In shift from boom times, Mayor Barry warns of 'fiscal challenges' for next city budget

After back-to-back years of major budget increases amid Nashville's booming economy, Mayor Megan Barry's administration is warning of new "fiscal challenges" and preparing to tighten the belt on spending in the city's next operating budget.

It could mean few, if any, expanded city services or programs are on the horizon.

Metro Finance Director Talia Lomax-O'dneal, in a Feb. 8 letter to city department directors kicking off the budget process, said there's "a need to refocus to ensure we maintain a solid financial foundation." The letter follows consecutive budget increases totaling $243 million since Barry took office buoyed by strong tax collections.

Lomax-O'dneal, a top Barry aide, cited a list of several new budget constraints, including tax collections that have returned to normal levels, dwindling reserve balances, and increased debt payment obligations.

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As a result, Lomax-O'dneal said city departments won't be asked to submit new budget requests for the upcoming 2018-19 budget, which Barry plans to propose to the Metro Council in the spring. Instead, the Barry administration wants department heads to identify only mandatory budget requirements.

"Prudent financial management requires a periodic look for efficiencies and savings opportunities, and there are several fiscal challenges for the 2018 fiscal year," Lomax-O'dneal wrote.

"We will not consider expanded programming or services next fiscal year," she added.

The next budget takes effect in July.

The outlook from the finance department is a dramatic shift from the first two budgets under Barry in which the budget increased by $243 million and exceeded $2 billion for the first time.

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The city's current $2.2 billion operating budget for 2017-18 was a $122 million, 5.9 percent increase over the previous year. The 2016-17 operating budget was a $121 million, 6.1 percent increase over the previous year. Each reflected an uptick in revenue collections.

Both budgets were accompanied by significant capital spending plans — $475 million and $288 million respectively — to pay for infrastructure improvements such as new sidewalks, school buildings, road paving projects, police body cameras, park upgrades and a range of other investments.

Zak Kelley, a spokesman for the finance department, said it would be premature to say whether Barry plans to submit a capital-spending plan this year.

"We do not have revenue projections yet, we have not met with department heads or had hearings — so this would be entirely speculative at this point in the process," Kelley said in an email. "Which, for the record, is true in every budget cycle."

Lomax O'dneal cited the following reasons for this year's budget approach:

Fund balances for each of the six tax funds are at or are projected to be below policy targets at the end of fiscal year 2017-18 and those fund balance reserves must be increased;

Escalating health care costs combined with the Tennessee General Assembly not acting to expand Medicaid;

Property tax appeals following last year’s reappraisal far exceeded the level of appeals after the last two reappraisals, and the full impact to revenues will not be known until the end of this fiscal year;

There will be further reductions in revenue from the state Hall tax on certain investment income, which the state legislature has voted phase out;

After a couple of years of acceleration, revenue growth in the six tax funds is returning to normal levels;

Increased debt service requirements.

Barry is currently fighting controversy after admitting to an affair last month with her former top police bodyguard. She's also pushing for approval of a May 1 referendum to raise four taxes, including the sales tax, to pay for a $5.4 billion transit plan.

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The letter to department heads came on the same week that the council approved a $17.1 million cash infusion for cash-strapped Nashville General Hospital, bringing its overall city subsidy to more than $52 million. The sum was greater than the $13.2 million proposed by Barry's administration.

Lomax's O'dneal did not reference the hospital situation in her letter, nor did she mention the transit referendum.

The mayor's budget hearings are set to begin March 19. The finance department is meeting with department heads earlier in the month, from March 12 to March 19.