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.

I’m a ‘no’ for the Donelson TOD

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

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

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

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


Financial assumptions behind Donelson TOD

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

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

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

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

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

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

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

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

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

Updated FAQs about proposed 50 cent rate correction

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

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

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

um…about the budget… (May 11)

Out of step with historic practice (May 18)

The budget problem and the proposal (May 18)



I’m going to keep doing my job

With David Briley’s win on May 24, he has formally resigned as Vice Mayor. The vacancy will be filled in the scheduled August 2, 2018 election (perhaps followed by a runoff five weeks after that).

I want to thank the many supporters who have encouraged me to run for Vice Mayor. I have taken a hard look at it, but have decided to stay where I am and finish my term as an At-Large Council Member.

In thinking through it, the biggest draw was that in these chaotic times the Council needs a steady hand with a countywide perspective in the big chair. Done well, the Vice Mayor proactively sets the tone for the body. I think I would do a good job. But the opportunity has costs. I’d lose my vote except in a rare tie. In turn, losing a vote might mean losing the ability to be a direct participant in forming legislation.

In the end, I feel that I have more to offer by continuing to be in the trenches on legislation. My focus has been on inclusiveness and equity, transparency and accountability, and livability. Here’s a partial list of legislation I have drafted, sponsored, or materially amended.

There is so much more work to do on all of these. The community is angry — and rightfully so — that we have a budget crunch when the city is booming. It is not acceptable that city leaders are giving themselves a high five for a historically low unemployment rate at the same time that Nashville is reneging on promised employee cost of living increases, and not fully funding our schools, and selling valuable real estate just to make ends meet. The best place for me to work on these issues is where I am today, as an At-Large Council Member.

Several of my Council colleagues likely will be running for Vice Mayor. It may be awkward to have multiple colleagues running for the same office, but that seems unavoidable. My view is that Nashville needs someone with an established countywide perspective to help guide the Council and the city through these chaotic times. The best candidate should have a track record of supporting a path that reflects the values of the entire community.

What was in the soccer stadium bond resolution?

It looks like the Council has a new ordinance to consider on first reading next week that is aimed at removing the 10 acres of development from the soccer stadium deal.

When thinking about this latest effort to remove the 10 acres, I think it is worth reviewing what the Council actually passed last year.

Here’s what passed: Substitute RS2017-910. Everything that is underlined was added due to negotiations between the administration and Council members.

Many of you know that I negotiate and litigate complicated contracts for a living…most of the changed/added language came from me and was supported by my Council colleagues. I mention this only because I am very clear that my central goal in the negotiations was to beef up the conditions required to take place before any bonds could be issued to build a stadium. In particular, it was clear that the legislation was going to be approved (it passed 31-6). And just like what I would recommend for a private paying client, if you are going to do a deal, you want the “conditions precedent” to you spending money to be clear, robust, and meaningful.

The final legislation added many new conditions. Some of them are:

  • Added the requirement of a signed development agreement absolutely limiting Metro’s obligations to $225 million with cost overruns to be paid by the team.
  • To protect the historic uses of the Fairgrounds like the popular flea market, added a requirement that the team’s lease includes a reasonable mechanism for resolving scheduling disputes for the facilities and parking.
  • Added a guaranty requirement if a controlling interest in the team is transferred to someone new.
  • Added a requirement that the Fair Board approve the demolition of the structures at the Fairgrounds necessary to construct the stadium.
  • Added a requirement that the Council approve an ordinance with 3 readings and with 27 votes authorizing the demolition of structures at the Fairgrounds necessary to construct the stadium.
  • Added language clarifying that the Council would need to approve the zoning and the site plan for the 10 acres.

Especially with these last two bullet points, the Council already negotiated for itself the absolute right to refuse to allow the current structures from being torn down, to refuse to approve whatever new zoning will be sought, and to refuse to approve any site plan for the 10 acres.

This saga is going to unfold in the next few months. The team is trying really hard to be a good neighbor, including working on a meaningful community benefits agreement. Yet there continues to be opposition to the 10 acre development.

The team and the administration are going to be trying to meet these conditions over the next several months. Each Council member will have to weigh the perceived benefits and costs of having a soccer team in Nashville. My advice would be for the Council to rely on the protections we already negotiated for ourselves in the original resolution rather than attempting to make the process more chaotic with new after-the-fact conditions.

What is the opposite of land banking?

The purpose of a land bank is to save surplus real estate to be available for future affordable housing developments. Since the cost of land in Nashville is what makes affordability difficult, land banking is an important tool for affordable housing.

Affordable housing advocates in Nashville have been asking the city to form a land bank for some time. And most recently, Mayor Barry’s Transit & Affordability Taskforce recommended in its final report that Metro should “Use community land banks…to obtain and hold property for affordable housing needs.”

Unfortunately, the proposed Metro budget seems to be going in the opposite direction. Instead of saving surplus land for future development, the budget presented to the Council would sell $23 million of prime surplus property. This May 7 letter to the Council has all of the details that are currently available.

The three properties to be sold are Murrell School in Edgehill, the Green Hills Fire Station, and 3800 Charlotte. As you can tell from the projected $23 million sales price, this is desirable real estate in desirable locations. Instead of saving this land for future Metro needs or for future affordable housing developments, Metro is proposing to have a one-time sale to prop up its operating budget for the next fiscal year.

It is terrible policy to be selling surplus real estate to make ends meet for an annual operating budget. Just terrible.

Beyond this generally bad policy, there is some dark irony in the proposed budget for affordable housing advocates. According to page 22 of the Budget Presentation, the $10 million for the Barnes Fund this year will come from the one-time property sales proceeds!!! This means that the very surplus property in desirable locations that would be perfect to be banked for future use is being sold off to fund the Barnes Fund this year. So, no land banking and the Barnes Fund funding is contingent on one-time, non-recurring real estate sale proceeds. There’s no way to consider this as anything but a step backwards in Nashville’s commitment to affordable housing.


NOTE: Some will read this post along and conclude that I am an irresponsible tax and spend guy. Not so. As I have said in another post, in addition to properly funding the revenue side of its budget:

“I am confident that the Metro Council is going to reassess how economic incentives are judged and awarded. Most citizens believe that downtown has enough momentum to be self-sustaining and they would like to see more tax dollars spent in communities outside of downtown. Unfortunately, any reassessment and realignment like this won’t happen overnight or in a single year.

“In the short-term then, we must look at revenue and expenses and how to make ends meet while also honoring obligations to schools and employees.

“On the expense side, I expect that the Council will be proposing many cuts to many items in the upcoming budget. We are too early in the process for me to have an idea of what those cuts will be. However, I am certain that there is not enough fat in the budget to cut that would allow Metro to honor its school and employee obligations. We have to look at the revenue also. This has been true historically, and it is true now.”

The budget problem and the proposal

For important background about the history of tax rates and property value reassessments, read this first. And also please read my May 11 post about this year’s budget. The central premise of that post was that the “Metro government botched the…resetting of property tax rates last year.”

The proposed budget for the upcoming Fiscal Year 2019 has been called a “status quo” budget. But it is alarmingly thin — especially when you consider that the budget crunch is expected to be worse a year from now. The proposed budget has these problems:

  • It funds our schools a full 5% less (about $39 million) than they have requested to educate the children of Davidson County.
  • It requires repealing the employee pay plan legislation passed a year ago in June 2017 because Metro can’t afford to provide the cost of living increases promised in that legislation.
  • It requires using rainy day funds to make ends meet.
  • It requires a one-time sale of $23 million of prime real estate to make ends meet.
  • It requires a one-time sale of $15 million in parking meter enforcement rights to make ends meet.

The fact that Metro is entering a multi-year budget crunch during boom times is making people mad — really mad. The citizens of Davidson County don’t feel right now like Metro’s spending matches its values. We have been told that downtown tourism is the economic engine that we need to pay for everything. But here we are having record tourism and a budget crunch, and not able to honor our obligations to our schools and our employees.

The situation calls for immediate action and long-term action.

On the long-term front, I am confident that the Metro Council is going to reassess how economic incentives are judged and awarded. Most citizens believe that downtown has enough momentum to be self-sustaining and they would like to see more tax dollars spent in communities outside of downtown. Unfortunately, any reassessment and realignment like this won’t happen overnight or in a single year.

In the short-term then, we must look at revenue and expenses and how to make ends meet while also honoring obligations to schools and employees.

On the expense side, I expect that the Council will be proposing many cuts to many items in the upcoming budget. We are too early in the process for me to have an idea of what those cuts will be. However, I am certain that there is not enough fat in the budget to cut that would allow Metro to honor its school and employee obligations. We have to look at the revenue also. This has been true historically, and it is true now.

On the revenue side, I along with other Council members are proposing a $0.50 property tax rate correction. This should have been done last year by the Mayor and/or the Council when the regularly-scheduled property value reassessment dropped the rate by $1.361. Adjusting the rate by $0.50 now would allow Metro to fund:

  • The school system’s requested budget (FY19)
  • Employee cost of living increases (FY19, 20)
  • Replenish Metro’s rainy day “5% funds” (FY19)
  • Pay known, already existing new debt obligations (FY20, 21)
  • Make up for the one-time sales of real estate and parking meter enforcement to cover budget this year (FY20, 21)
  • Cover minimal 1.5% growth in expenses (FY20, 21)
    • Remember, inflation is running at 2.5% — so planning for 1.5% growth leaves no room for error

This rate adjustment would only cover basic existing government operations until the next property value reassessment. It would not leave any room for funding for additional police or firefighters, and would not leave any room to provide additional funding for important programs like affordable housing.

To help show the numbers involved, here is a worksheet. Metro Finance provided the numbers for me. In four columns, it shows what “Status Quo” looks like until the next reassessment, then what funding the employee pay plan and adequately funding FY19 would look like, and then the last two columns add enough funds to cover minimal inflation of 1.5% and 2.0% respectively. Hopefully, the worksheet is self-explanatory.

In addition to correcting the property tax rate, it would be smart to ask Metro department heads to proactively find a way to operate 1-3% under budget in the upcoming year. This would further replenish Metro’s cash reserves.

Finally, here’s a link to some frequently asked questions that I am hearing about the $0.50 rate correction proposal.



Correction, May 21, 2018: Metro Finance says that the one-time sale of real estate is expected to bring in $23 million. This post and the linked worksheet previously said $38 million.


FAQs about $0.50 rate correction

Please read this and the posts linked there first.

These are some of the questions I am hearing about the proposed $0.50 property tax rate adjustment:

What is the proposal?

Adjusting the rate by $0.50 now would allow Metro to fund:

  • The school system’s requested budget (FY19)
  • Employee cost of living increases (FY19, 20)
  • Replenish Metro’s rainy day “5% funds” (FY19)
  • Pay known, already existing new debt obligations (FY20, 21)
  • Make up for the one-time sales of real estate and parking meter enforcement to cover budget this year (FY20, 21)
  • Cover minimal 1.5% growth in expenses (FY20, 21)
    • Remember, inflation is running at 2.5% — so planning for 1.5% growth leaves no room for error

This rate adjustment would only cover basic existing government operations until the next property value reassessment in 2021. It would not leave any room for funding for additional police or firefighters, and would not leave any room to provide additional funding for important programs like affordable housing.

A $0.50 rate adjustment is the minimum necessary for Metro to honor basic obligations to our schools and employees. More information is here.

Why is a property tax rate correction necessary?

As I have said in other posts, the “Metro government botched the…resetting of property tax rates last year.” In 2017, the Metro Property Assessor’s office ran its typically good property value reassessment process, but then Metro skipped making a simultaneous rate adjustment. This was out of step with historic practice in Metro and must be corrected. More info here.

Don’t we need a referendum to raise property taxes?

No. Under the Charter, we would need a referendum to raise the total property tax rate above $4.69. The proposal is for $3.655, substantially less than that cap.

Why propose this now?

The Mayor proposed a budget on May 1, and the Metro Council must approve a budget before the end of June. The budget process is the only opportunity to correct the property tax rate. The $0.50 adjustment is being proposed now to allow enough time for consideration before the budget is passed next month.

Why don’t we make corporations pay their fair share?

First, commercial properties pay approximately 62% of property taxes in Davidson County. Any rate adjustment will be paid primarily by businesses.

Second, I am confident that the Metro Council is going to reassess how economic incentives are judged and awarded in Nashville. Most citizens believe that downtown has enough momentum to be self-sustaining and they would like to see more tax dollars spent in communities outside of downtown. Unfortunately, any reassessment and realignment like this won’t happen overnight or in a single year. This rate adjustment is necessary for Metro to honor its immediate obligations while we address any inequity in economic incentives, which will take longer.

Does this impact the current election for Mayor?

I certainly hope not. While everyone should be sure to vote and not take anything for granted, I assume David Briley will be elected to serve out the last year in Megan Barry’s term. My sense is that the timing for suggesting a rate correction would be criticized by somebody no matter when the suggestion was made. Rather than trying to read the tea leaves on that, the timing is motivated to give the community as much time as possible to digest and analyze the situation before the Council votes on a budget in June.

I may supplement this list over time.

Out of step with historic practice

Metro handled its property tax rates in a historically unusual way last year.

Most of the time when Metro has done a periodic property value reassessment (which is required to be revenue neutral), Metro has simultaneously raised the property tax rate. For example, in 1997 (Bredesen was Mayor), the property value reassessment process (which has to be revenue neutral) dropped the property tax rate by $0.92. But Metro simultaneously raised the rate for FY98 by $0.54. When these two actions were netted against each other, the total property tax rate dropped by $0.38, from $4.50 to $4.12. Having the reassessment work in tandem with a change in rates has been the historic norm in Nashville.

(For those of you that want to follow along with raw data, here’s a link to pages A-24 and A-25 of the Metro Citizen’s Guide to the Budget. Page A-24 has a full list of historic property tax rates. Page A-25 gets into the weeds of showing every change to the rates over the years — including information about whether a change was due to a reassessment or tax increase. Also, here’s a link to my summary of these two pages. For those of you who want to follow the raw data and also like to double-check math, there are two numbers on Page A-25 that are incorrect. I think Metro Finance will update those soon.)

There have been three exceptions to doing a reassessment rate drop netted against a simultaneous tax rate increase.

For FY85, the reassessment drops the rate to a then all-time low of $3.17. That rate lasted only one year. Anecdotally, from people who have been in Metro for decades, this very low rate caused an immediate budget crunch and the rate was raised by $0.75 (to $3.92) the next year. That lesson was apparently learned well, because there were rate hikes paired with every reassessment after than until the Great Recession.

The second exception was in 2009 (for FY10). This was the very early days of the Great Recession. The reassessment dropped the rate from $4.69 to $4.13. By 2012 (for FY13), the reassessment when rates were usually changed was still a year away and Metro needed additional revenue. So, the Dean administration adjusted the rate a year before the reassessment up to $4.66. This increase was designed to give Metro adequate additional revenue to make it through the five years until the 2017 (for FY18) reassessment.

In both of these example, whether it was a mistake like in FY85 or for macro-economic reasons like in FY10, Metro had to correct the property tax rate before the next reassessment.

The third exception was last year in 2017 (for FY18). The reassessment process was done properly and dropped the rate by $1.361, from $4.516 to a new all-time low of $3.155. There was no simultaneous change in rates to increase revenue for our growing city. I know people will want to dig into why Metro bucked the historic trend. Surely, the example of FY85 should have predicted that setting an all-time low rate might cause an immediate cash crunch. Speaking just for myself, I think the Council might have been bitten by a side effect of term limits. The last time this was done “normally” was before the Great Recession, and none of us were in office at that time. That’s a pretty weak excuse, but one way or another, the traditional timing for periodic rate corrections fell by the wayside.

um…about the budget…

The proposed FY19 Metro budget has been out for ten days now…and it’s not good…and this is just the first year of a multi-year problem.

The quick top line summary is that the proposed budget would renege on legislation passed last June for employee cost of living increases and gives our schools only $5 million of the approximately $45 million that MNPS asked for. And in order to fund this bare bones, mostly status quo budget, the budget proposes selling $23 million of “surplus” Metro property and getting a $15 million one-time payment for outsourcing parking meter enforcement. Finally, there is consensus that the FY20 budget will be worse and require budget cuts, probably across the board.

Why this is happening? There are many contributing factors, but the single biggest is that the Metro government botched the reassessment and resetting of property tax rates last year. I don’t want to get too wonky, but nearly every time in the past when Metro has done a property value reassessment (which is required by state law to be revenue neutral), Metro has also changed the property tax rate (which can increase revenue). These are usually done at the same time because the revenue neutral property value reassessment already changes everyone’s tax bill. When revenue is needed for a growing city, it makes sense to change the rate when everyone’s payment amount is already changing due to the reassessment.

But last year, Metro only did the reassessment. The reassessment caused the property tax rate in Metro to drop from $4.516 per $100 of assessed value (which was pretty low historically) down to $3.155 (which is an all-time historic low rate). In almost every other reassessment in the history of Metro, the city would have reset the rate somewhere between these two numbers, which would have increased revenue. The failure to do this last year is the biggest reason why funds are short this year. And because property tax reassessments are on a four year cycle, this is also why Metro will be squeezed for cash at least into FY20.

Of course, there were other factors. For example, there were a high number of assessment appeals from large commercial properties last year. Since a majority of property taxes are paid by commercial properties, this impact is real. Also, the State of Tennessee continues to underfund Metro’s school system. There is ongoing litigation by MNPS to try to fix this, but the budget impact on Metro continues.

Will tightening Metro’s belt on spending correct this revenue problem? I don’t think so, not completely. I mean — Metro definitely should cut any fat that it can. But the proposed budget is already getting into the seed corn just to make ends meet this year. Is Metro going to find another $23 million of real estate to sell in FY20 to make ends meet then? Even if Metro could cut enough expenses to fund promised employee raises and education this year, is there enough fat to do it again in FY20? It’s hard for me to make the math work on Metro cutting its way to a fully-funded budget.

What can be done to correct this problem? The Metro Council is only one week into our budget meetings. I am hearing lots of ideas about where to cut expenses. I think we will cut expenses, perhaps aggressively. There are going to be tough conversations about how far we can cut back without eroding important government services, hurting Metro employees, or shortchanging our kids’ education.

I will update you all as the budget process unfolds.

FUN FACT: The previous all-time low property tax rate was in 1984-85. The rate that year was $3.17. That lasted only one year. It was quickly corrected by 75 cents, up to $3.92 for the rest of that reassessment cycle.


Correction, May 21, 2018: Metro Finance says that the one-time sale of real estate is expected to bring in $23 million. This post previously said $38 million.

TIF step-by-step

With the budget crunch this year, many people are asking legitimate questions about when and how tax increment financing (TIF) is used. Some of those conversations are getting bogged down in trying to understand exactly how TIF dollars flow. This post is not about the important questions of how and when to use TIF. This is a technical description of the flow of money in an effort to relieve some of the side questions about how it works.

What happens when MDHA provides tax increment financing? There are two key starting points to know. First, a baseline amount of property tax is established. If a property pays $10,000 per year in property taxes before the new development, that $10,000 is the baseline. When the new building is done, it will generate more taxes — say, $30,000 per year. The difference between the post-development tax bill and the pre-development bill is the “tax increment.” In my example, the tax increment would be $20,000 per year. Second, with TIF, it is MDHA that borrows money from a bank. MDHA then provides the loan proceeds to the developer. The developer will typically use the MDHA loan proceeds as part of its equity in financing a project.

Next, the project is built. The new building then gets its new, final property tax assessment. And then the owner pays the full amount of those property taxes to Metro just like everyone else. However, Metro and MDHA will have made a note of the baseline tax ($10,000) and knows to think about the baseline ($10,000) and the tax increment ($20,000) differently. More about that in a second.

Whenever Metro receives any property tax revenue, it automatically allocates the money to its several Funds — including the General Fund, the School Fund, and the School Debt Service Fund. This bears repeating — every dollar received including the tax increment dollars gets automatically allocated in certain fixed percentages to Metro’s various accounting Funds. When you pay your property taxes, about 41% gets allocated to the School Fund and the School Debt Service Fund, for example. And a TIF project works the same way — about 41% of its property tax payments get allocated to those same two of Metro’s Funds.

Then each year in the budget, each of the Funds has an expense line item where its share of the tax increment from TIF properties is deducted out and given to MDHA. Then MDHA uses this money to pay back the TIF loans.

This technical accounting flow of money among Metro and MDHA does not match up with the conventional perception of TIF loans. The common understanding is that Metro has decided to keep property taxes for TIF properties artificially low and that Metro never sees the money. While the end result that the tax increment is not available for typical government services is the same, the actual mechanism is different. Metro does collect the full property taxes on each TIF property, allocates the tax increment to its various Funds just like all other property tax revenue, then debits the tax increment money out of the Funds and over to MDHA, and then MDHA pays the loans.

As we wade into a budget season where people are looking for money, I know that some are seeing the budget line items for payments to MDHA and asking about it. Again, the sole goal here is to explain the mechanism.  The more important long term question is about how and when to use TIF.

Previous posts related to TIF herehere, and here.

Storm has been brewing for a while…

People in Nashville are understandably angry about having a tight budget in boom times. But this storm has been brewing for a while.

During the 2015 election season, one of the things that voters all around the county wanted to talk about most was “how come I’ve got problems in my part of town and we spend all that money downtown?” Voters have been ahead of the government on this. This budget season is making people wonder how they knew there was a problem and their leaders didn’t.

My comments in 2015 were centered around the ideas that: (1) economic development spending is not all “good” or all “bad”; and (2)  there simply isn’t enough information available for even well-informed people to have any idea whether particular projects are a good use of funds or not. My argument then was that more information and more transparency would lead to better decisions.

I know I wasn’t alone in this. One mayoral candidate talked about these issues as his central platform, and another two had a heavy dose of these issues.

I also know I wasn’t the only Council member to hear these issues from the community. I’ve tried to make progress on this. My first legislation in office — along with 24 co-sponsors — was tax increment financing reform. The ordinance requires annual property-by-property detailed reporting about TIF projects by MDHA. This legislation also stopped the practice of using property tax dollars from one redevelopment district for projects outside the district. The fact that I had 24 co-sponsors sign onto this shows how much we heard about TIF from the community.

Last summer, I also passed legislation requiring Metro to have a more detailed “debt management policy.” Before this, Metro did have a written policy about how to decide the right amount of long term debt. But, paraphrasing, the previous policy was basically a few sentences that said “Metro considers many appropriate factors in deciding how much debt is appropriate.” The new beefed up written policy — starting at page 5/21 in this PDF — outlines specific factors to be considered and also for the first time acknowledges that Metro’s unfunded retiree benefits obligations should be considered when making decisions about long term debt. (More about the $3 billion unfunded retiree benefits obligations here.)

As a Council, we have also stood in the way of the downtown flood wall for these same reasons. I have felt and continue to feel that there is not popular support around the county for a $125 million downtown flood wall. This project might well be technically sound and perhaps needed to protect Nashville’s lucrative downtown business and entertainment district. But by the time of the 2015 campaign season, and continuing through today, voters have had it with what feels like opaque insider development decisions that mostly impact downtown. We shouldn’t spend that much money on a flood wall without addressing the underlying distrust issues that have been brewing for a while now.

During each of the previous two budget cycles, I have also raised questions about how the percent of the budget that Nashville spends on long term debt could be increasing while we have been in boom times. If your get a raise from $50,000 to $55,000 per year, you’d like to see the part of your paycheck that goes to debt decrease, not go up!! Voters maybe haven’t known the exact numbers…but they have known that something wasn’t quite right.

Back in 2015, these issues concerned me and I told voters that they raised a yellow flag, not a red one, for me. I often said that there was plenty of time to address these issues and make a course correction. The efforts I am describing with legislation, and in encouraging dialogue and consensus on the flood wall before pulling the trigger on a $125 million project, and in talking about Metro’s $3 billion unfunded retiree benefits obligations have all been to nudge the city toward the course correction that we need.

Now it is nearly three years later. The transparency added with the new legislation has been a critical first step. But now we need the data to drive decisions. While nobody wishes for a budget crunch or the other chaos of the last few months, maybe there is a silver lining. Nashville is fundamentally very strong. The current storm give us an opportunity to start the hard work and hard conversations we need to strike a new, better balance in how we deal with debt, development, and funding our retiree benefits.

Chasing Down Line 7777

I’ve talked to some MNPS advocates who are bothered annually by Line 7777 in the MNPS budget. It’s called Property Tax Refund and is just over $9 million for the upcoming fiscal year. See page 37 of 42 in the proposed MNPS budget. Here’s what that is…

Property taxes are automatically divvied up to different Metro accounting Funds. Two of those funds are the “Schools Funds” which get about 36.5% of collected property taxes, and the “School Debt Service Fund” which gets about 4.5% of collected property taxes. Again, property tax revenue is allocated automatically to these Funds in these percentages.

However, when MDHA approves tax increment financing for a project, new property tax revenues from that project are pledged for tax increment financing (TIF) loans and are largely not available for use by Metro. For TIF deals before April 2016, none of the new revenues are available to Metro until the TIF loans are repaid (usually in 10-15 years). For TIF deals approved after the Council passed BL2016-157 in 2016, MNPS will get to keep the debt service fund part (4.5%) of the new tax revenues.

So, we have property tax revenues automatically allocated in set percentages to these Funds. But the new revenue from TIF projects mostly needs to be used instead to pay the TIF loans. The technical accounting requires MNPS to receive all the revenue allocated to it, and then to be debited for the portion of MNPS’s allocated property tax revenue that is due to the active TIF loan properties.

Using approximate numbers, from FY2017 (which ended June 30, 2017) to FY2018 (ends June 30, 2018), the budgeted property tax revenue that went to the “Schools Funds” increased about $15 million, from about $298 million to $313 million. For these two years, the property tax revenue that went to the “School Debt Service Fund” increased about $2 million (from $38 to $40 million). In total, overall revenue to MNPS from property taxes increased about $17 million from FY2017 to FY 2018. So that’s great news, right?

HOWEVER — during this same period, the total new property tax revenues for TIF loan properties increased by about $3.6 million. See MDHA reports for the last two years here and here. Remember, MNPD has to “refund” the new revenue it gets from TIF project property taxes. Since MNPS is allocated about 41% of property tax revenue, the additional “refund” to give back in FY2018 was about $1.5 million. (That’s the roughly $3.6 million in total new property revenue that year from TIF properties times the 41% that MNPS is allocated.) That means, in the current FY2018, MNPS got to keep only about $15.5 million of the $17 million in new property tax revenue that was allocated to it.

Mark North pointed out in a 2015 blog post that, back in 2007-2008, the amount of the MNPS refund was $2.3 million. For the current FY2018, with the increased frequency of MDHA TIF loans, the refund had grown to $8.3 million. And for the upcoming fiscal year, the refund apparently will top $9 million.

I haven’t done all the math, but it’s clear that MNPS continues to get substantially more new property tax revenue each year than it has to refund through this arcane and technical process. But the fact is that Line 7777 in the MNPS budget has continued to grow and it does grab attention.

This also squarely points out that Metro is currently using about $9 million per year of property tax revenue to assist with development when that money would otherwise be used by MNPS. Economic development people would say that Metro and MNPS more than make up this amount with increased revenue from our robust economy. School advocates would be quick to point out all the things that could be purchased with $9 million per year for our schools.

Hopefully, this makes sense. Feel free to shoot me any questions at or @mendesbob on twitter.

Transit/Affordability – April 16 Update

This is my next update about how affordability will interact with transit-oriented development in Nashville. This post is a little (a lot??) wonky — sorry about that. If you need orientation on the issues, it might be helpful to read my two previous posts here and here.

This week, the Council is considered a Substitute Ordinance to approve a Donelson Transit-Oriented Redevelopment District. I believe we will adopt the Substitute and then defer public hearing and second reading until our May 15 meeting. This will allow time for the public to consider the Substitute and for the Planning Commission to have a public hearing about it on April 26.

This Donelson TOD legislation is critically important because it is a real-life demonstration of whether Metro will be as committed to affordability as it will be to building transit infrastructure. It is also important because this legislation will likely serve as a template for future transit development if the referendum passes. I think we are making good progress on the legislation.

For now, to see the proposed Substitute Ordinance, you need to look at the package of amendments and substitutes that Councilmembers get the day before Council meetings — see here, at page 2 to 28 of the PDF. If the Council updates the legislation with the proposed Substitute Ordinance tomorrow, I’ll update the link later this week.

I’ve been working with MDHA for at least a month now about changes to the legislation to make the affordable housing obligations more clear. You should know that Councilmember Jeff Syracuse from Donelson is working really hard on this legislation. His district should be proud of him and his commitment to making this work well for his community.

The proposed Substitute Ordinance is largely agreed to by MDHA…but there are things that we are still discussing. I’m going to run through the changes I have asked for and the current status.

  1. Amend to clarify that a minimum of $10 million of the approved tax increment financing (TIF) will be used for affordable housing. STATUS: The Substitute creates a bucket of $10mm of TIF for affordable and workforce housing. (Remember “affordable” is 0-60% of the area median income, and “workforce” is 60-120% of the area median income.) The Substitute calls for a periodic (at least every 5 years) reassessment of the balance between affordable and workforce housing TIF funds. The Substitute requires that during the initial 5 year term, ALL of the money from this $10mm bucket would have to be used for affordable housing. There is an ongoing debate I am having with MDHA whether to permanently set this bucket for affordable housing only, or to reassess the balance between affordable and workforce TIF every five years. My position is that this plan is being approved for 30 years and that this is a long, long time. I want the Council to be able to reassess the balance between affordable and workforce TIF every 5 five years. I want this Council-involved periodic reassessment to be in the template we use for these districts going forward.
  2. Amend to state that, for every project with residential units that asks for tax increment financing, there will be a minimum of 10% of the units that are affordable. This requirement must apply even if the total amount of tax increment financing for affordable housing in the district has exceeded $10 million. STATUS: Achieved in the Substitute. MDHA agrees.
  3. Amend to state the minimum period of mandatory affordability for residential units financing by tax increment financing. STATUS: Achieved in the Substitute. MDHA agrees. The minimum affordability period will be 15 years (which is pretty long in the affordable housing world.)
  4. Amend to state that, because a TOD is designed for Nashville residents to live along transit corridors, no investor-owned (Types 2 and 3) short-term rentals will be allowed in the TOD. STATUS: Not achieved. I’m giving up on this one. Others will need to pick up this ball and run with it if they think it is important.
  5. Amend to require creation of a unified process for approving design and zoning changes in the district. STATUS: This one is a work-in-progress. MDHA and Metro have told me that they will enter a memorandum of understanding to work to re-invent the way this will work for transit-oriented development districts. The idea is that people shouldn’t have to go to MDHA and Metro to get projects approved. A more efficient process should be built. I haven’t seen a proposed MOU yet. So, for now the Substitute is clear that the design review process in the plan is temporary and can be replaced later. I am hopeful there is more progress on this between now and 3rd reading in May.
  6. Amend to allow both the Metro Council and MDHA to initiate amendments to the plan (instead of just MDHA), subject to the approval of the other body. STATUS: Achieved in Substitute. MDHA agrees.
  7. Amend the plan to expressly acknowledge the new requirements of Metro Code provisions 5.06.020, 5.06.050, and 5.06.060 passed in 2016. STATUS: Achieved in Substitute. MDHA agrees.
  8. Amend to add language in the plan to expressly forbid the use of tax increment funds from this district in any other economic redevelopment district or transit-oriented redevelopment district. STATUS: Not quite fully resolved. MDHA is asking that spending tax revenue from this district could be allowed outside the district if approved by the Council. The Substitute currently calls for this practice to be prohibited. This one is important to me. It is really bad policy to use tax revenue from one development district in some other part of town. I’ll stand firm on this one.
  9. Have the administration (aka Mayor) commit publicly to conduct a survey of affordable housing in the area surrounding the district before creating the district. STATUS: In a video released on April 13, 2018, Mayor Briley said he was “committed to the recommendations” of the Transit & Affordability Taskforce. This was one of the recommendations…but he didn’t mention it by name. I have separately received assurances from people in the administration that I believe that this will be done. So, I consider this issue kind of resolved…resolved, but not in a way I can really prove to anyone.
  10. Have the administration commit publicly to set firm goals for affordable units to be built and preserved in the TOD. STATUS: In the video, Mayor Briley committed to set “ambitious and achievable goals” in each of our TODs. I have also received separate assurance that firm affordability goals will be set for the Donelson TOD. I consider this resolved.
  11. Commit to additional funding above existing levels for affordable housing according to the recommendations of the Taskforce. STATUS: In the video, Mayor Briley promised that, “in the coming years,” he would work with the Council and housing advocates to establish a dedicated funding source for affordable housing and land bank. Honestly, given his short time in office and the looming budget and election cycles, this is probably as strong a statement that he could make and stand by in the future. I consider this resolved.
  12. Prior to the May 1 referendum, commit to create both a community land trust and a community land bank, and commit to funding levels and the timing for each. STATUS: In the video, Mayor Briley expressed support for a community land trust and a land bank. This is good, but falls short of explaining a timeline and funding level. But, again, given his short time in office and all that is on his plate, I don’t know that he could credibly give more detail at this time. I am going to trust him on this one too.

The summary is that I feel good about the direction of this legislation. The goal is to have this legislation be the backbone of a real and continuing commitment by Metro to value affordability as much as we value the physical transit infrastructure.

If you have questions or comments, email me at, or catch me on twitter @mendesbob.

Transit/Affordability Taskforce Update

About 5 weeks ago, I wrote about the status of Metro implementing the recent Transit & Affordability Taskforce recommendations related to affordable housing. You can read that post here.

Since then, on March 20, I sent a letter to the Metro Planning Commission expressing concerns about the pending Donelson Transit Oriented Development legislation. That letter is here. In the letter, I listed out 10 things I wanted to see changed by MDHA with the development plan, and listed another 4 things I would like to see from the administration.

I can report progress is being made on the development plan as it relates to affordable housing. It is still a work-in-progress though. I believe the scheduled Metro Planning Commission meeting on April 12 to discuss MDHA’s transit oriented development plan for Donelson will be deferred until April 26. And I believe CM Jeff Syracuse may defer the Council’s public hearing on this, which is scheduled for April 17, until May.

Frankly, now isn’t a great time for a meaningful update because things are mid-negotiation. But with early voting starting today, a lot of people have asked me where things stand. So…here’s an update…

First, some background…

Everyone agrees that high-capacity transit corridors tend to increase property values, which in turn decreases affordability. The question is whether Nashville can build a culture around transit construction that values maintaining, or even increasing, the number of affordable housing units as much as we value the transit infrastructure itself.

To address this important topic, last November, Mayor Barry appointed a Transit & Affordability Taskforce chaired by Bill Purcell and Brenda Wynn. I was asked to chair the affordable housing subcommittee. The taskforce met extensively for nearly two months and issued a lengthy report with many recommendations. Through the process, the affordable housing subcommittee had in mind that plans were underway for a transit oriented development district in Donelson. I think I can speak for the full subcommittee when I say that we considered the proposed Donelson district as an important test case. This is because whatever we create in Donelson will likely be the template for perhaps another one or two dozen similar transit oriented development districts on all of our major transit corridors.

Another bit of background you need to know is about the players. A transit oriented development district is a new concept — there are currently none in Tennessee. To create a district, MDHA’s board must approve a development plan. Then the Metro Council has to approve it. Once approved by the Council, these districts typically last for 30 years!! And they typically give MDHA the power to offer many tens of millions of dollars of tax increment financing.

The final background I will offer is that MDHA’s board approved a Donelson transit oriented development plan in late January. After my March 20 letter, and discussions with me and others, I understand that MDHA’s board approved a revised version yesterday (April 10). I haven’t seen that yet, but I’ve been told what to expect. The development plan still needs to go before the Metro Planning Commission (on April 26, I am expecting) and ultimately the Council (in May).

The current status…

In my March 20 letter, I had 10 items I wanted to see MDHA change in their development plan. As of today, I believe that we have an agreement to add 7 of the suggestions to the plan, that we are still talking about 2 of them, and that 1 has been rejected. Again, if it weren’t for early voting starting and people wanting to know about the status, I wouldn’t want to give a mid-negotiation update — partial information can be more confusing than no information. MDHA is working in good faith with me and others to help build a good template for future transit oriented development. But I don’t have a final revised plan to share with you today.

In my March 20 letter, I also listed 4 things that I would like to see from Metro before we pass the Donelson transit oriented development legislation. With the understanding that it may be another month before the final legislation is before the Council for a final vote, I have to report that none of those 4 things have been accomplished. I will repeat again…it is a month at least until a final vote, so there is time…and clearly our new Mayor has a lot on his plate…and I am only giving an update now because early voting has started and people are asking me for an update. For these reasons, I am not making any final conclusions one way or another about these items remaining incomplete as of today.

People will need to make their own decisions about what this all means for Metro’s commitment to be as serious about affordable housing along transit corridors as it is about the transit infrastructure itself. A glass-half-full view would look at MDHA’s engagement on the taskforce recommendations as a strong positive. A glass-half-empty view would look at the other recommendations and wonder whether affordable housing will always play second fiddle to the transit infrastructure instead of being a co-equal objective.

I am hoping that this update doesn’t create more confusion. Feel free to email me at or tweet at me @mendesbob with questions or comments. Thanks, everyone.