The budget problem and the proposal

For important background about the history of tax rates and property value reassessments, read this first. And also please read my May 11 post about this year’s budget. The central premise of that post was that the “Metro government botched the…resetting of property tax rates last year.”

The proposed budget for the upcoming Fiscal Year 2019 has been called a “status quo” budget. But it is alarmingly thin — especially when you consider that the budget crunch is expected to be worse a year from now. The proposed budget has these problems:

  • It funds our schools a full 5% less (about $39 million) than they have requested to educate the children of Davidson County.
  • It requires repealing the employee pay plan legislation passed a year ago in June 2017 because Metro can’t afford to provide the cost of living increases promised in that legislation.
  • It requires using rainy day funds to make ends meet.
  • It requires a one-time sale of $23 million of prime real estate to make ends meet.
  • It requires a one-time sale of $15 million in parking meter enforcement rights to make ends meet.

The fact that Metro is entering a multi-year budget crunch during boom times is making people mad — really mad. The citizens of Davidson County don’t feel right now like Metro’s spending matches its values. We have been told that downtown tourism is the economic engine that we need to pay for everything. But here we are having record tourism and a budget crunch, and not able to honor our obligations to our schools and our employees.

The situation calls for immediate action and long-term action.

On the long-term front, I am confident that the Metro Council is going to reassess how economic incentives are judged and awarded. Most citizens believe that downtown has enough momentum to be self-sustaining and they would like to see more tax dollars spent in communities outside of downtown. Unfortunately, any reassessment and realignment like this won’t happen overnight or in a single year.

In the short-term then, we must look at revenue and expenses and how to make ends meet while also honoring obligations to schools and employees.

On the expense side, I expect that the Council will be proposing many cuts to many items in the upcoming budget. We are too early in the process for me to have an idea of what those cuts will be. However, I am certain that there is not enough fat in the budget to cut that would allow Metro to honor its school and employee obligations. We have to look at the revenue also. This has been true historically, and it is true now.

On the revenue side, I along with other Council members are proposing a $0.50 property tax rate correction. This should have been done last year by the Mayor and/or the Council when the regularly-scheduled property value reassessment dropped the rate by $1.361. Adjusting the rate by $0.50 now would allow Metro to fund:

  • The school system’s requested budget (FY19)
  • Employee cost of living increases (FY19, 20)
  • Replenish Metro’s rainy day “5% funds” (FY19)
  • Pay known, already existing new debt obligations (FY20, 21)
  • Make up for the one-time sales of real estate and parking meter enforcement to cover budget this year (FY20, 21)
  • Cover minimal 1.5% growth in expenses (FY20, 21)
    • Remember, inflation is running at 2.5% — so planning for 1.5% growth leaves no room for error

This rate adjustment would only cover basic existing government operations until the next property value reassessment. It would not leave any room for funding for additional police or firefighters, and would not leave any room to provide additional funding for important programs like affordable housing.

To help show the numbers involved, here is a worksheet. Metro Finance provided the numbers for me. In four columns, it shows what “Status Quo” looks like until the next reassessment, then what funding the employee pay plan and adequately funding FY19 would look like, and then the last two columns add enough funds to cover minimal inflation of 1.5% and 2.0% respectively. Hopefully, the worksheet is self-explanatory.

In addition to correcting the property tax rate, it would be smart to ask Metro department heads to proactively find a way to operate 1-3% under budget in the upcoming year. This would further replenish Metro’s cash reserves.

Finally, here’s a link to some frequently asked questions that I am hearing about the $0.50 rate correction proposal.

 

 

Correction, May 21, 2018: Metro Finance says that the one-time sale of real estate is expected to bring in $23 million. This post and the linked worksheet previously said $38 million.

 

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.