Tuesday, March 20, 2018

Metro's finances are really in bad shape.

by Rod Williams - Yesterday, March 19, marked the beginning of Metro "budget discussions." Mayor Barry changed the terminology to "discussions" rather than "hearings." Not that it is terribly important but I prefer the traditional term "hearings," but I guess "discussions" sounds more feminine and more collaborative and less hierarchical. It sounds more in tune to the new sensitive progressive touchy-feely Nashville. Anyway, the budget process is that first, the mayor has "discussion," in which all of the various department heads appear before the mayor and usually the finance director and maybe a couple of key advisers to the mayor and make their case for their budget request.

Before these "discussions" even began, however, the mayor's office has given the department heads directions such as telling the department heads to tell the mayor what they would fund if they had 5% more money or maybe what they would cut if they had to take a 5% cut. Of course, "cut" is not the way we would think of cut if in our family budget if we had to cut 5% of our budget. A government cut means the rate of growth is less than anticipated.

After the mayor hears from all of the department heads then the mayor develops and presents a budget to the Council  and then the Council has budget hearing. (As of now they are still called "hearings," not "discussions.") At the Council budget hearings most department heads say then can live with the amount of money the mayor's budget awards them but not always. Some department heads make the case for more spending. The Council then has a public hearing at which group after group ask for more money for their favorite cause; more for schools, more for parks, more for the arts, pay raises for Metro employees, etc.. The Council then develops its own budget which it then substitutes for the mayor's budget.  The Council always passes the substitute. The substitute may only make the smallest of tweaks to the mayor's budget or it may make substantial changes to the mayors budget.

One thing that  most people do not understand is that the effect of a council member's vote cannot be to vote against the budget. In years of a tax increase some council members who vote "no" on the budget will claim they voted against a tax increase. That is not truthful. A "no" vote on the Council vote is a vote for the mayor's budget. If the Council refuses to pass a budget then the mayor's budget goes into effect by default. If a mayor proposes a 75 cent tax rate increase and the council substitute calls for only a 60 cent increase, then a "no" vote on the council substitute has the effect of favoring the mayor higher tax increase over the Council's lower tax increase.

The mayors budget discussions and the council budget hearings can be informative. Sometimes new demands for services actually do mean a department actually needs more money than before.  One never hears, however, a department head say they have more money than they know what to do with and they could easily take a budget cut. They say houses will burn, people will die, kids will not get educated, pot holes will swallow cars,  and our quality of life will suffer if they do not get an increase.

Today,  it was revealed (surprise, surprise) that Metro was facing a budget shortfall. This is despite the fact that revenue to Metro has grown at a phenomenal rate. In 2014 Metro's revenue was $1.81 billion and in 2018 it is $2.2 billion. One of the reasons for this shortfall is that when Metro reappraised property last year, more people than ever before appealed their new appraisal and a greater number of appeals were granted than ever before. So, the shortfall is that Metro will not get as much of an increase in revenue this year as it thought it would.

Another reason for the shortfall is that the school system is going to get $7.5 million less from the State this year than last year. Despite the growth in Metro's population the number of children enrolled in Metro schools has dropped and the State has reduces the funds it pays to Metro to help educate school children.  Of course, it should cost less to educate fewer children but the school board and the city does not see it like that. They take the view that overhead cost are fixed. To be fair, there is some truth to that but not much. Schools can not be closed or bus routes redesigned immediately to correspond to fewer school children. In the short-term some cost are relatively fixed.

One indications of how bad the financial situation is for the city is the status of Metro's reserve fund balances. Look at the below chart presented to a recent special committee meeting of the Metro Council.

Notice the GSD General fund balance is now 3.4% of the budget. During the hearing at which this was presented to the Council a spokesman from the Finance Department said bonding agencies like to see these balances within a 5 to 10 percent range and they would like to see it "ten or more."

This is an indication that Metro is seriously mismanaging our money. This is at a time when the economy is booming and we are growing by leaps and bounds. Future looming problems facing the city that the city just ignores is future health care cost of retirees and pension obligations. If the citizens of Nashville should approve a $9 billion light rail system when such systems are already obsolete and ridership is declining, then it will prove much more difficult to manage the city's finances. Debt must be paid and pension obligations met and the taxpayers of Davidson County are ultimately responsible for the city's obligations.

What happens if Nashville's time in the sun comes to an end and we are not longer the "it" city?  What happens if we kill the goose that lays the golden egg by taxing away tourist and conventioneers? What happens if we have another major flood or other disaster? What happens if we lose one of our sports franchises? What happens if we have another "great recessions?"

Thankfully, Mayor Briley has said he will not propose a tax increase this year. If he plans to run for elections as mayor in August, raising taxes would not be a wise move. Unless we address the spending problem, a tax increase would only solve our problem for a short time. If bonding agencies raise the cost of borrowing, then more money will have to go to pay interest on the debt rather than fund needed service. I am sure there is sufficient fat in the current budget to cut the budget without causing severe hardship to residents of the city, but unless Nashville exercises prudence and caution and restraint, things will only get worse. This is serious.

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