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FAQs – FY20 Better Budget

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

The FAQs are here.

Here are previous posts about this year’s budget:

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

Proposed FY20 budget expected tomorrow (April 30)

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

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

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

A better budget for Nashville (May 28)

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

For last year’s budget posts, see:

Updated FAQs (June 10, 2018)

What about the $9M for transit?

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

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

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

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

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

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

A better budget for Nashville

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

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

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

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

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

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

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

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

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

Impact of economic development spending on property tax rate

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

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

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

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

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

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

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

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

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

New TIF legislation

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

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

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

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

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

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

I will provide updates as these bills move forward.

TIF Study & Formulating Committee report is out today

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

The committee’s report was released today.

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

The myth that “belt tightening” could fix the budget

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

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

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

and at page 5 of this year’s presentation:

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

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

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

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

1st thoughts about Mayor’s proposed FY20 budget

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

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

Proposed FY20 budget expected tomorrow

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

More on the announced affordable housing plan

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

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

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

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

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

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

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

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

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

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

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

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

Metro’s Health & Ed Board

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

What is Metro’s Health & Ed Board?

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

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

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

Is it a part of the Metro government?

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

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

Why should you care?

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

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

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

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

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

What’s the latest?

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

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

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

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

 

 

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

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

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

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

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

The new affordable housing initiative

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

In more detail, I think that…

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

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

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

Maybe hold back on the high fives for now??

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

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

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

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

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

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

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

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

Metro Internal Audit – Collier and MNPS reports

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

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

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

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

On Collier…here is the basic internal audit timeline…

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

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

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

And MNPS…

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

I know two things at this point.

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

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

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