COVID-19 Issues: People, then money/budget

This is a collection of my thoughts about coronavirus issues as of March 26, 2020. Circumstances continue to evolve, and my thoughts probably will too. Unless I note otherwise, these are not official Metro positions. This is just my effort to make sense of what’s going on.

How long is this going to last?

To date, the Governor has elected to set a floor for minimum restrictions while allowing local authorities to establish tighter rules. So when the State says that there should be no school through April 24 and the State Supreme Court cancels most in-person court appearances through April 30, we can assume that the State’s best information is that tight social distancing should be in place through at least late April.

Metro has been more aggressive in its restrictions, which makes sense given the city’s higher density. The Chair of the Metro Board of Health advised Council members yesterday in a letter that its tighter restrictions will be in place until May 31, subject to further extension if necessary. I interpret that as Metro’s best information is that we’ll hopefully be back to “normal” in June.

Both of these timelines are built on the assumption that we all effectively practice social distancing and largely stay away from other people during this time.

All the conflicting information is confusing? Where is the best information about the coranavirus?

If you live in Nashville, the city’s A Safe Nashville web site has the best information. This site includes links to the latest information from the CDC and a list of the most frequently asked medical and personal safety questions.

People are hurting. Many have lost jobs. Where can they find help?

The United Way has the best collection of resources for individuals that I have seen. Their page of resources for individuals is here.

Quoting from the United Way: “If you need help accessing food, social services or other emergency assistance, 211 is your one-stop shop for community resources. Operated by United Way, this 24-hour resource and referral line can help you find community-based programs that are available. To reach the helpline you can dial 211 or 800.318.9335, text your zip code to 898-211, chat or search the online database of community resources here.”

Where can small businesses find help?

The United Way has a resource page for small business too. Also, a few days ago, Vice Mayor Shulman and Mayor Cooper announced the creation of a small business task force. The task force web site is quickly adding more resources.

(I will note that the task force is not a formal arm of the city government. At the time of writing this, the task force web page is repeating President Trump’s “15 days to slow the spread” talking point, which implies the nation will be back to business as usual shortly. For now, this web site looks to be a growing collection of small business resources. But I’d get my medical advice from the other places I’ve mentioned.)

Moving on to the Metro budget…will the Mayor propose a budget as scheduled on March 31?

I don’t think so. The situation was already confused enough, but now that the federal government is passing a $2 trillion stimulus package that is expected to provide some amount of money to Metro, there isn’t enough good information to propose a budget on March 31 as planned.

I am urging the Mayor to propose a balanced budget with the best available information sometime in late April so the Council can pass a budget before the June 30 deadline in the Charter.

Practically speaking, we can amend the budget as late as mid-September 2020. After that, property tax bills need to be prepared and sent out in October. This would give us until late July or maybe early August to gather better information and, if necessary, amend the budget that gets passed before June 30.

How much will the coronavirus hurt Nashville’s budget?

Metro Finance continues to assess the impact. Last week, I guessed $125 million and acknowledged that my guess might be too low. (Spoiler alert — my guess last week was too low.)

Now that there is going to be a huge federal stimulus package, we really have two questions. What is the gross impact from the coronavirus? And what will the net impact be after receiving federal money? The bottom line is that both are not known today.

For the first question — over the last few weeks, I have talked to the Mayor and the Director of Finance many times. And I have heard different numbers each time. I am grateful for them being willing to share real-time thoughts with me as the Council Budget & Finance Committee Chair. Frankly, I’d rather be hearing about the process of the numbers bouncing around as they try to get enough information from the State to figure this out than be in the dark.

Until I hear the same numbers in several conversations in a row, I consider this to be a work-in-progress. Frankly, I am torn about sharing what I have heard so far. On the one hand, people are entitled to know what’s being discussed. On the other, it’s not very helpful to share numbers that are changing by over $100 million dollars within a few days.

In the end, I’m going to trust you all to remember the context. Significant unknowns. Evolving conditions. Today’s best estimates may well be wrong. I believe Finance is making progress on understanding the range of possible outcomes. With all of those caveats, I’ll share that the lowest number I have heard for the overall operating budget impact from the coronavirus on the current FY20 and the upcoming FY21 is $300 million. This is also the oldest number — almost a week old — I have heard and potentially outdated.

The high end of what I have heard is about twice this amount. Whatever number this ends up being, it should be offset by an unknown amount of new federal aid.

Those numbers are enormous and Metro has a very small rainy day fund. What’s going to happen?

This is a problem that is being worked by Metro and, I understand, in consultation with the State Comptroller. The numbers are very large. The problem will be solved. The government will function and do its job.

The Cooper administration is finding itself in the same position that the Dean administration did when the Great Recession hit in late 2008. Cooper’s options will be somewhat more limited due to Metro’s super-low rainy day funds.

The basic options for any government facing declining revenue are to use savings, borrow more money, raise revenue, sell assets, refinance debt, or furlough/layoff employees. Some of these are immediately off the table — Metro has no meaningful savings and borrowing money is not feasible now.

The Dean administration opted to refinance large amounts of debt and hold down and suppress payroll costs. In many ways, a decade later, the city is still feeling the impact of those decisions.

With coronavirus, the loss of revenue is more severe and more sudden. And Metro has no savings to rely on. We will have to hear from the Mayor and the Finance Department after they know more, but I suspect that Metro will have to both raise taxes and refinance bond debt to make ends meet. When it comes to jobs and employees, I suspect that the administration will have to see what the federal government is going to do before it knows what’s possible. Hope is not a plan. But I hope the city can get clarity from the federal government quickly.

When will we know more?

The Mayor is scheduled to give his State of Metro address on March 31. I believe that will happen even if there is not a budget to present on the same day. I know the Finance Department is working hard to figure out the budget impact and a path forward. My hope is that by mid- to late-April, we will have a better idea of how long these emergency conditions will persist and also have a better idea of what we can expect from the federal government.

I will leave you with something I have been telling clients and urging in government circles. This is the best information that is available today. The only certainty we have is that today’s best information will become outdated — probably soon. Let’s not be afraid of that. It’s discomforting, but if we view this as a process of going from no information a few weeks ago to perfect information some day in the future, then the goal for today and this week is to move the ball forward in the direction of more clarity.

Stay safe, everyone. Stay safe.

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.