Tag: transit

Transit/Affordability – April 16 Update

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

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

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

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

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

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

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

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

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

Transit/Affordability Taskforce Update

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

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

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

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

First, some background…

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

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

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

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

The current status…

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

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

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

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

 

Transit/Affordability Taskforce – 2 Months Later

Transit is about more than trains and buses. It is also about how high-capacity transit corridors will interact with neighbors, residents, and existing small businesses. Last fall, the Mayor appointed a Transit & Affordability Taskforce to address these issues. The taskforce’s final report and recommendations came out on January 10, 2018. You can find it here.

I promised the housing advocates on the taskforce that I would help with after-the-fact accountability.

Fortunately, there was always going to be an early opportunity for Metro to implement the recommendations. In the next few Council meetings, the Council will see legislation to create a Transit-Oriented Redevelopment District (or “TOD”) in Donelson. I have seen a draft of the written redevelopment plan, which has already been approved by the MDHA board, and I have seen an early draft of the legislation.

This Donelson TOD is critically important. It will be used as a template for transit-oriented development on every major transit corridor in Nashville. The administration and transit planners intend for there to be a TOD district along every transit corridor and at every major transit hub. The long-term transit plan expressly intends to use TOD districts to capture a portion of increasing property taxes to pay for the necessary major infrastructure and to spur private development along the transit corridors. So while the referendum has not yet passed, this Donelson TOD will lay the groundwork for how transit-related development will work throughout the city.

This is a good time to take a first look at how Metro is doing with some of the taskforce recommendations. I will list some of the recommendations and describe the status of implementing the recommendation:

Recommendation: “Full neighborhood assessment of affordable housing stock and housing-related wrap-around services before transit development begins…This pre-transit development assessment must not be limited to just the 0.25 miles on either side of the corridor. Instead, the assessment must take into account typical neighborhood boundaries.”

Status: No action taken.

Recommendation: After conducting the full neighborhood assessment of affordable housing, firm goals for preserving and creating affordably housing units should be established: “Once there is enough information, firm goals should be established. All policies and tools must work in concert to achieve these minimum numbers.”

Status: No action taken. No goals for the number of affordable unit to preserve and build have been set.

Recommendation: “For funding and building affordable housing in TODs, Metro and MDHA should seek to reduce or eliminate the current structure where there are two separate decision-making tracks – one with Metro and one with MDHA.”

Status: No action taken. This is a big deal. In existing economic redevelopment districts (like around Rolling Mill Hill), MDHA has the full power to set the level of affordable housing (even 0%) for each building getting tax increment financing in the district. These districts last for 30 years, and Metro has no say on issues like this during the 30 years. Remember that MDHA is not part of the Metro government (because it is created separately under state law) and does not have to listen to the Mayor or the Council when deciding on the level of affordability to require in a building. As the train is leaving the station on transit-oriented development, we need a new model about how Metro and MDHA work together to make sure Metro gets the final say on how these things will work on our transit corridors over the next 30 years.  (This is not a knock on any of the people in and around MDHA or its board. My objection here is about the process. MDHA is simply not a part of the Metro government, and its board is not elected. It doesn’t make sense to hand over so much final decision-making to an outside authority for all of the real estate around all of the important transit hubs on all of our transit corridors for multiple decades. We can do better than that.)

Recommendation: “In advance of the anticipated May 2018 transit referendum, Metro should make a public statement committing to the timely creation of a community land bank and community land trust, describing the timeline for creating these, and describing anticipated funding levels.”

Status: No action taken regarding a community land bank. For a community land trust, the administration has said that one will be funded in fiscal year 2020. No information has been provided about a funding amount.

Recommendation: “A resounding recommendation from all committees was the need for a dedicated public funding source for both affordable transit-related housing and small business space development and support. The new public funding should be an amount equivalent to at least 2% of the expected capital project costs for the Let’s Move Nashville program (which is proposed to be approximately $5.4B in 2017 uninflated dollars). This new resource should be designed so that each dollar of public funding is leveraged with other funding sources with a goal of a 3:1 leverage ratio. This is in addition to any pre-existing levels of affordable housing funding, and also in addition to any financing funded by tax increment financing (TIF).”

Status: No action taken. No information has been provided about accomplishing this goal.

Recommendation: Because we are trying to build housing stock along transit corridors for Nashville residents and not visitors, the recommendation was: “No investor-owned (Types 2 and 3) short-term rentals in TODs.”

Status: No action taken. This restriction isn’t in any of the documents I have seen so far. (And, yes, it would be legal for Metro to withhold permission there to be short-term rentals in projects that are funded by our property tax dollars through tax increment financing.)

I recognize that there are powerful forces pushing all of us on the referendum. This post isn’t meant to comment on that. My goal is to provide some early feedback that Metro is not yet doing what it will take to succeed in maintaining and building our neighborhoods and meaningful affordable housing around transit development.

I also recognize that it is only a few months since the Mayor’ taskforce released its recommendation to her. But life is coming at Nashville fast, and we can’t afford to be wait. The legislation for the Donelson TOD is still being pushed forward. I hope the administration can find the time and resources to implement these recommendations.

What’s next for the transit referendum?

As Nashville digests yesterday’s news about the Mayor, many people are asking what it might mean for the transit referendum. The Council is set to vote on our third and final reading on February 6. If we pass the bill, then the transit plan and the proposed new tax surcharges will be on the ballot for a public referendum on May 1. If we delay at all, May 1 will be impossible and advocates would have to decide whether to try to get the referendum on the ballot for either the August or November 2018 election.

I don’t have a great answer for what the impact on transit will be. For me, the starting point is that the Mayor has been the public face of the drive toward passing a transit referendum on May 1. After yesterday, if she can regain the public’s trust, it will take time. The question is whether a May 1 transit referendum can succeed during this period of diminished trust and confidence in the Mayor.

I have my doubts about whether it can pass in May – I just don’t know. If the Mayor’s indiscretion is in the news through early voting and election day on May 1, it seems like it would be hard for the referendum to pass. At a minimum, I think everyone would have to agree that it would be an uphill battle if the transit conversation is competing for airtime every week with investigations and inquiries. The risk of the transit referendum failing in this situation seems high and should make anyone consider pushing it off to an August or November 2018 election.

On the other hand, pushing off the referendum wouldn’t necessarily foster a better environment for the public to consider whether to adopt the transit plan and the proposed new tax surcharges. It is hard to predict whether a weakened administration would hamper a vote later in 2018 too, or if the delay would allow enough time to clear the air so more attention could be paid to the referendum. There just isn’t clarity about how this would play out.

So the choices are to have a May referendum with the face of the transit campaign weakened and working on rebuilding trust in the stretch run up to the election, or delay the referendum and hope circumstances will allow Nashville to focus more on the transit referendum. Which would you pick?

On top of this, I have been revisiting my thoughts about the transit plan itself. My earlier posts are here and here. For those of you that have read them, you know that some parts of the transit financial plan have given me pause. For example , it still has not been well discussed in the media that the transit plan assumes paying interest only until 2032 on $3B in revenue bonds. After that, principal gets added to the payments in increments each year through 2039. From 2040 to 2060, the plan calls for level principal payments of $226 million each. The reason the principal payments increase over time before leveling off for the last 20 years is because projected revenue from the new tax surcharges won’t support full principal and interest payments until 2040. In turn, if there isn’t enough revenue generated to make full principal and interest payments until 2040, this begs questions about how we might pay for a next phase if we were to decide in the 2020s that we would like to extend a rail line to the county line.

The question I started with was how the Mayor’s situation might impact the transit referendum bill the Council is considering on February 6. At this point, I don’t know. I’m going to have to see how the next several days play out.

Where to start?

This evening, Mayor Barry acknowledged publicly that she had an extramarital affair with her now former security detail leader. It’s shocking news.

As an At-Large member of the Metro Council, I think it’s my job to communicate the feelings of the county as I understand them. Because the news is so new, maybe tonight’s sentiments will be wrong and won’t stand the test of time (or even a few days). But I don’t think it does any good to remain silent.

My first reaction was to think about the various people and families involved. There must be pain and difficulty all around this evening. That’s a shame. I feel bad for the families that are involved.

Beyond that, the two things people are talking to me about are whether this impacts how we should think about the Mayor as a person, and whether this impacts how we should think of her as the city’s leader.

First, as a person, I don’t know the circumstances of the private lives (to the extent they are private) of the people involved. I can’t judge them.

I do want to mention the reactions from my 14 and 16 year old daughters about the news. Of course, due to other world social media skills, kids these days know everything at least as quickly as adults do. One said, “I’m mad. I liked her.” The other said, “Odd. Surprising.” I counseled them to not judge. The bottom line is that a role model was diminished today.

As for the Mayor’s ability to lead, I think that’s going to be complicated. As she noted in her comments to the media today, there are probably more bad days ahead on this.

I think the idea that the travel was totally okay because she needed security anyway is not very satisfying without knowing more. As a friend of mine texted me earlier this evening, “The misuse of tax funds and trust issues are big. Two consenting adults or not.” I don’t know enough yet to comment on whether there was any misuse of tax funds. But the Mayor has already acknowledged that the situation shows poor judgment — she said, “I knew my actions could cause damage to my office and the ones I loved, but I did it anyway.” And her press statement also explained that she’s disappointed in herself. We’re disappointed too.

More broadly, the question is about what this significant example of admitted poor judgment means for Nashville? For transit? For soccer? I have heard a few argue that the merits of the projects remain unchanged…so there should be no impact. Many more feel that the city’s trust and confidence in her is deeply tied into her administration’s objectives.

Just yesterday, for example, Joey Garrison posted a short video clip of the Mayor responding to a question about whether the city should be committing to the full transit price tag before knowing the details about exactly what will be built and when. The Mayor’s response, and I am paraphrasing some of this, was that, yes, it is a lot of money and there are details to work out later, but everyone will have to make a “little leap of faith.” Well, that answer yesterday captures the issue. Will questions about trust and confidence keep people from making that leap of faith? Will the Mayor be able to repair the trust relationship with voters before a transit referendum takes place? Will the Mayor be able to continue to be the face of the pro-transit advocacy efforts?

There are also a lot of questions about the use of government resources. Citizens will also want to know “who knew?” Did the rest of her security detail know? These are all fair and expected questions. At the press conference today, the Mayor apparently said that her office would make all records available. I expect multiple people in government and in media will take her up on that. As one of two Council members on the Metro Audit Committee, I think it is appropriate for Metro Audit to be involved in this process. This evening, I asked the Metro Audit Department to review today’s media reports and propose a scope of inquiry about the expense questions that are being raised. I imagine the Mayor is expecting this to happen.

I am definitely asking questions more than I am giving answers. But again, for tonight, I just want to express what I am hearing from our neighbors. I am sure this situation will continue to develop in the coming days.

Finally, to comment more specifically on transit…the Council will vote on February 6 about whether to put the transit referendum on the ballot on May 1, or not. I assume that the very well funded PACs behind the referendum push are going to do some quick polling before next Tuesday’s vote to get some sense of what it means when the face of your campaign has this sort of news about 70 days before early voting. I don’t know the answer. But I would urge that, if the polling looks weak, don’t hide that fact. Act on it. Share the information.

I’ll update my thoughts if necessary. Thanks, everyone. This hasn’t been a great day, but we’ll be okay. Nashville is stronger than the news of any one day.

The $5.4B is for new rail AND bus capital costs

This week, I have been trying to clean up some discrepancies and debates that are going on about the proposed transit plan. My earlier posts are here and here.

One argument people are having is about whether the $5.4 billion listed in the referendum language refers to light rail capital costs only, or to light rail AND bus capital costs. This debate arises from page 49 of the Transit Improvement Program.

On page 49, there are two different numbers that are both close to $5.4 billion. You’ll see that there are two columns…the first shows the present value of expenses in 2017 dollars, and the second shows the amounts to be spent in the “YOE” or “year of expenditure.” So, for example, in the “Music City Star” row, it says $30 million in the first column and $40 million in the second. This means that, after taking expected inflation into account, the total amount of checks to be written for the Music City Star over 15 years will be $40 million. But, in today’s money, this is only $30 million.

Here’s where the confusion starts. The cost of rail corridor improvements in the “YOE” column is $5.475B (which would actually round to $5.5B).  And separately, the present value of the cost of both rail and bus improvements in the “$ 2017” column is $5.354B (which rounds to $5.4B). Both of these numbers are very close to $5.4B and have created confusion.

The referendum language uses $5.354B, which represents the present value in 2017 dollars of both the rail and bus capital improvements.

One of the talking points filtering around social media and also in some live conversations I have had is that the $5.4B number in the referendum is supposedly misleading because it only includes the rail improvements and not the bus system improvements. I think this talking point started innocently from confusion over two numbers that are coincidentally similar. But, the referendum’s use of $5.354B is accurate and definitely refers to the present value of rail and bus capital improvements.

Getting to the bottom of the debate over $5.4B versus $8.9B

There has been some debate about whether the upcoming transit referendum language should include just the capital cost of the transit plan in 2017 dollars ($5,354,000,000) or also include additional information. In particular, one Council member has suggested adding language to the referendum stating that the “total cost for the transit system” is $8,951,062,000. The debate over this is slipping into a bit of name-calling. Here’s my take.

Before getting into the meat of this, there are three things to consider while you read this. First, debt is not inherently bad. Debt that can be reasonably managed to buy an asset you need is good. Debt incurred at exorbitant rates from a loan shark for a luxury item is bad. There are lots of shades of gray in between. Deciding on whether debt is good or bad requires balancing how badly you need the asset, the cost of paying the debt over time, and whether you can afford it once you consider all your other annual/monthly obligations. In nearly any situation, focusing on either the initial purchase price or the total amount of checks you will write over time to pay the debt is distracting. The question is about need, the cost to service the debt, and how that fits in with your budget.

Second, keep in mind that the 15 year length of the proposed transit plan is somewhat arbitrary. The State IMPROVE Act requires Metro to have the Comptroller and an independent CPA agree that the math in our transit plan adds up correctly. I understand that the Comptroller dictated to Metro that 15 years was the amount of information to present and get approved by the CPA firm. To be clear, the transit system will NOT be paid for in 15 years. The plan anticipates paying revenue bonds all the way through 2060.

Third, the State IMPROVE Act is also very clear that the referendum language has to be 250 words or less, and it must include the initial cost of the plan, as well as the recurring cost. This is pretty precise — it requires disclosing the initial capital investment and the expected annual operating losses. (Remember literally all transit systems lose money annually — that’s why it is important to disclose the expected recurring costs.)

Also, check out my post last night about transit. Especially the parts about financing provide context for thinking about this issue.

Okay — back to the $5.4B versus $8.9B argument…

To start, nobody has hid the ball on either number. Both numbers are in the Transit Improvement Program. You can read pages 46 to 55 of the Transit Improvement Program…you’ll see both discussed in detail. (I would concede to transit critics that the glossy pitch materials focus on the $5.4B number. But, the $8.9B number is clearly presented in the financial information in the Transit Improvement Program.)

Also, aside from not being part of what is required by the State IMPROVE Act, the proposed language saying that the total cost of the transit plan will be $8.9B is not accurate. It would be accurate to say that the total amount of checks that will be written by the end of 2032 will be $8.9B. But that’s not the same as the total cost of the transit plan. To get the total on the amount of checks that will be written to pay for the proposed transit plan, you’d have to include all of the principal and interest payments on the revenue bonds through 2060. And, then you’d have to decide whether you also wanted to keep including annual operating expenses for this additional 28 years. I’m not going to do the math, but that “total amount of checks we’ll write” number gets bigger over time through 2060.

So…the factually accurate statements would be:

  • “The capital cost of the program is estimated to have a present day value of $5,354,000,000” — this is what is in the referendum.
  • “The total amount of checks to write through 2032 for the transit system is $8,951,062,000” — this would make clear that we were only talking about the first 15 years.
  • “The total amount of checks to write through 2060 for the transit system is <<<I’m not going to do the math, but it’s bigger that $8.9B>>>” — again, this would make clear what timeline we were talking about.

I strongly feel that we should leave the referendum with its current language (option #1). Having the referendum say $5.4B for capital costs in today’s dollars is consistent with the IMPROVE Act. Also, when deciding whether debt is “good” or “bad”, it just isn’t helpful to add up the total amount of checks you’ll write over time. The focus should be on need and annual affordability (and as discussed in last night’s post, how to pay for a next phase of construction). And finally, looking at the total amount of checks to write over a 15 year period is certainly not helpful in deciding whether to take on debt for the proposed transit system.

There are legitimate questions that people are asking in trying to understand the proposed sales tax structure and about affordability. My suggestion though is that focusing on the total amount of checks to write over many years is not how people typically think about whether debt is a useful tool.

Transit thoughts – 1/23/18

Last August, I put out a list of questions I would need answered in order to vote to put the transit initiative on the May 1 ballot. The proposed Transit Improvement Program answered all of these questions and more. So, I am voting to put the referendum on the ballot. Tonight we approved the referendum on 2nd reading. The 3rd and final reading will be on February 6.

I would like to go through some important details that haven’t been discussed thoroughly in public yet. I am going to start with some relatively simple details and then move to more complex funding issues:

  • Nomenclature: When the state enacted the IMPROVE Act, it authorized counties to create certain tax surcharges to fund an approved “Transit Improvement Program.” The 55 page document I link to above is Metro’s proposed Transit Improvement Program. That is the technical document that would be funded by the proposed set of new tax surcharges. From my perspective, the “Let’s Move Nashville” web site includes lots of interesting and necessary explanations, graphs, and details. But, technically, the only information that matters is the Transit Improvement Program. If you want to know what you are voting to fund, that 55 page document is what you should read.
  • What about federal funding?: Many people have asked what happens if the anticipated federal funding is not available. The first answer to this is that the proposed transit program assumes federal funding that is consistent with historic levels. If that level of funding is not available, we will have to find alternative funding (unlikely), or parts of the system could be scrapped (probably unlikely), or the system will take longer than the anticipated 15 years to build (most likely).
  • Are we locked into the plan or can it change?: Plans can change as years unfold. The question is to ask what approvals will be necessary to make changes. The best advice at this time is that relatively small changes (like the sequence rail lines are built) probably require little formal approval outside of annual budgeting hearings. At the other end of the spectrum, major additions or changes to the system described in the Transit Improvement Program will probably require an additional ballot referendum. In the middle, there might be gray area changes where it is not clear today what authority will be needed. For example, if a new rail line were proposed, but it was not going to use the new tax surcharges as a funding source, then that might not trigger an additional ballot referendum.
  • No general obligations bonds are anticipated: Multiple people have asked me whether Metro can afford the additional $3 billion in bond debt anticipated in the transit improvement program. People need to know that only revenue bonds supported by the new tax surcharge revenue are planned. No general obligation bonds are part of the transit improvement program.
  • The details about the revenue bonds are important: During the 15 year transit improvement program, the plan is to issue $3 billion in revenue bonds supported by the new tax surcharges. At the end of the 15 years, we will have only paid interest on these bonds. The full $3 billion in principal will still be due when the construction plan is complete in 2032. From 2032 to 2039, the amount of annual payments will increase from $166 million (2032) to $224 million (2039). Then from 2040 to 2060, the program calls for level principal and interest payments of $226 million per year.
  • Why do the revenue bond payments ratchet up through the 2030s and not level off until 2040?: The short answer is the revenue from the new tax surcharges is not expected to be high enough to support the full principal and interest payments on the $3 billion in revenue bonds until 2040. The revenue bond repayments will be “sculpted” to fit the expected tax revenue stream. If you have wondered why Metro isn’t building the light rail lines out to the county line from the start, this financial modeling about the expected tax revenue is the key to the answer. Please understand that I am not presenting this feature of the economics as “good” or “bad.” It is however something that informed voters should know about.
  • What happens when we want to expand the transit system?: First, it is important to know that the system is meant to be successful as designed. That said, it is also important to consider what happens if we want to expand the light rail system out to the county line in any direction. All of the previous four bullet points are important for this question — the big issues are about what it would take to approve a major addition to the system, and about whether there will be funds available to pay for a major addition. Here are the basic options to pay for a major additional line or a rail extension to the county line: (1) wait until the late 2030s when our growing city will generate enough sales tax revenue to pay for additional major capital transit improvements; (2) find a new funding source beyond what will be on the referendum in 2018; and (3) further “sculpt” new revenue bond issues to have payments more backloaded instead of having level principal and interest payments from 2040 to 2060.
  • How is Metro integrating transit planning with other important government functions?: If funded, the transit improvements over the next 15 years will be monumental. There are a lot of question about how transit development will impact affordable housing, small business, neighborhoods, sidewalks, parks, and greenways. To get a jump on this, the Mayor appointed a taskforce to look at issues related to transit and affordability. The taskforce delivered its recommendations to the Mayor on January 10. You can see a copy here.

On February 6, it is almost a certainty that the Metro Council will vote to put the Transit Improvement Program referendum on the May 1 ballot. I hope voters take the time to look at the full program. If you have any questions or comments, let me know at bob.mendes@nashville.gov.

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.

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.

Transit Referendum

Over the next six months, the Council will be asked to take positions on several important issues. Before these debates come to a head, I want to share my current thoughts about each of them. This post is about the potential transit referendum. I have also posted separately about the possibility of a soccer stadium and the commercial development proposed for Ft. Negley Park.

Here’s what I think I know:

  • The Mayor has proposed a Gallatin Pike light rail line into downtown.
  • There is talk around the courthouse of a referendum to approve a dedicated funding source for transit-related development and infrastructure as early as the May 1, 2018, local primary election.  That is less than 9 months from now.
  • Any referendum would need to be approved by the Council before going on the ballot. I don’t know what the exact deadline is for getting Council approval, but there is talk around the courthouse that the Council decision could be as late as January 2018 for a May referendum. It is really up the administration to decide when they want to present this to the Council.  I have assumed that the administration will seek approval for funding a soccer stadium before approaching us about the transit referendum…but that’s just a guess.
  • Elements of the business community are organizing a group to lobby the Nashville community to vote yes on the referendum.  I don’t know exactly who is involved, but I hear that the organized private effort to support the referendum will launch after Labor Day. And I imagine there will be an organized campaign against the referendum, but I don’t have any visibility into those efforts.

Here’s what I don’t know:

  • What tax, and in what amount, will be proposed? I am also curious to see exactly which Metro agency will be proposed to spend the money, and to approve specific plans.
  • How will a Gallatin Pike rail line cross the Cumberland River? The word I hear is that it will be on the center, reversible lane on the James Robertson Bridge.  But that’s rumor as far as I can tell.
  • Where will the rail line drop riders off  downtown? Again according to rumor, it will be somewhere on the north side of downtown, but not at the existing MTA bus station.
  • How will riders get around downtown? This is important to me. I would argue that the lack of a circulation system with dedicated lanes for people to get around downtown is what holds back the Music City Star ridership. This is a tough problem because our streets are so narrow downtown. But to me, this issue isn’t going away. No matter how many train lines we run into downtown, if people have to walk a half mile up hill in the heat or the cold, I think we’ll have ridership problems. I am hoping that this first rail line proposes something bold about how to get people around downtown better.  (And for the love of all that is good in the world, don’t say ‘golf carts.’)
  • There is a golden rule with transit systems — the bigger they are, the more money they lose. Sometimes people shy away from saying that. I’m not one of those people. The transit system itself will always lose money and the bigger it gets, the more it will lose. The question is about what other gains will be realized. What level of property tax increases are expected around new train stations, for example? Someone needs to model out what the expected losses will be from our new bigger transit system, talk about how to fund these increased operating losses, and predict what the related revenue gains will be.

I am supportive of building a better transit system. I will need to get reasonably good answers to these questions in order to support putting a transit referendum on the ballot.