Thursday, April 30, 2020

Council Member Courtney Johnston: Our Current Financial Crisis, Budget Process, and Next Steps

From the newsletter of Council member Courtney Johnston, Council District 26, April 30, 2020 - Since being elected, Mayor Cooper and his administration have worked hard to search for additional savings or new revenue and stabilize Metro’s finances. In August, the State Comptroller formally instructed Metro to balance its budget, build up cash reserves, and institute a cash management policy. The Mayor’s Office, to date, has found roughly $64 million in new revenue, including a $35 million MOU from the Convention Center Authority (Music City Center), $12.6 million annual payment in lieu of taxes (PILOT) from the Music City Center, $10 million PILOT from the water department, and several million in fee increases from Codes, Parks, etc. We WERE on the right track before the tornado and the Covid-19 pandemic. However, gross mismanagement of taxpayer dollars and decades of poor decisions have left us without a life raft. With no rainy-day fund or cash reserves to speak of, these disasters have wiped us out.

The March 3 tornado is estimated to have cost the city $40 million. After our insurance policy benefit ($20 million) and FEMA/TEMA assistance ($15 million), that actual cost is reduced to $5 million. Keep in mind, it takes years to collect money from FEMA/TEMA. It took 8 years to fully collect for the 2010 flood, for example, so the tornado is still affecting us from a cash flow perspective.

Covid-19 is a whole other animal. Just for the remainder of the 2020 fiscal year that ends June 30th, this virus is projected to cost the city $192 million. Over a 16 month period, a shortage of $470 million has been estimated by Metro Finance.

Metro has an opportunity to receive up to $122 million in CARES Act State and Local funding. However, the biggest blow for Metro has been the loss of sales tax revenue, which accounts for about a THIRD of our city’s revenue. The CARES Act specifically excludes revenue replacement or compensation and benefits of employees working on our COVID-19 response that were already accounted for in the FY2020 budget. Well thanks a lot! While we have had expenses directly related to Covid-19, the biggest hit has been our inability to collect sales tax revenue. Long story short, we can’t just plug $120 million into the budget.

On Tuesday, April 28, 2020, Mayor Cooper presented his budget proposal for FY2021. Click HERE to view his presentation and HERE for the accompanying slideshow. His proposed operating budget totals $2,447,489,500. It includes over $234 million in savings, reductions, or spending deferrals. His proposed $1 property tax increase (from $3.155 per $100 assessed in the USD to $4.155) will restore $100 million in fund balances, make up for $216 million in net revenue losses, and fund $16 million in net operating needs for a “continuation of effort” budget. In addition to other new revenue generated by Mayor Cooper’s office and with the help of departmental savings, Metro services would continue without interruption. Additionally, according to his budget, Metro employees will forgo pay raises or cost of living adjustments, but this budget avoids the layoffs and pay cuts set to occur in hundreds of other cities nationwide.

This is just the beginning of the Council budget process. Now that the Mayor has released his proposal, the Council will receive a hard copy the week of May 4. I, along with most likely every other councilmember, will be going through this 600-page document line item by line item. TO BE CLEAR – We do NOT vote for or against Mayor Cooper’s budget. We have until June 30th to approve, make amendments, or create and pass a substitute budget (which requires 21 out of 40 votes) or the Mayor’s budget goes into effect automatically, regardless of its support level.

I deeply appreciate the Mayor’s efforts - during absolutely the MOST challenging time our city has ever faced - to lead our city during these tragedies but also to put together a budget that maintains continuity of service, keeps us safe, and attempts to put us back on the right track. However, I am working hard to find ways to minimize the burden put on our taxpayers.

As I’ve said before, the taxpayers didn’t cause this problem and the burden of solving it shouldn’t be with their hard-earned money.

So, how do we balance the budget? The answer is: decrease expenses, increase revenue, issue debt, or a combination of those three things. Issuing more debt is NOT an option due to the enormous amount of debt we have already accrued over the years. ($4.5 billion - yes, a B - to give you an idea compared to the entire State of TN at $1.7 billion). Our annual debt service payments (principal and interest) are hundreds of millions of dollars.

Will there be a tax rate increase of some sort? Almost positively. I know no one wants to hear that but I’m always going to tell you the truth. I do not believe we can make enough cuts to eliminate the need for an increase, but I’m working to make sure it’s the smallest increase possible. We HAVE to pass a balanced budget by June 30, or we risk the State taking us over. That’s effectively a government shutdown which no one wants. We have to make the math work. Revenue has to equal expenses. Will there be programs that will be cut? Yes

Will there be layoffs or positions eliminated? Maybe, although that’s something the Mayor wanted to avoid.

Can we increase the sales tax rate? Any increase in the sales tax rate has to go before the voters. There’s no way to get that done in time to affect the FY2021 budget.

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