Tag: budget

FY2017 Budget Ordinance

Here’s the FY2017 Budget Ordinance, BL2016-232. I believe the Mayor’s Office filed it with the Metro Clerk on April 29.

This is the proposed operating budget. The Mayor is expected to propose a capital improvement budget on May 13. And, there will be a “budget book” out (I don’t know when) that has more details on all of this.

Pre-Budget Process Thoughts

As we enter the Metro budget season, here’s where my thoughts are:

$121 million in expected new revenue: Metro is projecting that its revenue will grow by 6.1% in Fiscal Year 2017. That’s an increase of $121 million. You can see some high level details in the Budget Presentation that Finance Director Talia Lomax-O’dneal gave the Council on Friday afternoon. These next observations are not in any particular order – just some thoughts on my mind after seeing the presentation slides. Also, all the numbers (except one) are from the slides.

Keep in mind that the budget proposal is for the city’s operating budget, and does not include any capital improvements. The capital improvements budget is expected to be released on May 13.

While the city’s overall debt load in Fiscal Year 2017 is expected to be 10.85% of the budget (as compared to 10.49% in FY2016), the Mayor proposes that $18.6 million (15.4%) of the $121 million of new revenue will go toward debt service. For me, while I think these numbers are all in the zone of reasonable for a city, it is at least interesting to see a record-breaking $121 million increase in revenue AND also see our debt load increase as a gross number and as a percent of the budget.

You would like to think that if you absolutely kill it on the revenue side, the percentage of your budget that goes toward debt might go down?  If one were a cynic, one would observe that record-breaking revenue increases can’t go on forever, and ask whether we will be able to anticipate when our revenue increases inevitably recede well enough to also pull back on large increases in new long-term debt. If not, when the economy ultimately downgrades from “record-breaking” to “good” or “eh”, we risk seeing that percentage paid to debt bump up a half percent or more in just one year. (To illustrate this, I did some rough math – if our revenue increase for next fiscal year was the same as what we saw in FY15, revenue would go up $51.9 million instead of $121 million next year. If this were the story, the percentage of the budget paid toward debt next year would be 11.2% instead of 10.85%.)

The budget also suggests that $33.3 of the $121 million of new revenue go toward our schools, and $29.6 million for salary increases for Metro employees. (I have a meeting scheduled with MNPS personnel this week to hear more about their budget.) In the proposal, that leaves $39.5 million of new revenue to go toward Metro providing additional or new services.

For that $39.5 million, from looking at several different slides, the Budget Presentation shows us how about $24 million of this new revenue is proposed to be spent. Here’s a list of the spending proposals I saw in the presentation, along with some thoughts about several of them:

  • Barnes Housing Fund, $10 million (This is a lot of money, which is good. At present, though, the legislation that created the fund is barely a page and a half long. I think we need some additional structure and oversight to be created. I trust and like the current Metro Housing Trust Fund Commissioners, but it isn’t good for anyone to have $10 million per year to go to a commission that has almost no formal structure under existing law. To be clear, I think this investment is a good one, but we need more structure for the Barnes Housing Fund.)
  • Youth Programs and Services, $2.6 million
  • Fire Department, $1.5 million
  • Police Department, $2 million
  • Metro Transit Authority, $2 million (This is an increase that, I believe, is smaller than each of the last few years. At first blush, it seems incongruous that we would be squeezing down on increases for MTA when we need more and better transit so badly. I am guessing that the thought is to not provide a dramatic increase before the nMotion plan is done?)
  • Codes and Planning, $492,100 (Our Codes department is so swamped that this number could be twice as high and it would still be reasonable. If someone were to check staffing levels, I think they’d see that Codes is trying to operate with the same size staff they had when the city was a third smaller.)
  • Parks, $1.6 million
  • Public Works, $1.2 million
  • Library, $975,300
  • Health Department, $780,100
  • PIPs (Public Investment Plans), $1 million (I believe that individual departments found out on Friday who won the PIP money. I don’t know of any public announcement about this yet, though. I did see Judge Calloway late Friday afternoon and she was excited that the Juvenile Court PIP was being funded in full.)

I am looking forward to the upcoming budget hearings to learn more about the proposed budget.

Don’t have the actual budget yet: As part of my continued learning curve as a new Council member, I learned that the Budget Presentation doesn’t include a copy of the proposed budget. I have what the public has – the 39 slide PowerPoint presentation. This week, I’ll need to figure out when we see the actual budget.

Election Commission follow-up: In my April 20 blog post, I commented on the supplemental appropriations resolution that the Council considered and passed on April 19. Before the Council meeting, the Election Commission withdrew their request for a supplemental appropriation. I said in my April 20 post:

At the last minute yesterday, the Election Commission withdrew their request for a $314,000 supplemental appropriation. I still need to learn more, but the first report I’ve heard indicates that they didn’t really need any supplemental funds?!? I’ll be curious to hear more about this.

It’s been a few weeks, and I’ve still only heard second-hand information. But that information is that a Council member scheduled a meeting with someone at the Election Commission to learn more details about the need for the supplemental appropriation. And, then, before meeting could take place, the Election Commission withdrew their request for funds. I am probably not going to try a lot harder to figure out what happened, but it will be hard to take the commission seriously when it comes to funding requests. I hope a new director gets their business operations squared away.

Wrap-up: As the budget process moves forward, please feel free to send me whatever ideas and questions you have.

Update From 4/5 Council Meeting

I passed my first ordinance last night. I am probably over-happy about that. I’ve written about it before here and here. This ordinance changes the way Metro handles tax increment financing in three key ways – Metro will get its property tax revenue back more quickly, Metro will have more say in what projects get tax increment financing, and there will be greater transparency to show us how our tax revenues are being used by MDHA. The ordinance also authorizes MDHA to use the proceeds from the sale of 3 parcels of property in the Rutledge Hill Redevelopment District as part of the Cayce Place Redevelopment Plan.

Here are the other items of interest from the meeting:

Planning Commission Nominees: The Rules Committee was 10 minutes late for our 6:30PM Council start time because we asked so many questions of the Planning Commission nominees, Brenda Diaz-Flores and Brian Tibbs. I found both nominees to be well-informed and articulate about a wide range of planning, development, and housing issues.

For Ms. Diaz-Flores, we asked about her relationship with the Planning Department, where she used to work. We wanted to know whether she’d be able to transition to possibly voting against things that her former employer, the Planning Dept., was recommending. She was able to walk us through some specific positions that the Planning Dept. had taken while she was an employee that she would have voted against as a Commissioner. I liked that show of independence.

For Mr. Tibbs, who is an architect, we asked about the types of clients his architecture firm represents. He told us that his firm sometimes represents developers with matters before the Commission, and also does work for MDHA. Mr. Tibbs told us that he would recuse himself from votes where he or his employer had a financial interest in a project, or where his firm does work for an applicant before the Planning Commission. The Committee told Mr. Tibbs that we appreciated that he was sensitive to this issue. I’m glad he committed to recuse himself when he or his firm has an interest.

Though we had to run late to do it, the Rules Committee recommended approving both nominees. The Council approved both.

BL2016-133 (Inclusionary Zoning): This was on first reading. The Council deferred first reading for two meetings, to May 3. From my perspective, the two main camps – the housing advocate community and the development community – are engaged in the classic negotiating tactic called anchoring. That’s where you stake out an extreme position in the hopes of pulling the ultimate compromise position closer to you than to the other side.

On the housing advocate side, there is a significant subset that are arguing hard to just kill the inclusionary zoning bill and start over again. This is counter-intuitive, of course, since the same groups are the ones who initially pushed for inclusionary zoning last year. The “anchor” they have dropped is to argue that the current bill is so weak that it should just be trashed and, instead, the city should focus on creating a comprehensive affordable housing plan. We’ll see how this pans out. In my law practice, when you decide to anchor, you should be willing to accept the risk that everyone else comes to believe that you’ll never compromise and they choose to continue the conversation about compromise without you.

To me, the way forward is not an “either/or” situation. We can and should commit to have Nashville create a comprehensive affordable housing plan. But I think that we should also go ahead and pass some of the legislative pieces that we know we’ll need once a full plan is crafted.

The next step is that the Planning Dept.’s consultant is working on refining his proposals for the financial incentives that are need to make inclusionary zoning work. And, the Council’s Affordable Housing Committee has meetings set, I believe, on April 18 and 25.

RS2015-76 (Fairgrounds and Firearms I): CM Glover had a resolution that would have asked the Fairgrounds Board to rescind its decision to not have gun shows past 2016, and would have forced Metro to cut-off all capital projects funding for the Fairgrounds if the Board didn’t comply. CM Glover has said several times previously that his goal was to keep Metro from getting sued.

Unfortunately, about 30 minutes before Council Committee meetings started, a gun show vendor did sue Metro. I didn’t see a point to passing a resolution that was supposed to prevent litigation that now has already started. The Codes, Fairgrounds, and Farmer’s Market Committee saw things the same way and voted 3-2 to indefinitely defer the resolution.  That was Coleman, Shulman, and Rosenberg in favor of indefinite deferral, and Huezo and Swope against.

BL2016-161 (Fairgrounds and Firearms II): This was CM Glover’s bill that would have required the Fairgrounds Board to set aside 17 weekend days in 2017 for gun shows. This was deferred indefinitely at our last meeting.  For this meeting, CM Glover was using his one-time right to ask for the Council to place his bill back on the agenda. We voted against that – so that bill is now permanently defeated. For better or worse, the Davidson County Chancery Court is now going to be where the next chapters of this story unfold.

RS2016-172 (Supplemental Appropriations): This is a request for about $3.3 million in supplemental appropriations. At the Budget & Finance Committee meeting yesterday, it was clear that some of the supplemental appropriation requests are fully reasonable and are needed for positive, good reasons. And, some others are needed because there is a department or component unit of Metro that really isn’t performing financially as expected. This has been deferred to the next meeting in order for the Council to get more information about which supplemental appropriations require us to exercise additional oversight of a struggling department or unit.

RS2016-170 (Starbuck’s on West End where traffic backs up): Nashville is at the front end of multiple Starbuck’s locations seeking permission to sell beer. We approved one in Green Hills at the last meeting, and two more were up this time – including the one on West End near Vanderbilt across from Bricktops. If you are familiar with the location, that’s where there are always cars spilled out onto West End waiting to get in the drive-thru and often blocking buses and other traffic. This was deferred indefinitely to allow the store to work with Traffic & Parking to improve how that drive-thru interacts with traffic.

BL2016-140 and 141 (Carrolton Station, Men of Valor): With these two bills in CM Vercher’s district, the Planning Commission disapproved the changes to infrastructure and zoning that were being proposed. Metro Legal and Mike Jameson both advised that these two bills would be completely unenforceable if passed. Metro Legal had already advised Codes to disregard the bills if they were passed. Despite these strong legal admonishments, I think the whole Council really, really wanted to pass CM Vercher’s bills because they address serious traffic and density problems in this neighborhood. Because they were disapproved by the Planning Commission, these would have needed a two-thirds majority to pass. That didn’t happen and the bills failed despite CM Vercher’s strong, tenacious efforts.

I did not vote for either of these bills. I truly appreciate and agree with what CM Vercher was trying to accomplish, but with Metro Legal and Mike Jameson advising that the bills were simply not enforceable, I couldn’t vote in favor. It’s a longer story for another day, but the problem with this situation (and with CM Hagar’s quarry situation) is that the State of Tennessee changed the law about “vesting” property rights in January 2015. Nashville is going to have to figure out a way to adapt to that change in the state law, which allows property rights to be vested sooner than was possible previously.

That’s it. If you made it this far, thanks for reading. I appreciate it!

 

Bob

Last Week’s $10 Million For Metro General

I keep thinking about the $10 million supplemental appropriation the Council approved for Metro General Hospital on February 2.  Keep in mind that this is a huge budget miss – more than 10% of the hospital’s annual budget.

One of the things I do for a living is to help companies in financial distress find solutions.  Over the years, I have worked on lots financial restructurings and, regardless of industry and regardless of whether it is for-profit or not, there is a rhythm to how these things go.  Here’s how I figure the hospital’s fiscal year has gone so far based on what I read into the numbers and what the Council got told last week.

From July through the end of the summer, they must have known that their revenue was underperforming. With as little cash as they have, they must be looking at the bank account and the pile of unpaid bills every single day.  They must have known their revenue was off.

Then the fall came, and the Joint Commission accrediting people gave them $2.4mm of new problems. So, it was October-ish and they were tracking to miss the budget by $3.8mm (about 4%) for the fiscal year from these two issues alone.

Apart from these two items, they were choosing to spend money on new, completely unbudgeted strategic initiatives that will cost another $2.4mm for the fiscal year.  All of these things had to be known by October…early November at the latest.  By then, they must have been tracking to be at least $6mm short of their budget for the fiscal year.

At the Council meetings last week, we heard that the hospital approached Metro Finance just before the end-of-year holidays about the need for a special appropriation.  That tells me that, for 4-8 weeks, there likely was handwringing at the hospital about what to do about not being able to make it through this fiscal year.  When you are insolvent, time is precious and cash is king.  When management delays sharing bad news until they are a matter of weeks from missing a payroll, stakeholders end up with no choices except to pay whatever it takes, or let it shut down.

In my law practice, when a delay like this happens, it causes the people around the company to wonder whether management is capable of accurate cash forecasting.  If they are not, that is the first issue to be addressed.  If they are capable of accurate cash forecasting, then the inquiry shifts to whether the reason for keeping quiet until the last minute was a good one, or a bad one.  A typical “bad” reason might be something like spending money outside of approved budgets.  A typical “good” reason might be something like management’s extreme optimism made them think that they were about to turn a corner for the better.  Here, I’m not close enough to what happened to have a conclusion, but I suspect some of both.

I voted last week in favor of the special $10mm appropriation because having employees not get paid, or having an unplanned reduction in services, are not legitimate options.

That said, someone needs to figure out whether the hospital is capable of accurate budgeting and forecasting.  If not, they need to fix that.  If so, then someone needs to convey that it simply isn’t appropriate to run their operation this way.  Having a noble mission does not give you permission to start unbudgeted projects that are nearly 3% of year budget, or to keep quiet about dramatic budget holes until the last minute.

Metro General Hospital is an important part of the fabric of Nashville’s healthcare system. At the Council meeting last week, many of my colleagues spoke passionately about giving Dr. Webb’s new management team a chance to succeed.  I am absolutely in favor of giving them a chance to succeed – but that has to include operating within a budget, being able to predict what cash flow will look like more than a handful of weeks in advance, and not getting surprised by Joint Commission reports.  I’m looking forward to having the management team report back to the Council a few meetings from now so we can learn more about the direction they are headed.