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.

STR transparency…

In the last few hours, I started getting this form email urging, for the first time, that Council members abstain on Bill -608. To be clear, it is very likely that any form email that we get opposing Bill -608 is drafted and spread primarily by industry lobbyists.

The email says there was a four hour meeting on Friday afternoon where new compromise proposals were floated. If that happened, the potential compromises haven’t been shared with the Council generally. I don’t know any more than what is in the form email.

Also, the form email calls -608 a ban on short-term rentals. The truth is that, if -608 were to pass, there would still be unlimited owner-occupied short term rentals, unlimited investor-owned short term rentals in buildings with 3 or more units, unlimited short term rentals downtown, and unlimited short term rentals in the Gulch. Yes, with -608, investor-owned short term rentals in traditional 1 and 2 unit homes in family neighborhoods would be phased out. But there is simply no way to call this a ban. Under -608, there would still be many, many short term rentals in Nashville.

For almost a year now, my position has been that I intend to support whatever short term rental bill the majority of district council members support. By definition, the district council members are closer to day-to-day short term rental issues than I am as At-Large member of the Council.

I believe that the majority of district council members support -608. My plan is to attend the Council Planning and Zoning Committee meeting tomorrow to get a better feel about this before deciding for sure how I’ll vote.

I’m posting this new industry form email this afternoon because it is irresponsible. While the form email is wrong in claiming that -608 is a ban, both sides of this issue have engaged in hyperbole. Maybe that’s just the way it goes with tough issues. My real objection is that the form industry email runs the risk of creating a self-fulfilling prophecy about state preemption. Under any view of the world, a law that allows unlimited short term rentals in owner occupied homes, high rise buildings, any building with 3 or more units, all through downtown, and the entire Gulch is not a ban. If it passes, it will reflect a family-friendly compromise that I would ask the state to respect and honor. This topic is hard enough without the industry going out of its way to invite state intervention.

Nashville General Hospital – 1/14/18 thoughts

Here are my Nov. 29, 2017 thoughts about NGH. My main thought then was that there were too many people with firm, preconceived ideas about the hospital’s future and not enough working together. I said:

There are too many chefs in the kitchen. I’ve been trying to stay relatively quiet about the hospital because there are already a whole lot of people who are actively pushing various  ideas about how to “save” the hospital. Unfortunately, most of the efforts are uncoordinated and there is not a basic agreement about what “save” means.

and

I don’t want to add to the “too many chefs” dynamic. That said, my number one wish this evening is that the Hospital Authority and the administration would find a way to be teammates. If they don’t, I’m concerned that we’re going to end up watching a fiery wreck.

A few weeks ago, in my year end wrap-up post, I added that I think it will take an outside expert to guide the parties to a great solution:

If I were allowed to choose a path forward I would want to re-boot whatever process is currently underway. My strong sense is that a whole lot of people have preconceived and conflicting notions about what the proper end-game should be for the hospital. What’s needed is an independent third-party subject matter expert (probably from outside of town). This person would need to have expertise in solving hospital financial problems AND also have the ability to act as a mediator. The person would need truly to have an open mind about where we will end up, and the person would need to be trusted enough to engage in shuttle diplomacy among the many groups. If the hospital is going to end up in a place where all or most of the constituent groups are going to be happy, I think it will need to be an outside person who guides us there.

Since then, the Mayor has sent a letter to the Metro Council saying that she wants to “reset” the process and find a solution by the end of 2018. This is a good first step…but doesn’t guaranty success. Here are some of the ingredients that I think it would take to find a good win-win for indigent medical care in Nashville, Meharry, NGH, and the broader community:

  • Everyone must keep an open mind about what a solution looks like. Everyone must keep an open mind. That’s not “everyone else”…it’s “everyone.”
  • I don’t believe a process led by the administration will succeed. I don’t believe a process led by an administration consultant will succeed. I don’t believe a process led by Meharry will succeed. I don’t believe a process led by NGH will succeed. At this point, I think the right person is an independent third-party subject matter expert (probably from outside of town) with expertise in solving hospital financial problems AND also have the ability to act as a mediator.
  • When both the administration and the majority of Council members voted last summer to keep the hospital’s annual operating budget at $35 million, Meharry prudently interpreted that as a shot over its bow that NGH was becoming even less stable. Remember, some Council members pushed to fund the full $55 million requested budget. That effort failed. As a backstop, I tried to get another $5 million added to the budget. That effort failed. In this context, Meharry is entitled to have self-interest as one of its many motivations. Also, expect Meharry to push hard for more control about what happens in the hospital (a building that Meharry owns with a lease to Metro that is ending in another 6 years). They can’t be faulted for this.
  • On the issue how public the process is, I think that there simply isn’t a way to get this to the finish line with a good result and have the entire process be public in real time. And there is no legal requirement for this. Certainly, the Hospital Authority and Council members are required to deliberate publicly. My sense is that parts of a successful process would have to include private conversations with the non-government parties that are involved. Obviously, this has to be balanced with having full transparency as required by law when government officials are involved.
  • I have mentioned to multiple parties involved that I think there is another possible ingredient to a long term solution. Significant development is knocking on the door of the Meharry/Fisk neighborhood. If there were ever a place for a traditional economic redevelopment district, it is in the immediate neighborhood of the hospital. I think there is a way to make sure the universities are the primary beneficiaries from the rise in real estate values that is coming soon to the area.
  • The final ingredient I will mention is about process. Whatever process evolves to find a solution will need to be one that is trusted so that not every single party feels like they have to personally participate. Just from the Council, there are at least 5 or 6 perspectives about how to approach hospital issues. The Hospital Authority has at least 2, maybe 3, distinct perspectives. This is why I think it will take an independent person or group with no preconceived strategy to guide us all to a true win-win. With the right person and process, this might get down to being an 8 to 10 party negotiation instead of a 50 party negotiation.

I feel somewhat more optimistic (or less pessimistic??) about the prospects for the hospital now that we are hitting the reset button. If we start to see some of these other ingredients, we’ll be on a good path.

TVAR Greer Stadium Report

You can see the full report by Tennessee Valley Archaeological Research here.

There’s a lot to read in the lengthy report. However, toward the end, “TVAR recommends that a portion of the project area be protected…, with no land alterations taking place.” (Report, p. 109) TVAR provides a map at page 110 of the report showing the recommended protected area.

The PDF of the report is locked and I can’t extract the map. You’ll have to check it our yourself. But the protected area includes the west parking lot area (closest to the fort), the playing field (but not stadium area), and the edges around the site.

As we head into 2018…

There are a lot of issues brewing for the Metro Council in the new year. We’ll hit the ground running with a meeting on January 2 that may last until midnight. Here’s my take on a bunch of the hot upcoming issues:

Ft. Negley: I wrote about this back in August. The only new fact since then is that, in early December, we all learned that the preliminary archaeology work showed a high likelihood of human remains on the site. Further results were supposed to be available by the end of December, but I’ve not heard anything further yet.

My prediction is that this project will keep moving in slow-motion with more digging and studying and considering until at least after the expected May 1, 2018, transit referendum. Remember, there is no legislation pending before the Council on this project — there isn’t anything for us to pass or not pass.

Transit Referendum: In the Council’s next several meetings, we will decide whether to put the proposed transit referendum on the May 1, 2018, ballot. The legislation with the referendum language is here. People should realize that the legislation also attaches the full 55 page Transit Improvement Program. This document was first released on December 13 and I do not believe many people have read it yet. Please read it. Unlike a lot of the information that has been available over the last six months, the full Transit Improvement Program is largely spin-free, especially in how it describes the proposed sources and uses of money for transit over the next 15 years.

In the coming weeks, I will put out a more in-depth set of thoughts about the full Transit Improvement Program. I think it is very likely that the Council will approve putting the referendum on the May 1 ballot so that the voters can decide this important issue themselves. Reading the full Transit Improvement Program will help voters make an informed decision.

New Federal Tax Law: I believe that the new federal tax law will impact Metro significantly. The affordable housing industry believes that federal Low-Income Housing Tax Credits (LITCH) will be worth less and, therefore, financing large affordable projects may get more difficult. Article here. Similar, according to the Brookings Institute, financing infrastructure will become more costly for cities under the new tax law. Article here.

I think we will want to reconsider how to approach tax increment financing too. A rough rule of thumb for TIF projects is that the TIF loan might cover anywhere from 4-8% of the total project cost. But, the effective tax rate for most every real estate venture in America is likely going to drop by more than this amount. If real estate projects are about to be roughly 10% more profitable because of tax cuts, it begs the question of whether Metro should offer any TIF at all going forward.

Also, corporate tax rates generally just dropped dramatically. Again, this begs the question of what our incentives are worth now to companies. And it begs the question of whether Metro should offer incentives if we are having to deal with higher financing costs for infrastructure.

I don’t know the answers, but there are two things I feel strongly about. First, this is a developing situation and we may not know the impact on Metro for a few years. Second, I think Metro should proactively figure out how we will be affected and try to stay ahead of the impact.

Nashville General Hospital: My most recent post about this was Nov. 29. That post links to others from the last two years. My thoughts today aren’t much different than they were on Nov. 29. There’s just one thing I would add…

If I were allowed to choose a path forward I would want to re-boot whatever process is currently underway. My strong sense is that a whole lot of people have preconceived and conflicting notions about what the proper end-game should be for the hospital. What’s needed is an independent third-party subject matter expert (probably from outside of town). This person would need to have expertise in solving hospital financial problems AND also have the ability to act as a mediator. The person would need truly to have an open mind about where we will end up, and the person would need to be trusted enough to engage in shuttle diplomacy among the many groups. If the hospital is going to end up in a place where all or most of the constituent groups are going to be happy, I think it will need to be an outside person who guides us there.

Soccer: We all know by now that Nashville was awarded a new franchise. It’s very exciting.

Several important details were left to be dealt with after the franchise was awarded. Most notably, the Council will need to approve (by 27 votes) the demolition of some existing fairgrounds buildings before stadium construction can begin. Like with the administration’s Ft. Negley development plans, I’m going to guess that the 27 vote fairgrounds demolition legislation won’t make it to the Council until after the May 1 transit referendum.

Community Oversight Board: I wrote about this in early November. So far, not enough community-wide consensus-building has been done. I think that needs to happen before moving the legislation forward. I had hoped that Metro would hire Barry Friedman from the Policing Project to moderate a consensus-building process…but that doesn’t seem to have happened. I’m looking to learn more about the status in the new year.

Short-term rentals: In spring and early summer 2017, the Metro Planning Commission unanimously recommended Bill -608 and the Council was about to pass it in June.

Bill -608 got through the Planning Commission unanimously because it was a compromise. It allowed short term rentals in every building in Nashville with more than two units. It allowed short term rentals through all of downtown and the Gulch. It allowed every homeowner in Nashville to host short term guests in their primary residence. The only material trade-off was that we would phase out short term rentals in our traditional interior family neighborhoods with 1 or 2 homes on a lot.

In the second half of 2017, -608 has been re-positioned by the short term rental industry as extreme. I’ve stayed quiet on short term rentals in 2017 (except for a few discrete measures designed to stop cheating cheaters from cheating) and let the debate play out. When it comes time to vote, I plan to hear out my colleagues — especially the district Council members with large numbers of short term rentals — to see if they reach a consensus to move away from Bill -608. I think the majority of district Council members still believe that -608 has a good balance of allowing unlimited Type 1 (owner-occupied) and unlimited Type 3 (investor-owned in multi-unit buildings) short term rentals, allowing all short term rentals downtown and in the Gulch, while phasing them out of our traditional family interior neighborhoods.

Wrap-up: If I have forgotten an important issue, let me know at bob.mendes@nashville.gov. I’ll let you know what I think.

BL -983 about economic incentives

Bill -983 is sponsored by 22 Council members and is set for 2nd reading in the Council tonight. The bill would create new reporting and enforcement mechanisms for economic incentives. I think the motivation behind the bill is great. I think big parts of it are great. But I voted against it in our Budget & Finance Committee last night.

Since the bill has 22 sponsors and passed Budget & Finance last night by a 10-2 vote, I wanted to explain my position against the bill.

The bills has four main components — it requires an incentive recipient to predict in advance of its project the number of jobs that will be filled by Davidson County residents and the wages that will be paid, it requires the predictions to be incorporated into the formal incentives agreement each recipient has with Metro, it requires quarterly reporting after the incentive starts, and it empowers the Council to cancel the incentive if the recipient fails to comply with the predictions.

As things stand today, every incentives recipient has a formal agreement with Metro, and there are different degrees of enforcement or claw backs built into each contract.  Importantly, the Metro Council has to approve every incentives agreement before Metro can enter the agreement.

I am all in favor of standardizing the information we receive before an agreement is signed. I am in favor of continuing to strengthen the enforcement mechanisms in our incentive agreements. However, I don’t think it makes sense to shift enforcement from the executive branch to the legislative branch of Metro government. I don’t think it makes sense to have 40 Council members reviewing quarterly reports and also then deciding whether to pull the plug on the incentive agreement. I think it is much better policy for the Council to focus on our existing power to review and approve all of these contracts before they go into effect.

Nashville General Hospital – Nov. 29 thoughts

Here are some things I think about Nashville General Hospital:

  • I don’t have any idea what is going to happen. It feels like options are narrowing, which is never good.
  • There are too many chefs in the kitchen. I’ve been trying to stay relatively quiet about the hospital because there are already a whole lot of people who are actively pushing various  ideas about how to “save” the hospital. Unfortunately, most of the efforts are uncoordinated and there is not a basic agreement about what “save” means.
  • I am not sure the right chef is in the kitchen, but I can’t tell. Information is too opaque to really tell who is leading, or moderating, or dictating how circumstances are unfolding. It feels like the Hospital Authority and the administration are headed toward a bad place. For you NASCAR folks, think Kyle Busch and Martin Truex at Indy this year.  See time marker 0:25 to 0:35 here.
  • Meharry has lots of leverage in whatever is going to play out here. There’s only 6 years left on the hospital building lease. Do they want to continue in the relationship after that? If so, on what terms? Metro also has lots of leverage because it has money.
  • The Hospital Authority’s request this week for $20mm is not a surprise. Ironically, this is first fiscal year in quite a while where the Hospital Authority accurately predicted its cash needs. They told us all back in May 2017 that they’d need an additional $20mm.
  • It is not just about numbers when we talk about this hospital. As Rep. Brenda Gilmore wrote in the Tennessean a few weeks ago: “For more than 125 years, Nashville General Hospital has provided care to Nashvillians, many of whom would have no other way to get medical attention.” I don’t have the voice or experiences to try to fully describe the implications of her statement. But I know she’s voicing an authentic concern that is as real as the money is.

I could add another dozen bullet points with my thoughts about things that have been announced publicly. But I don’t want to add to the “too many chefs” dynamic. That said, my number one wish this evening is that the Hospital Authority and the administration would find a way to be teammates. If they don’t, I’m concerned that we’re going to end up watching a fiery wreck.

Here, here, here, and here are my previous posts about the hospital over the last few years.

Following up on the community oversight bill on 1st reading…

At our Council meeting on November 7, legislation for a police community oversight board was introduced on first reading. With all the attention earlier this week on soccer, I wanted to do a quick follow-up on this.

I think there is a general consensus that a citizen’s board of some kind is possible in Nashville. In an email to Council members on November 8, the FOP told us: “The Fraternal Order of Police is not opposed to some manner of an advisory board that is compliant with current law.” At the NOAH event on October 29, 2017, the Mayor also said that she would support a community oversight board if it resulted from a discussion among all interested groups. The Mayor also reported that the administration is going ahead and hiring consultant Barry Friedman.

I believe that Mr. Friedman has referred to community oversight boards as “back end solutions” that are used after something bad or allegedly bad has happened. I understand that he prefers to focus on front end policy and training solutions created and adopted by an entire community. I understand that he also thinks that an oversight board can be appropriate at times in some cities.

I am not a sponsor of the current legislation. I had the opportunity to see a draft of the bill before it was filed. Among other things, I expressed concerns about making sure that police officer due process rights are protected appropriately. I shared that, in addition to protecting due process rights, any oversight legislation would have to legitimately respect the magnitude of the job officers do and the risks they take, and not presume bad acts by them. I also expressed concerns about whether enough community consensus-building has been done. I was glad to see that second reading was pushed off to January to allow time for discussion about this.

I am hopeful that Mr. Friedman’s work in Nashville will begin before the end of the year and that his community-led policy-making process involving all of Nashville’s interested government and private groups informs and guides what the Council does with the pending bill.

Soccer thoughts (11/6/2017 edition)

Here’s an update about where I am on my issues. Excuse typos — I’ve been trying to get this out quickly and still get some client work done today.

After Friday (see my thoughts from then), I had several open issues. I appreciate that the administration and team kept working with me through the weekend even when it has looked like they already have the votes to pass the resolution. Some of my last issues have been addressed, and some haven’t. After balancing everything, if the amendments I am offering are included, I am going to vote in favor. Here’s why…

Two important issues are being addressed in last minute amendments that I will introduce at this afternoon’s budget and finance committee meeting. One amendment will say specifically that the team guaranty will cover infrastructure overruns — this is a new clarification. The other amendment will clarify that, if there is ever a new lead investor and they don’t provide an adequate guaranty, it will be considered a breach of the lease.

On the issue of the 10 acres, the team issued a letter over the weekend setting out their vision for having sufficient affordable housing to allow people who work at the stadium to also live at the development. This is as much detail as we are going to get before voting on the financing package. And, regarding the idea of a guaranty from the current owners, that’s not going to happen. Any earlier reporting that the individual owners would provide a guaranty is not accurate. That’s not going to change before we vote.

Here is a quick bullet point summary of changes that I requested that have been made, and those that haven’t been made:

Changes achieved:

  • 10 acres issue: We didn’t know the location of the 10 acres. Now we do.  Also, in its letter, the team described its intention to have housing that is affordable for people who work at the stadium. I intend to do my best to hold them to fulfilling that vision as rezoning and entitlements come back before the Council.
  • Guaranty: The guaranty language has added new specific requirements. The guaranty now specifically requires the $25 million team cash contribution, covering stadium overruns, covering infrastructure overruns. Metro’s cost on the stadium now has a hard cap of $225 million. Having the guaranty cover infrastructure overruns is a late change that will happen in an amendment at my request. This was an important issue to me.
  • Guaranty (future change in lead investor): It will be an event of default under the lease if a future successor lead investor does not provide an appropriate guaranty. This is a very good change.
  • Clarification that the team lease will require rent sufficient to cover not just regular bond payments, but also costs related to issuing the bonds.
  • Clarification that Metro’s obligation to contribute a minimum amount of sales tax toward the bond debt expires after 10 years.
  • Added a definition of what is a “capital expense” under the lease.
  • Added a requirement that there be a fair schedule conflict resolution process in the event of a conflict between a soccer game and another event.
  • Added a requirement that the Council approve building demolition before the bonds are issued.
  • Added a requirement that the Fairgrounds Board approve building demolition before the bonds are issued.
  • Added a requirement that the Fairgrounds Board approve all infrastructure changes, including roads and sidewalks, before the bonds are issued.
  • Clarify that the Mayor may only approve technical changes after the Council has approved if the changes are substantively consistent with the approved legislation.
  • Clarify that adding concerts at the stadium would not impact the Bridgestone Arena’s finances.
  • Provided a parking plan.

Not achieved:

  • 10 acres issue: We have not seen a realistic value of what the 10 acres is worth to the team.
  • Guaranty (current lead investor): There is no formal or informal guaranty. I think the administration would concede that, if MLS fails as a league, Metro is left exposed for the remaining bond costs. Supporters would say several things. They would point out that soccer is super-popular and some other league would take MLS’s place. They would point to the growing popularity of professional women’s soccer and suggest that we will likely end up with a team from that league to help offset costs. But in the end, Metro is exposed if MLS fails.
  • What are terms of other important documents: We have not seen the lease from the Fairgrounds Board to the Sports Authority, or the lease from the Sports Authority to the team. We just have the key financial terms known at this time.
  • No traffic study has been provided. Discussions about sound mitigation in the neighborhood have not happened yet.
  • To me, there are questions about whether the state fair will be permanently displaced by soccer coming to the Fairgrounds. Supporters would say that the Fairgrounds Executive Director says we’ll still be able to accommodate the fair. Supporters are also quick to note that the fair might leave anyway no matter what we do.

At this point, while it’s not perfect, fairly extensive and important changes have been made to improve this deal for taxpayers. If my amendments to get these last few improvements to the guaranty language for taxpayers are passed, I will vote yes.

Soccer thoughts (11/3/2017 edition)

Yesterday evening, the administration sent the Council a Substitute Resolution for the soccer stadium. See here. After digesting where the parties ended up, I don’t think I can vote for it.

I do appreciate that many of my requested changes were made. Unfortunately, the legislation was not improved enough for me to be able to support it. The primary problems continue to be the guaranty language and the 10 acres for private development.

Let’s start with the guaranty language. On October 2, we were told: “The MLS ownership group will be responsible for lease payments…” In the original resolution, it said that “Team owners” would guaranty the lease payments. To me, there was a red flag raised by the fine print in the Intergovernmental Agreement attached to the resolution because it spoke only of a single “Team Guaranty” that has not been provided to us. This suggested to me that no individual owners would be guarantying anything.

Many of my colleagues wanted more details about the identity of the “ownership group” or “owners” that would be responsible if the team or league were to stumble in making payments. With the Substitute Resolution, we know the answer — nobody. There are no individual owner guaranties.

The Substitute Resolution calls for the legal entity that owns the team to provide a guaranty of the lease. If the lead investor for the team ever changes in the future, then Metro would have the right to ask for a guaranty from the new lead investor. But even with this, the legislation does not provide any enforcement mechanism to force a new lead investor to provide a guaranty. From my perspective, this means the guaranty only protects Metro if everything goes well (and therefore we don’t actually need it) and doesn’t protect Metro if things take a bad turn (and we do need the guaranty).

In addition to this issue, the guaranty language in the Substitute Resolution does not cover overruns on the stadium-related infrastructure. I asked to have language added that would protect Metro for infrastructure overruns, but that wasn’t included in the Substitute. Considering that the majority of the overruns for the Sounds stadium were for the related infrastructure, having Metro get a hard cap on these costs was important to me.

About the private development side of this, having the 10 acres in the deal has not been adequately justified. There are not enough details about the proposed affordable housing onsite. There are not enough details about what the land is worth to the team. The Council was provided with the value of comparable nearby vacant land with no soccer stadium on the site. But that wasn’t a helpful data point for me. In the end, if we don’t know what the land is worth to the team, and we don’t know what Metro is getting from the 10 acres, I don’t think I can support this part of the proposal.

Finally, many of you read my initial thoughts a few weeks ago. I have updated that memo with comments to show whether each particular issue was addressed, partially addressed, or not addressed. Here’s that updated memo.

I continue to support the idea of soccer coming to Nashville. Hopefully, it will be with a better financial plan than what has been presented. It doesn’t seem likely, but perhaps there will be more changes or more information between now and when we vote next week.

Transit thoughts (10/28/17 edition)

The Mayor outlined her transit plan on October 17, 2017. So far, only high level summary bullet point, pictograph, and animated information is available about the plan. I am not expecting to see the detailed financial assumptions and modeling behind the plan until December. Because the details are important, this post is only a set of preliminary thoughts.

First, a reminder about the process…earlier this year, the state legislature passed the IMPROVE Act allowing cities to add a tax surcharge to help pay for mass transit. Under the IMPROVE Act, Metro can impose a local tax surcharge if: (1) A CPA firm approves Metro’s transit plan — this basically requires the CPA firm to agree that the revenue from the proposed new tax surcharge is sufficient to pay for the proposed improvements; (2) the State Comptroller also has to confirm that the numbers add up; (3) if the Metro Council approves the plan, it is placed on a referendum; and (4) if the referendum passes, the local tax surcharge goes into effect.

As of today, none of these steps have taken place. The Mayor has announced the plan and an accounting firm (Kraft CPAs) is reviewing the plan. I believe the administration expects to get Kraft’s approval and the Comptroller’s approval before the end of the year. Then, the Council will be asked to approve the plan by early February in time for the scheduled local primary election on May 1, 2018.

In August, I laid out what I would need to see in the plan in order to vote in favor of placing it on the ballot. I listed five things:

  1. A description of what the new taxes would be: This has been accomplished. Well over 95% of the new funds will be from a local sales tax surcharge. This will likely continue to generate discussion straight through the referendum because it will leave Nashville with the highest sales tax in the country — tied with Chicago.
  2. A description of how the Gallatin Pike rail line will cross the river: I haven’t seen it in any administration materials, but the Nashville Business Journal has reported that the existing James Robertson Parkway bridge over the Cumberland River will be replaced with a wider bridge to accommodate two rail tracks.
  3. A description of how transit riders will get around downtown: This one has been answered too. The plan recommends building a $936 million tunnel under 5th Avenue downtown. The tunnel would have stops at Music City Central, Broadway, and somewhere in SoBro.
  4. A description of how riders will get around downtown: This one has been answered. With three stops in the proposed tunnel, most everywhere in downtown would be fairly accessible on foot.
  5. A description of how future operating losses would be funded: Until we see the financial assumptions and modeling, it is not possible to have an opinion about this factor.

In addition to these, the summary information provided so far raised several new questions:

  1. The tunnel: Until news of a proposed tunnel starting leaking out in late August, I hadn’t considered this at all. On the one hand, it is audacious and makes a lot of people wonder whether it is feasible. On the other, I know that NES successfully built a substantial tunnel near downtown in the last decade. I think the administration is going to have to provide a lot more information and experts on this part of the plan. Voters owe it to Nashville to take a hard look at this. (I want to be clear…I am NOT saying it’s a good or bad idea. But I am saying that a 2 mile $936 million tunnel through limestone that is less than a half mile from a major navigable river deserves some scrutiny before the referendum.)
  2. The sales tax: A lot of people are going to complain about using sales tax for transit at all. I am going to leave that issue alone for now, and focus on a different question. As far as I can tell, every major transit project in the history of the world ended up costing more than projected. When this project ends up costing more, will we raise the sales tax again? Property taxes? I think it is fair to work through where the next round of money comes from, and when that might happen. I suspect the administration’s perspective is that their financial model is so conservative that this is not a concern. When we all see the financial model, we’ll get to form our own opinions about that.
  3. Three rail lines were shortened since nMotion’s original recommendations: When nMotion made its recommendations in 2016, it suggested the Charlotte rail line should run to River West, the Gallatin rail line should run to Rivergate, and the Murfreesboro rail line should run to Bell Road. When Metro’s consultant put out its report in August 2017, these lines got split into two phases, and in the Mayor’s plan Charlotte ends at 440, Gallatin ends at Briley Parkway, and Murfreesboro ends at the airport. The Tennessean talked to the Mayor’s office about these shortened lines and reported that a spokesman said building these rail lines as originally planned would mean “increasing taxes to a rate that the mayor’s office has determined unreasonable.” Before people vote on the referendum, they should think through whether these abbreviated rail lines make sense. Will people drive from Murfreesboro or Antioch to the airport to catch a train the rest of the way into town, for example? Also, if it is not possible to pay for the originally envisioned lines now, will that change in the future?

More thoughts to come after the financial assumptions and modeling are made available.

New Pedal Tavern Lawsuit

Here’s a copy of the pedal tavern lawsuit filed last week.

A rider has sued a pedal tavern company and the driver after her foot slipped off the pedal. The lawsuit alleges that the rider was injured when her foot was dragged after she slipped.

Unfunded OPEB liability to cross $3B mark this year

I have written before about Metro’s pension and OPEB (Other Post-Employment Benefits — e.g. health insurance) liability. This is brief update.

Metro’s Finance Director gave the Council an update about these liabilities today.

The pension fund is in good shape with more than 98% of the pension liability funded.

Metro’s future OPEB liability is not funded at all. Instead Metro pays its annual costs out-of-pocket each year. However, the unfunded accrued future liability has been growing faster than the annual budget for some time. The latest data out today shows that the combined accrued OPEB liability for Metro and Metro Schools is approximately $2.9 billion. We can expect this to cross over $3 billion during the current fiscal year.

Soccer thoughts (October 8 edition)

Let me start by saying that soccer is exciting. It is the most popular sport on the planet. I would love to see Nashville get a top-level soccer franchise. That said, voters elected the Council to be good stewards of public resources. We are obligated to thoroughly examine, scrutinize, and question the new soccer stadium proposal.

The administration publicly disclosed its soccer stadium plans last week on October 2. The $300 million proposal includes up to $225 million in Sports Authority revenue bonds for stadium construction costs, a $25 million contribution by team owners for stadium construction costs, $25 million in Metro general obligation bonds for infrastructure related to the stadium, and $25 million in Metro general obligation bonds for other Fairgrounds improvements.

Major League Soccer is supposed to make a decision about new expansion teams in early December. MSL has said that for bidders to be considered seriously for a new team franchise, they must have a commitment from their cities for a stadium. Because this deadline is approaching fast, the administration is asking the Council to approve the Resolution for this funding very quickly — either on October 17, or at our November 7 meeting at the latest.

Whether the Council votes on October 17 or November 7, this process will move fast. I plan to let my thought process be as public as possible. In this post, I am going to run through the factors I had in mind before getting the actual proposal last week, some analysis about what is in the proposal and the related risks and rewards, and then a discussion about how I feel today about the stadium plan.

What was the yardstick coming into this process?

Knowing the Council would be given a compressed time frame, I gathered my thoughts about what I would want to see in the proposal in advance. In my August 9 post, I described these questions:

  • What is the total expected price tag? Does the stated price include any expected infrastructure, parks, greenways, or other improvements that might get folded into the project?
  • How much will Metro pay?
  • When there are overruns (like with the Sounds stadium and most large projects), who will pay for the overruns?
  • What is the source of funding for the Metro part?  In the budget process a few months ago, this project was listed to be supported with revenue bonds. In turn, this suggests using sales tax revenue from tickets and stadium concession sales to pay for Metro’s portion of the cost. The details will matter, but this revenue seems like it might not be enough to pay the cost of the debt. If not, what will the annual losses be, and how will we pay for that?
  • How are nearby neighborhood groups going to interact with the stadium for parking and noise, especially for night games.

What is in the proposal?

In my law practice, sometimes people ask me to analyze a potential investment. The goal is to review the technical legal documents, describe the formal structure of the proposed investment, and identify strengths and risks. The idea is to blend technically accurate legal details (by pointing out all the pros and cons) with common sense or business sense (by trying to point out any standout risks or rewards). I try to give clients enough information about proposed deals so that they can decide whether to invest their time, energy, and money.

I decided to apply that process to the soccer proposal. This weekend, I prepared an analysis as if a client had asked me to review the financing Resolution that the Council is being asked to consider.

Here’s that analysis. You’ll see it’s lengthy. If you are in a pinch for time, I’d recommend just reading the first 4 pages.

How does it measure against the yardstick?

My first factor was whether we are being given a total price tag. After the baseball stadium project ended up costing more than $90 million instead of the originally projected $65 million, it is important that we understand the full project price tag before we approve it.

My sense is that the $300 million being discussed might be close to complete, but that it is probably not quite there yet. For example, there is very little (maybe no?) information about parking. There is no parking shown on the drawings we have seen. The Resolution calls for $25 million in general obligation bonds for infrastructure related to the stadium — but we don’t know what that includes. Also, there is no greenway connection shown in the drawings we have seen. We know that the Fairgrounds is an essential part of Nashville’s long-term greenways plan, and that’s not shown or been discussed. I’ll need to learn more about whether the disclosed total project cost includes everything.

My second and third factors were about how much Metro will pay, and who will pay for construction overruns. My fourth factor was about who will pay for operating costs, and operating losses. These factors are all about managing various risks.

As an aside, let me say that it is usually easy to draft legal documents that say what will happen if everything goes as expected. The challenge is to describe what will happen if things go wildly well or horribly wrong. It is critical to know who will suffer the monetary loss in the unfortunate event that things go poorly. To discuss these issues isn’t bad-mouthing the deal. Instead it is having an adult conversation about who will lose money in various situations that hopefully will never happen.

I’ll start with the “everything goes great” situation. If everything goes well with the plan as proposed, after 30 years have gone by and the bonds are paid off, Metro will have spent $25 million on infrastructure improvements for the stadium, spent $25 million on other Fairgrounds improvements, possibly have paid anywhere from $0 to $35 million to prop up ticket sales in the first 10 years of the team, paid for all capital improvements at the stadium, succeeded in keeping all historic uses of the Fairgrounds in place, have a privately-owned mixed use development (meaning housing and presumably restaurants and bars) within a 5 minute walk of the stadium, and have a successful MLS franchise. For this scenario, I have two objections at this point — nobody has projected the cost of the ongoing capital upkeep requirements and delivering the 10 acres for private development on Fairgrounds land does not make sense to me.

What about the various risks…

What if the stadium is over budget? The proposed Resolution says the team pays this. This is good.

What if the stadium-related infrastructure costs are over budget? The Resolution does not require the team to cover this. This would be Metro’s obligation. I think the guaranties Metro receives should be changed to cover cost overruns on the related infrastructure costs also.

What if the other Fairgrounds improvements costs are over budget? The Resolution does not require the team to cover this. This would be Metro’s obligation. It would create some challenges to word it just right, but if there are cost overruns on other Fairgrounds improvements that are caused by the stadium construction, then the team guaranties should be modified to cover these costs.

What if there are operating losses? The proposed Resolution says the team pays for this. This is good.

What if the league folds or the team moves? The Resolution says that Metro will receive a team owner guaranty, but there simply aren’t enough details available to know whether the proposed guaranty is valuable or not. We need to know who, or what entities, will provide guaranties. Metro must determine the credit worthiness of the guarantors and/or obtain typical commercially reasonable security such as a letter of credit from the guarantors or team.

For my second, third, and fourth factors, it is definitely a mixed bag. Having protection on stadium cost overruns and operating losses is good — something we’ve not had with other stadium development deals. But this still leaves Metro exposed for stadium infrastructure and Fairgrounds improvements overruns. And this still leaves Metro exposed on paying the bond debt if the league folds or the team moves.

My fourth factor had to do with neighborhood concerns such as parking, noise, and traffic. The proposal on these points is basically, “We’ve got time pressure because of the MLS bid timeline — we’ll get to the finish line on these issues later.” I think we’ll need to hear more before the Council votes.

Seeing the proposal last week prompted some additional concerns:

  • For now at least, I think the 10 acres of Fairgrounds land for private mixed use development is a non-starter. It doesn’t feel right. Even if we were going to think about that, I would need to know what the land will be worth after any zoning changes. Without that, there is no way to decide how it fits economically in the deal. (Also, I am going to predict that the “underutilized land” given to the team owners would end up being multiple corners around the “Supporter March” intersection shown on the drawings…think 3 or 4 corners with bars and restaurants at street level with housing above.)
  • I mentioned the guaranties, but I will repeat: Before voting, I would need to know the identity of the guarantors. I would need to know that they are “good for it” or that they are providing adequate security. I would need to see the guaranty cover stadium overruns, infrastructure cost overruns, Fairgrounds improvements overruns to the extent caused by stadium construction, and all bond debt shortfalls if the team doesn’t meet its obligations.
  • I think the conditions listed in the Resolution to be completed before the Sports Authority may issue bonds should be beefed up. I have a list of suggestions in the analysis I linked to earlier.
  • There are some other smaller but still important issues that I outline in the analysis. These include details about how the sales tax set aside works, about whether competition with the Bridgestone Arena will indirectly increase Metro’s obligation for that facility, and making sure that both the Sports Authority and the Fairgrounds Board are on the same page about how their new very close relationship is going to work.

These are the things on my mind at this point.

I have seen the team owners’ public presentation several times now. One of their early points is about how soccer for Nashville has been a full year in the making. On the other hand, the Council will have only a few weeks to absorb a year’s worth of a game plan and financial details. On top of this, we expect to hear the first financial details about a possible transit referendum before the end of October. The administration is also bringing back the idea of a $125 million flood wall — the first meeting on that is October 10. The Ft. Negley Park development ideas are still alive too. That’s a lot. I’ll do my best to provide updates as I can about all of these.

Recovery Court Audit

The General Sessions Recovery Court was audited in the aftermath of former Judge Casey Moreland’s indictment. As a member of the Metro Audit Committee, I received the audit report when it was issued last Friday. It usually takes several days for Metro to get it posted online. As of this afternoon, it wasn’t posted yet…so I am posting it here.

Among other things, the report found that the Recovery Court paid some travel expense for the staff of non-Metropolitan Nashville Government entities. The report says: “Specifically, airline fares for employees of the Davison County Drug Court Foundation were paid for by the General Sessions Recovery Court. The Davidson County Drug Court Foundation subsequently reimbursed $1,780 to the Metropolitan Nashville Government for these expenditures.” Another $8,868 was not reimbursed until recently.

I have asked Metro Audit if they have a schedule of the names of the people for whom travel was paid, the company/entity with which they were affiliated, the destination, and the dates of travel. Metro Audit is checking with Metro Legal to see if those work papers may be released. I think it is important for Metro to continue to take a lead role in shining a light on how these funds were used, and how the Davidson County Drug Court Foundation interacted financially with the General Sessions Recovery Court while under the watch of Judge Moreland.

Tried to condemn white supremacy this evening…

After the events in Charlottesville over the weekend, I submitted a late-filed resolution condemning white supremacy.  You can see it here.  Multiple additional Council members signed on as co-sponsors.

Under our Council rules, because it was late-filed, I had to move to suspend our rules in order to consider the resolution tonight.  Under the rules, if two members object, the rules cannot be suspended.

When I moved to suspend the rules, Council members Pardue and Vercher objected. So the Council could not consider the resolution tonight. Immediately after this, two other late-filed resolutions were considered — including one to honor the birthday of Jerry Lee Lewis. Both of these other late-filed resolutions were allowed to proceed and they were passed by the Council.

I plan to file the resolution for consideration at our next meeting. I am not going to let this just go away. It is too important.

 

UPDATE (August 24, 2017):

34 of 39 Council members have come together to denounce white supremacy. We issued a press release today, and a matching resolution will be on our September 5 agenda.