person chosen by the Nashville Chapter of the Tennessee Society of Certified Public Accountants. Council Member John Cooper and I are the two CM’s picked by the Council to be on the Audit Committee.
  • There are three key functions for internal audit — work with the external third-party auditors in preparing Metro’s annual financial audit, conduct periodic internal audits of Metro’s key functions, and conduct investigations as necessary of allegations of wrongdoing that impact Metro’s finances.
  • Two of these functions are predictable. Working with external auditors on the annual financial audit and conducting periodic internal audits of each department can be scheduled easily at least a year in advance.
  • The third main function — handling investigations of alleged wrongdoing — is not predictable. Sometimes, there’s not a lot of this. Sometimes, there is a lot to do.

What does it take to be a good internal auditor?

My basic description is that you want someone who has good accounting experience, a very practical operational understanding of the government, and a willingness to call out bad acts when necessary. It’s critical to be well-balanced with these traits to be successful. For example, without a solid, practical operational understanding, internal audit findings tend toward being over-careful and unworkable. And then departments will just ignore findings and recommendations. Also, without a willingness to call out bad acts, then internal audit tends toward just moving paper around and not ever improving government.

For an additional data point, here’s a brief article summarizing a report from the Institute of Internal Auditor’s Audit Executive Center. The article indicates that when internal auditors are hired business acumen and critical thinking are valued substantially more than traditional audit and accounting skills. This matches my impression that, yes of course, you need your internal auditor to be good at debits and credits. But more importantly, understanding operations and being able to think through what is an operational snafu that can be redesigned and what is a bad act is critical to a good internal audit function.

Areas of improvement

In my 3+ years on the Audit Committee, here are some of the areas of improvement that I have noticed. Some have improved. Some are a work in progress.

  • Enterprise Risk Management:
    • This is an industry term to describe having a formal process for an organization to identify all areas of risk, and then grade those risks. Once this is done, the result is used to decide where to allocate your internal audit resources.
    • To make up an exaggerated example…if Metro were to have a single, unbacked-up computer that stored all of its information about property assessments and property tax collections, the risk of losing that information would be graded as very high. In theory, that would mean that the processes around collecting and storing that data would be at the top of the list for an internal audit.
    • Many organizations build a ground up ERM assessment annually to inform the internal audit plan for the next year. Metro doesn’t do this. Metro relies on industry publications and studies, and experience/anecdotal evidence, to build a risk assessment. Metro would need to invest in an ERM software package to improve this.
  • Follow-up on findings:
    • There should be long-term follow-up on any findings from an internal report. When I joined the Audit Committee in 2015, that wasn’t happening.
    • So prior to 2015, an audit report could have a finding, the department could promise to fix the issue, and if the department then ignored the issue, there was never any follow-up or further reporting.
    • At the request of the Audit Committee, we now get reports twice a year (I think it is twice??) on audit items that are unresolved or where the department has pushed back an implementation date. This provides dramatically more oversight.
  • Rejected findings:
    • From previous experience, I expect that departments will accept the internal auditor’s recommendations and promise an implementation date for the fix. When I joined the Audit Committee in 2015, there were way too many recommendations that were being rejected by the department or where no implementation date was promised.
    • To me, that meant that departments probably didn’t have respect for that “business acumen” component of the internal audit function. Rejected findings likely meant that the department was basically saying that internal audit didn’t know what it was talking about.
    • At the request of the Audit Committee, all findings now have an implementation date for the fix. That’s good.
    • Also, departments are rejecting audit findings less often now. To accomplish this, in late 2015 or early 2016, the Audit Committee started asking the Auditor and the department heads to talk more and work out their differences, if possible. As word got around Metro that rejected findings were going to get more attention from the Audit Committee, more of these differences got ironed out.
  • Reports not timely online: Over the last several years, the Audit Committee has leaned on the Auditor to more promptly and more completely get all reports online. To be perfectly honest, my experience has been that mundane reports get posted quickly and controversial ones do not. As recently as last month, a series of reports were issued within days of each other. The most controversial one was the only one to not be posted when I checked. I had to ask about it before it was posted. This is better than it used to be, but not where I’d like it.

What does it all mean?

This Audit Committee work is drudgery. But it is critically important. My work to push for a better enterprise risk management assessment, to force more communication and problem-solving, to require follow-up reporting on unresolved findings, and to get all reports online quickly is the highest value, lowest attention work I’ve done during this term. You should know that David Briley (when he was on the committee as Vice Mayor) and John Cooper (who is the other CM on the committee) have been strong, reliable allies in this work.

This post is to provide background context for my next post about the current ongoing investigations. What I would like you to takeaway is that, in my opinion, there is some evidence that the Metro departments don’t always have a great opinion about the practical business acumen of the internal audit function. There is also some evidence that the audit function has typically shied away from controversy. I think these observations are important context for understanding the current investigations.

Council Feb 5 Agenda

The Council has a full agenda on February 5. It includes several items that are guarantied to make someone mad. Here’s what I am looking at (in the order they appear on the agenda):

Public Hearing

Murphy Road developmentBL -1357 and -58: This is the proposed development on Murphy Road near West End. I believe the developers have met with the neighbors and that discussions are ongoing. I understand that CM Kindall will defer the public hearing again.


NES round-up, RS -1508: NES has a program where customers may opt-in to rounding their monthly bill up to the nearest dollar and allowing NES to use the extra cents to fund its low-income weatherization program, Home Energy Uplift. This non-binding resolution would ask NES’s board to consider transitioning to an opt-out program instead. If NES switched to an opt-out program, all bills would be rounded up to the nearest dollar unless the customer opted-out. This is consistent with other large cities in Tennessee. Supporters argue that this is a relatively harmless way to fund an important program. Detractors feel like it a bit like taxing people without them realizing it. Since the program would come with the ability to opt-out and, by definition, it involved less than $12 per year, I’ll vote in favor of this.

Surplussing property to new community land trust, RS-1570: This resolution would send surplus Metro property to our new community land trust (CLT) for future use as affordable housing. This is a tremendous step forward — and a lot better than selling off Metro’s valuable property to make ends meet temporarily. But this is the first surplussing for the CLT and I’ll have some questions at our committee meetings. I’ll want to make sure I understand the process, how long any units built will be affordable, and how these properties interact with our short-term rental laws. Depending on the information we get in committee meetings, I may vote in favor or to defer one meeting to make sure everyone understands this new process of getting properties into the CLT.

Asking Jill Speering for an apology, RS -1597: This one is guarantied to make a lot of people mad. You can read the Tennessean’s coverage of the back story here. The problem, from my perspective, is that there are some people who have been raising legitimate questions about MNPS and Dr. Joseph’s leadership, and then there are others who tend to not talk about the merits and instead talk about Dr. Joseph being “scary” or “intimidating” or having a “crew” to enforce his will. The second group of critics, to my ear, have helped to inject a race element that’s damaging into the dialogue.

Almost a month ago, I called out the second group as being out of bounds:

Back to the pending resolution…with all respect to those defending Ms. Speering’s text message statement, the intent to the statement is beside the point. In the context where some are raising well thought out concerns backed by evidence, but others are using rhetoric that rings of stereotypes, her statement was wrong. And, as I understand it, Ms. Speering has not publicly expressed any regret for the statement or how it has been interpreted.

Having said all that, I don’t know yet how I’ll vote. I’ll abstain because I’m not that interested in opening the door to a lot of future apology seeking, or I’ll vote in favor because my personal opinion is that some public expression of regret would be appropriate.

Censure the former mayor? RS -1598: This is another one that will make some people mad whichever way it goes. Opponents of this resolution say the Council is beating a dead horse and suggest that the former mayor has suffered enough for what she did. Let me try to get the debate framed by facts.

First, the Metro Board of Ethical Conduct received a complaint while she was still Mayor. In December 2018, that complaint was resolved by the Ethics Board and it recommended that the Council censure her. Under Metro’s laws, once the Ethics Board makes a recommendation, the Chair of the Council Rules Committee “shall” file a resolution for the Council to consider the recommendation. Hence, we have the current resolution.

Now, there are some (perhaps including Metro Legal) who feel that the Ethics Board lost jurisdiction once she resigned, and that the complaint should’ve been dropped at that time. Remember, Metro Legal had a conflict of interest and the Ethics Board used outside legal counsel. That outside legal counsel recommended that the Ethics Board continued to have jurisdiction to make a decision after she resigned. What should we make of the fact that Metro Legal probably thinks there was no jurisdiction and outside counsel thinks that there was? Well, I’ve read Metro’s ordinances on this and, wearing my lawyer hat, my expert opinion is that the drafting of the ordinance was crap. I think the best reading is that there is continuing jurisdiction to consider a complaint after someone resigns, but it was poorly drafted and could use clarifying one way or another.

The fact is that the Ethics Board did make a recommendation and under Metro law the Council “shall” consider it. We can either vote no (either because you think the Ethics Board should have dropped it after she quit or because you don’t think she should be censured) or vote yes (because you think admitting a felony also warrants a censure). Either way, this ridiculous episode will finally be over. I’ll keep listening to my colleagues. But for now, I plan to vote to adopt this resolution.

2nd Reading

Match affordable housing funding to job credit funding, BL -1472: This bill would require setting aside $1 of affordable housing spending for every $1 of job credit spending. In particular, this is aimed at the upcoming legislation to approve job credits for Alliance Bernstein and Amazon. For several reasons, I’m opposed to this. To start, I have been consistently opposed to what I call silo-izing Metro’s budget. I think that slicing and dicing the budget with a ton of required micro-spending cuts into the city’s ability to be flexible and match the needs of a particular year. Beyond that, this is really just disguised opposition to the job credits, I think. From my perspective, if you don’t like the job credits, just vote ‘no’ on them. But passing this bill would just make the job credits literally twice as expensive to the city AND cut down on flexibility in future years.

I don’t know how I’ll vote on the Alliance Bernstein or Amazon job credits — we’ve not seen that legislation yet. But I don’t think doubling the cost of the job credits is the right direction. I think I’ll vote against this bill.

Surplussing $5.4 million of real estate for schools budget, BL -1476, -1477, -1478, -1479: Folks, this is part of the “belt-tightening” that Mayor Briley told us about last year. Instead of properly funding the government from its tax base, the proposal is to sell off one-time assets to make money to balance the budget for the year. The Council can either vote in favor and participate in unloading valuable assets that will never be recovered, or we can vote against and help put a bigger hole in the MNPS budget. Both options are bad.

Among the many reasons why this is a bad way to run a city are: (1) all potential buyers know Metro is in a hurry to sell (which tends to drive price down); (2) at least one of the parcels would benefit from  more dense zoning, but it’s not clear whether Metro has time to do that (which may tend to drive price down); (3) nobody is making more land — once these are sold, they are gone forever; and (4) Metro is losing an opportunity to discuss whether affordable housing would be appropriate on these parcels.

Honestly, I don’t know yet whether I’ll vote ‘no’ to protest this method of balancing the budget or vote ‘yes’ to make sure MNPS’s minimal budget this year gets funded.

3rd Reading

Nashville Yards participation agreement, BL -1442 (as amended): This bill would approve Metro paying for approximately $15 million of the proposed $80+ million in infrastructure improvements related to the former Lifeway campus. This bill has gotten some push back because it is downtown and because Amazon will move there in a few years.

My perspective starts with “This isn’t tax increment financing.” Instead of giving away all new property tax revenue for up to 30 years, Metro will make the upfront investment and keep all of the property tax revenue going forward. There should be more agreements like this where Metro and developer share in the infrastructure costs, especially downtown. These agreements allow Metro to get long-sought after infrastructure improvements without Metro having to pay the full cost.

Also, keep in mind that these agreements are not limited to downtown. For example, in Antioch where I-24 and Hickory Hollow Parkway meet, Metro has agreed to pay half ($12 million of $24 million) to improve the interstate exchange. Like with Nashville Yards, that interstate exchange participation agreement was a once-in-a-generation opportunity to dramatically improve the infrastructure in the area for everyone. I’ll vote in favor of this cost-sharing participation agreement.


Mendes – what is that?

Through my life, I’ve been asked a lot about my last name. What is Mendes? Where is Mendes from? What are you? Mendes – what is that?

Sometimes people ask right away. Sometimes they wait until we know each other better. Not always, but often the person asking is looking for help in figuring out a category to put me in.

When I ran for office in 2015, I answered the question dozens of times. My typical answer was that my family doesn’t really know the history of my last name, and that I am a little bit of a lot of nationalities — just like Nashville.

Since then, I’ve learned more about my paternal grandfather. I’d like to share the story with you.

The official family story

Growing up, one thing was clear about the family name. There wasn’t a whole lot to know or discuss. My dad’s father was Pierre Monteil Mendes. He was French. He left my grandmother when my dad was an infant. Despite my grandmother’s best efforts, Pierre was never heard from again. That was the whole story.

My other three grandparents were much easier to figure out. My dad’s mother is Clare. She was raised in Preston, Minnesota, the county seat for Fillmore County. Her father ran the railroad station in Preston. Her family traces its roots to mid-1600s settlers from England (to Maryland) and the Netherlands (to New York). Her great grandfather, George Washington Dean, was in General Grant’s Army of the Tennessee during the Civil War. George, a Private in the 21st Iowa Volunteer Infantry Regiment, died from wounds sustained at the Battle of the Big Black River Bridge on May 17, 1863, in the Vicksburg campaign. Two generations earlier, another of Clare’s  ancestors, John Dolson from Orange County, New York, was a Private in the 1st Pennsylvania Regiment of the Continental Army. Dolson’s unit saw action at the Battle of Trenton when Washington crossed the Delaware.

My mom’s parents spent their entire lives in Chicago. They were the children and grandchildren of European immigrants who settled there. Their ancestry was German, Irish, Swedish, and probably one or two more nationalities. The rich history from my other three grandparents always stood in contrast to the lack of information about Pierre Monteil Mendes.

My early research about Pierre

Before online ancestry research was readily available, I obtained a copy of my dad’s birth certificate. It says that his father Pierre was born in Brazil. That’s inconsistent with his being French because Brazil was a Portuguese colony. However, many Portuguese surnames have an ‘s’ at the end instead of a ‘z’ — so maybe that explained the name “Mendes”? But it wasn’t much of a clue to know the guy named Pierre was from Brazil.

Then, I was an early customer of Over the years, more and more information has become available about Pierre. But not enough to tell a full story.

My grandmother Clare was a badass. She was a nurse and, by the time I was a kid in the 70s, she was running a large nursing home in Evanston, Illinois. Her nursing training was in the late 1930s.

Pierre and Clare lived in Minneapolis, but their marriage license is from Kansas City, Missouri. The marriage license was issued by Jackson County, Missouri, on Tuesday, December 5, 1939, and they were married in a civil ceremony the next day. Clare, born in 1916, was 23 years old. Pierre, born in 1910, was 29 years old.

My uncle Peter was born Pierre Rene Mendes in July 1941 in St. Paul. My dad was born in May 1943 in Lanesboro, Minnesota. According to family, Lanesboro had the only hospital in Clare’s home Fillmore county. With the stories of marital trouble, one imagines that she went home to have her second child.

A 1942 Minneapolis city directory says that Clare was working as a nurse at the University of Minnesota and that Pierre was a salesman for the Pittsburgh Coal Company.

After that, there is more evidence suggesting marital trouble. The 1944 directory has nurse Clare living at one address, and Pierre (now a language teacher) at another. Also, in Arizona death records, we see that “Baby Boy Mendes” was stillborn on January 6, 1944, to another woman at the Navajo Medical Center in Ft. Defiance, Arizona. The mother was from Northfield, Minnesota, near Minneapolis. Pierre Mendes (listed as being born in Seville, Spain) was the father. When I mentioned this to my mom, she confirmed that the rumor was that Pierre got another girl pregnant and then took off.

Later in 1944, Pierre enlisted. In fact, he enlisted on D-Day, June 6, 1994, at Ft. Snelling in Minneapolis. The enlistment papers confirm his 1910 date of birth and that he was a teacher. But he told the Army that he was born in Hawaii. Maybe this reflected discomfort with being a foreigner at a time of war? Interestingly, Hawaii has something of a Portuguese immigrant population and it is one of the few places in the United States where the last name “Mendes” is somewhat common. The war ended before Pierre was deployed and he was soon discharged from the military. Between the evidence of Brazil and then Hawaii, there was a period of time when I guessed the name was Portuguese — but the “Pierre” and the “Seville, Spain” data points never worked with that.

After the war, Pierre became a U.S. citizen in 1946. In that paperwork, Pierre said that he had been born in Sevilla, Andaluers, Spain. After this, his trail goes cold. The next information I have is that he died in 1967 after suffering a heart attack. He died at Brooke General Hospital at Ft. Sam Houston in San Antonio, Texas. He’s buried at Ft. Sam Houston National Cemetery.

With the exception of Pierre’s death records, I have never been able to find out anything about him before 1939 or after 1946. And the several paragraphs of information I have here took about 15 years to compile. As the years unfolded, I reached two conclusions. First, the mystery around Pierre Monteil Mendes was getting deeper. It was odd to have evidence of him being from France, Spain, Brazil, and Hawaii. It was very unlikely that all of it was true. And, second, between 1946 and his death in 1967, Pierre was living a low-profile life for one reason or another.

The break

Over the years of research, I made friends with one of my dad’s cousins who lives in Wisconsin. While going through some old family photos, he ran across a wedding announcement from the Preston newspaper, and a few photos and honeymoon postcards, from when Pierre and Clare got married. Here’s the clipping:

The newspaper clipping is from December 1939 and confirmed that Clare had already graduated from nursing school and was working for the “University.” There are also tidbits that contradict other information. The announcement said that Senor Pierre Mendes was from Colombia, South America, and that the two had been married the previous Tuesday at Our Lady of Guadalupe Church in St. Paul, Minnesota. The church’s web site today tells us that “Our Lady of Guadalupe Church was founded in 1931 by a small group of Mexican immigrants from the local community.” In any event, we know from other records that Clare and Pierre got married in a civil ceremony in Kansas City on December 6, 1939.

The wedding announcement also tells us that Pierre attended the University of Wisconsin. More about that later.

The announcement also tells us that the newlyweds will take an “extended wedding trip to Mexico City.” My dad’s cousin send me several postcards that Clare sent to her parents and siblings from Mexico City. There is also a picture of Pierre from 1940. This is the only known photo of Pierre:

Back to the University of Wisconsin…I know that some universities keep academic records more or less forever. I reached out to the University of Wisconsin for any records about Pierre Monteil Mendes from the late 1930s. The university got back to me. They had no record of Pierre Monteil Mendes. However, there was a Pedro Montiel Mendez who attended in the fall of 1938. They sent his transcript.

Things started to make more sense…

What’s Pedro’s story?

Armed with the name “Pedro Montiel Mendez,” new investigation paths opened.

First of all, Pedro did really poorly at University of Wisconsin. In one semester, he earned three Fs and a D. He was dropped from the school in February 1939. The transcript also tells us that Pedro’s secondary education was at St. Anthony’s Apostolic School in San Antonio, Texas, which is the same city as where Pierre later died and was buried.

The transcript provided a home address in Madison, Wisconsin – 317 Huntington Court. This address was confirmed by the 1939 Madison city directory. Pedro M Mendez, student, was listed at the Huntington Court address. The surprise was that Pedro is shown in the directory as married to Mildred L. Mendez. That’s not my grandma!

Moving beyond the transcript, I quickly found that Pedro married Mildred L. Crowley in 1931. They had two children in the mid-1930s. In their marriage license, Pedro is shown as being born in 1907, which is three years older than Pierre is supposed to have been.

Most notably, while Pedro Montiel Mendez left these multiple bread crumbs in the 1930s, his trail goes cold after the 1939 Madison city directory. I cannot find any information about Pedro after that. Mildred moved on, got re-married, and moved with her two children to a different part of the country.

Pedro shows up in a few publicly-available family trees on In each, he’s a dead end after 1939. Each agrees that he was born in Mexico. There is conflicting information in these other family trees about where in Mexico. I think the most compelling evidence is that he was from Mexico City. That evidence suggests that Pedro entered the U.S. at Laredo in 1929 at age 22. When entering, he reported having been in the U.S. previously from 1926 to 1928. The handwritten signature on the border crossing document appears similar to the signature on the 1931 marriage license with Mildred.


In late 2017, I had my DNA tested by a commercial provider. Approximately 73% of my DNA was reported as British & Irish, French & German, Scandinavian, and Broadly Northwestern European. This matches what one would expect from my other three grandparents.

That might suggest that the remaining approximate quarter of my DNA would be attributable to my fourth grandparent?? According to, the last quarter of my DNA is just more than a third “Native American” and nearly all the rest is European.

The bottom line from is to describe my DNA as 90% “European” and 9.2% “East Asian & Native American.” The rest was 0.2% “Broadly Sub-Saharan African” and 0.6% “Unassigned.”

What does this all mean?

To start, I believe that Pedro is Pierre. Pedro leaves a trail until 1939, but not after that. Pierre first appears in 1939. Pedro’s middle and last names are Montiel Mendez. Pierre’s are Monteil Mendes. Pedro went to high school in San Antonio. Pierre is buried there. Pedro may have been born in Mexico City. Pierre honeymooned there. Pedro attended the University of Wisconsin in late 1938. Pierre is reported in late 1939 as having attended the same school.

Once you blend in the serial marriages and children, and the mystery around whether Pierre was from France, Spain, Colombia, Brazil, or Hawaii, it seems clear that Pedro is Pierre. So I’ve declared my personal quest to figure out the origin of my surname over. It’s figured out.

That would make my grandfather Pedro Montiel Mendez, born in Mexico, in the early 1900s.

It feels weird to have an answer to the question now. Saying that I don’t know the history of my name isn’t true any more. But I haven’t gotten used to saying, “It’s from my grandfather, Pedro Mendez, who I believe was born in Mexico City.” I mean, that’s a factually correct statement, but it stumbles into how race works in America.

Pierre, the story went, was from France. Although perhaps silly and naive given the contradictory evidence that has piled up over the years, I was raised with our family self-identifying as white people of European descent.

Now that I have learned what I have learned, I’m not going to hide the history of the name most likely being from Mexico. As for 9+% of my DNA being reported as native to the Americas (and presumably from south of the U.S. border), I’m not going hide that either. But while I’m not going to hide or deny the reported DNA results, I also am not going to claim or co-opt a cultural Latino heritage that I wasn’t raised with and that I have not participated in.

I am super-proud of my badass grandmother Clare. Whether she was completely in the dark or knew everything, by mid-1944, she was a 28 year old nurse with a 3 year old and 1 year old. She struck out to make a life for herself in Chicago and made it work. Good for her.

Thanks for listening to my story. I’ll leave you with this undated photo of Clare. I believe it is from the 1930s.

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

Metro’s Audited Financials for Fiscal Year 2018 were posted online yesterday. This post will run through the top dozen or so things I look at in the audited financials. I’m not going to do a lot of commenting. I’m just trying to lay out where to find accurate technical information for some of the financial topics that get a lot of attention.

The audited financials for FY18 are here. When I make page references, they are to this document.

The auditors gave a “clean” opinion. That’s typical for Metro, reflects well on Metro Finance, and is a good thing.

Balance Sheet. Don’t freak out until you read this full section. The city’s balance sheet, or “Government’s Net Position” is sort of ugly looking this year — with liabilities exceeding assets for government activities by $3.2 billion. That’s nearly $2.5 billion worse than the previous year. It is critically important to understand that there was a change in accounting rules this year which account for nearly all of this change. This year, for the first time, Metro (like all government entities) is required to include its entire retirement benefit obligation on its balance sheet. So that mammoth-looking decrease in net position is because the city’s known retiree benefit obligation must now be shown on the balance sheet.

There is no practical impact on Metro because of this accounting rule change. Auditors and cities and bond rating agencies have known for several years that this accounting rule was coming. Think of this as requiring a different and more accurate presentation of city finances…but there is no change in the underlying information and no day-to-day impact on Metro.

This balance sheet summary is at page A-3:

What happened with revenue in 2018There is a formal description of what caused Metro’s revenue shortfall in FY2018 on page A-9:

There is perhaps a teaser for the upcoming budget season in this description. At the end, the note says that actual expenses for FY18 came in $54 million under budget due to “targeted savings” achieved by Metro. This suggests that Metro’s departments were successful in cutting back on expenses in the second half of FY18. We’ll see if that translates into Metro being able to give promises employee raises in FY20.

Debt.  There is a summary of changes in long-term debt in FY18 at page A-1:

There is also more detailed information about changes in Metro’s general obligation bond debt in FY18 at page A-11:

And there is also a description of the commercial paper program liabilities on page A-11:

Pension and OPEB. Metro’s pensions are well-funded. For example, the biggest of Metro’s several pension funds has $3.117 billion in assets to cover $3.196 billion is liabilities. That’s 97.45% funded. See page B-80. For all of Metro’s pension funds together, the unfunded net pension liability is about $212 million. See page B-76. That page also has a “sensitivity analysis” to show what the net pension liability would be in the actuarial assumptions are off by 1%:

The retiree healthcare benefit obligation (or OPEB) situation is dramatically worse. Metro’s total OPEB liability is $3.9 billion. That’s really big. Here’s the summary at page B-91:

Like with the pension, the audit notes include a sensitivity analysis to see what the OPEB liability might be if certain healthcare costs assumptions are wrong by 1%. This chart shows a range of potential unfunded OPEB obligations as of June 30, 2018. That range is $3.3 billion to $4.6 billion. Here’s the chart:

Folks — at the high end of this range, Metro’s unfunded retiree benefit obligation is now approximately two times the city’s annual operating budget. That is way too high.

Convention Center Authority. There are two tidbits tucked away in the audit notes that are worth remembering. First, the Convention Center Authority can absolutely return some of its enormous dedicated tax funding to Metro if it wants to. This city has somehow managed to give a huge amount of money to a non-elected body and there’s almost nothing we can do as a city to un-ring that bell unless whoever sits in the Mayor’s office renegotiates the deal with the Convention Center Authority. At page B-16, here’s the language that makes it clear the Convention Center Authority can return money to Metro if it wants to:

And, second, what is the Convention Center Authority doing with its money? Among other things, it bought a parking lot at 719 4th Avenue South for $3.9 million. Allegedly, according to page B-113, this is to “be used as a marshalling yard for events and additional parking to supplement the garage as the Music City Center.” However, this property is precisely where the southern end of the downtown tunnel would have been if the transit plan had passed. For people interested in good government, is it a coincidence that the Convention Center Authority (which the Council can’t control at all) bought property in August 2018 that could someday be used for a transit tunnel? Would that expenditure have been approved by the Council?

Here’s the language:

Other interesting stuff.

  • Nashville General Hospital did not get a “going concern” note this year. A “going concern” note is bad. Removing that from Metro’s audit this year doesn’t mean that the hospital’s problems are solved in any way. It does mean that the hospital’s books and records were reliable, accurately reflected their finances, and that the auditors expect that the hospital can operate within its current funding budget from Metro.
  • Most of Metro’s economic incentives are listed in Note 13(G) on pages B-103 to 106. This list does not include economic incentives that might be listed in the separate audits of Metro’s component units (like MDHA). I’ve asked for all of the economic incentives to be described in next year’s audit. I think that will happen.
  • Many of Metro’s tax abatements are listed in Note 16 on pages B-111 and 112. Like the last point, this note doesn’t include information about tax abatements that are included in MDHA’s financials. Again, I think next year, we’ll get all of Metro’s tax abatements listed in this single audit note.
  • Finally, take a look at Section H toward the end of the audit. That’s the statistical section and it shows 10 year financial trends.

Let me know any questions at or @mendesbob.


…more on the proposed AMZN incentive…

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

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

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

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

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

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

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

Some things I think…

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

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

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

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

I hope everyone has a happy holiday season!