Nashville gets state approval for budget after officials outline financial fixes

Yihyun Jeong | The Tennessean

Show Caption Hide Caption Nashville's budget crisis: Here's what you need to know State Comptroller Justin Wilson issued a dire warning, saying he would take over the city's checkbook if changes weren't made.

Nashville's budget, as of Wednesday, will be approved by the state, with a plan in place to bridge the city's estimated $41.5 million budget gap.

Metro Finance Director Kevin Crumbo presented to Nashville Metro Council members how the city will overcome the one-time revenue this year's budget relied on to cover expenses.

Nashville's current budget banked on $30 million from a private parking deal and $11.5 million from the sale of the city's downtown energy system.

But with the parking deal dead and the energy system sale still under review by the administration and not on track to happen this year, the city had to find other ways to balance its budget by the end of the fiscal year on June 30, 2020, as required by state law.

The plan unveiled Wednesday and submitted to the state comptroller for approval relies on a mix of new revenue — largely payments in lieu of taxes, or PILOTS, reimbursements from other groups and savings from city departments.

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To fill the gap, the city will use:

$12.6 million from a PILOT with Music City Center;

$10 million from a PILOT with Metro Water Services;

$7.2 million from refinancing of Metro Development and Housing Agency payments;

$3.6 million from debt reimbursement from the Convention & Visitors Corp; and

$500,000 from program reimbursement from the Davidson County Sheriff's Office and the U.S. Marshals Service.

The remaining will be filled with an estimated $2.6 million in targeted savings and deferrals in spending from Metro departments and the $5 million cut to the Barnes Fund for Affordable Housing, which the administration announced last week.

"I have very good news to report," Crumbo said Wednesday, telling council members that state Comptroller Justin Wilson approved the plan he submitted earlier in the day.

The city's plan comes after a warning from Wilson to change course and balance this year's budget or risk the state stepping in and deciding how money is spent in Nashville.

The state has become increasingly concerned about Nashville's finances. While Nashville’s revenues have grown by 32% since 2013, the city’s spending has increased by more than 38%. The city has also relied on non-recurring revenue to pay for ongoing expenses.

"The Comptroller approves the budget for the current fiscal year, conditioned upon certification by the Metro Director of Law that all necessary steps have been taken to meet any shortfalls ... as outlined in your letter," Wilson wrote in response to Crumbo's plan.

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"We understand the challenge that you face, and we recognize the substantial progress that Metro's finance staff and budget committee have accomplished in this short period of time."

But the city's plan comes with risks, Crumbo told council members.

"Every single plan has risk to it. The items that are there just may not materialize for whatever reason," he said. "We hope that they're recurring. We hope that they are in the amounts that that we have (estimated)."

Mayor: 'My mistake' on saying city in 'receivership'

Mayor John Cooper falsely claimed Tuesday morning that Nashville is in receivership, meaning the state had already taken over the city's finances. His office quickly walked back his remarks, saying the mayor was simply illustrating the "urgent nature" of the city's finances.

Cooper's use of the word came as he gave a presentation on Nashville's financial situation at the Nashville Business Breakfast, hosted by Lipscomb University and the Nashville Business Journal.

In his remarks, Cooper said multiple times the city is in receivership, according to a report by the Nashville Business Journal.

"My mistake," Cooper told council members Wednesday ahead of Crumbo's presentation. "I'm excited to say that I'm looking forward to Nashville moving beyond the condition of supervision with another party having the power to make financial changes and working together with you to move Nashville into the next era."

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Despite a few jokes made by the administration on the issue Wednesday, council members made clear the seriousness of the use of the term and the damage it could have on the city's economic image.

"I'm not sure it's something that deserves a good laugh," Council member Freddie O'Connell said, adding that such situations could prompt "exodus" of residents and businesses. "It makes me uncomfortable saying the administration ... made plainly untrue statements to communicate urgency."

Push back on Barnes Fund, process

Still, even with a new financial plan in place, some council members expressed concern about the Barnes Fund and how the Cooper administration reached its decisions.

Of the nearly $10 million in Barnes Fund money the Metro Council — including Cooper while he served on the council — approved for this year, only $5 million will be awarded.

The decision, council members, stakeholders and affordable housing advocates have said, should have been made with more input from the community and transparency from the administration.

Crumbo said it was "not a happy choice" to make, but one that had to be made in order to protect city services, which he said Metro is prioritizing over everything else, including economic development.

The Metro Charter gives the city's finance director authority to impound funding.

When Cooper voted against an alternative budget this year that called for a nearly 16% property tax increase, he said he was “convinced that we can fund our real priorities with a strong and realistic management approach.”

As a council member, Cooper spurred the creation of the Blue Ribbon Committee last year. The committee was tasked with finding $20 million in savings in the city budget by identifying inefficiencies, subsidies and other costs that can be trimmed.

As mayor, he said he would support findings from the committee.

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Council members pressed the finance director on if other options, including recommendations put forth by the group, were exhausted by the administration before making a decision on what plans to submit to the state.

Crumbo said items were reviewed but many require ongoing conversations. The reality, he said, is that the city's has to make "tough choices right now."

"The Barnes Fund and the others were right there. That's what we've got," he said, before admitting that the administration did not consider the third-party funding for affordable housing the additional grants would have leveraged.

Council member Delishia Porterfield challenged Crumbo on why the mayor presented hints of the plan to business leaders at Lipscomb and why the administration submitted the plan to the state Wednesday ahead of the scheduled meeting with council members, suggesting the plan might have been different if council members had a chance to defend the affordable housing fund.

"I don't understand why it couldn't wait until Monday," she said. "We are elected to represent our community and voice the concerns of the people in our community. And while you had the power to do this, we did not have the opportunity."

Council member Colby Sledge, a member of the Metro Housing Trust Fund Commission, said the group has reached out with a tentative proposal to bridge the void in grants doled out by Barnes Fund this year.

Crumbo said he'd be "delighted" to consider that, adding that the remaining funds could be seen in the spring depending on Metro's tax collection and other revenue success.

More details to come

Soon after taking office, Cooper announced a deal with Music City Center to give the city $12.6 million each year in a payment-in-lieu-of-taxes program.

As Nashville's budget already factored in the $10 million Music City Center agreed to give the city this year under a deal with former Mayor David Briley, the additional $12.6 million will go toward the budget gap.

But the $10 million PILOT from the water department, baked into the rate increase the council approved last week, came as a surprise to many Wednesday night.

Though Metro's Chief Operations Officer Kristin Wilson confirmed the PILOT when asked about it by At-large Council member Steve Glover last week, it was not "explicitly expressed," council members say, in previous presentations on the proposed rate increase that will take effect Jan. 1, 2020.

The $10 million to the general fund will be in addition to the $4 million it already receives from an existing PILOT with the water department that has gone toward debt payments for Nissan Stadium.

Crumbo said the $7.2 million from MDHA is made possible with changes to interest rates in its tax increment financing payments. The city estimates the total could be up to $10.8 million, but a third of it is required to go toward schools.

Cooper announced in late November that $2.5 million from MDHA would go toward promised 3% mid-year raises for teachers. The remainder is set to come from a Metro Nashville Public Schools reserve balance.

Similar to the convention center, Crumbo also said there is potential for $3.6 million from the Convention & Visitors Corp.

"They've got a few buckets of dollars that they think they can bring forward to us. We’ve got some work to do there,” he said, sharing no further details Wednesday.

But during last week’s council meeting, the administration hinted at the city exploring how the CVC or the Central Business Improvement District (CBID) fee can help fund certain costs, such as police overtime expenses for special events downtown.

There is currently a CBID fee of 0.25% of the sales price of the property or service sold.

No details were shared on the “program reimbursement” with the sheriff’s office and U.S. Marshals Service.

Stage set for tax talk

In his closing remarks, At-large Council member Bob Mendes said while it is a "good milestone" that Nashville will have an approved budget, more work remains to ensure a "long-term structurally sound budget."

Wilson, the comptroller, also noted in his response to the city that while the proposed plan addresses immediate issues, it is "no cure" for Metro's long-term concerns.

"The efforts to solve the current year's budget gap are only the beginning," Wilson wrote. "Tough decisions will need to be made in order to ensure Metro is financially strong and healthy."

With the city failing to adjust its property tax rate after a reappraisal in 2017, it hasn't been able to capture the extra revenue from the growth it has seen in recent years.

Crumbo said Wednesday his joy at getting this year's budget approved is tempered at the fact it will be short lived with "big mountains to climb" in future budgets.

"I think that is delusional to those who say we're not going to have a wide debate on where that money's going to come from," he said. "Property taxes, sales taxes, fees, I can tell you, that has to be debated. That's for you elected officials to do. That is not for me as director of finance to overreach and make those decisions for you in some fashion."

Council member Emily Benedict said while she recognizes a property tax increase is not the only option for a solution, she wants the record to reflect that for two years, Cooper, while on the council, was a "no" vote on a tax increase that would have addressed the city's deficit and prevented the state from becoming concerned with the city's finances.

Though Cooper's spokesperson has not responded to a question from The Tennessean about whether the mayor remains opposed to a property tax increase, Cooper doubled down on the issue Tuesday, according to the Nashville Business Journal.

Yihyun Jeong covers politics in Nashville for USA TODAY NETWORK - TENNESSEE. Reach her at yjeong@tennessean.com and follow her on Twitter @yihyun_jeong.