Monday, January 14, 2019

Metro debt highest in a decade and heading higher.

The Tennessean reports today that Nashville's debt hits levels not seen in a decade. Our debt has grown to the highest point in a decade but this year budget will be the highest debt level since 1992. Nashville made $251.8 million worth of debt payments last fiscal year, up 44 percent from a decade ago. In the same period, property tax revenues climbed 32 percent. With Nashville in a boom time, how can this be?

For one thing, economic growth almost never pays for itself.  With growth, the cost of providing services including new demands on infrastructure increases.  Another factor is that much of the growth does not contribute taxes to the general fund because it was financed by Tax Increment Financing.

Metro has $3.6 billion of outstanding general obligation debt. As the name implies, this debt is a general obligation of the city.  The city has many other debt obligations which are to be paid off by a dedicated stream of revenue, such as water and sewer debt is paid by water and sewer fees.  Metro parking garages are build by borrowing money that is paid off by the revenue generated from parking fees.  The debt for the new planned soccer stadium and the Sounds baseball stadium is paid for by revenue generated by ticket sales. Music City Center debt is paid by a portion of the Hotel-Motel tax.  General Obligation bonds are paid for out of tax revenue dedicated in the annual budget for debt service. Ultimately, however, should a revenue stream not generate sufficient revenue to pay the debt, the city is liable for that debt also.

The Tennessean article explains how we got to this point. In 2010 the city refinanced about $190 million in debt to help get through the Great Recession. This allowed the city to save $77.2 million over the next year and $141 million over three years. The city made interest-only payments for two years. This freed up money that would have gone to debt service and allowed the money to be spend elsewhere and avoid a tax increase. It allowed us to live beyond our means. This is analogous to a household that refinances credit card debt on a new credit card that offers a better deal for a short time.

The city has a Blue Ribbon Commission to look at resolving the budget crisis.  My fear is that the solution proposed will be large tax increase.  Some level of a tax increase may be unavoidable.  Metro employees did not get a promised pay increase this year and there will not be sufficient revenue to give employees a pay increase, pay our debt service and adequately pay for essential services such as police, fire and education unless we engage in some stringent belt tightening or raise taxes. I do not think our liberal council will cut services. 

There are services such as funding for General Hospital that could be cut.  General serves no purpose. Poor people can go to the hospital of their choice and General is not mandated by the Charter or State law, yet there is little appetite to close the facility.  At one time Metro General paid for itself but it cannot fill its beds and is heavily subsidized. Former  Mayor Megan Barry proposed closing General but run into massive opposition and backed down.  Of course, Mayor Barry was distracted by her tax-payer funded affair and her attempt to close General was inept. 

There are other things that could easily be cut, but I don't see the will to do it.  Metro gives millions to private charities each year.  This is not a contract for services and such Metro funding is not mandated, but yet the city does it.  We cannot continue business as usual and pay our debt service, give employees a raise, and adequately fund essential services.  Something has to give. 

This budget crisis is a reason why we need to elect fiscally responsible people to the next Council.  We need council members who are dedicated to holding the line on tax increases, willing to engage in stringent belt tightening, and who will make the long-term changes we need, such as reforming TIF, so we do not have this continuing problem.  We also need to pray for continued prosperity and good fortune for Nashville.  Should we have another crisis such as the great flood or 2010, or the great recession of 2007, or lose a sports franchise we would be screwed.  The city would have no choice except to adopt a massive tax increase.

For those who want a much more thorough understanding of Metro's finances see this report: Comprehensive Financial Report for the year ending 2018.

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