Nashville’s debt level has grown to its highest point in the past decade.

As Metro leaders convened the first meeting of the Blue Ribbon Commission on the budget on Friday, a recent report showed the city spent one out of every $10 of government funds to pay off debt last fiscal year.

And this year’s budget may exceed that figure for the first time since at least 1993.

These are boom times, so the city is constantly borrowing to help pay for new infrastructure, but some current and former council members — and outside experts —say the current path is unsustainable. As debt payments climb they can crowd out salaries for teachers, police and other government workers — particularly when the mayor and council decline to raise property taxes, as they did last spring.

Some of the rising burden can be traced to a decision by city officials during the Great Recession to delay debt payments. Since then, the borrowing has continued.

“We’re keeping an eye on that,” Chris Coviello, lead Nashville analyst at Moody’s Investors Service, said of Metro officials’ ongoing financing. “Does that mean they have to cut expenses, or raise revenue — or find some way to fund their debt service obligations? Yes, they do.”

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.

Mayor David Briley has committed to not raising property taxes this year as well.

Moody’s gives Nashville the third highest credit rating available, something Briley likes to cite whenever the subject of Metro’s financial challenges arise. But that rating, Coviello said, is partly based on the city’s growing tax base — and city leaders’ ability to tap it for funds.

“If they needed to, they could raise property tax rates and generate an exorbitant amount of cash,” he said.

Metro has $3.6 billion of outstanding general obligation debt, a tab that has funded school repairs, community centers, parks, sidewalks and other infrastructure.

That figure doesn’t include water and sewer infrastructure or some big-ticket items such as the $623 million Music City Center or the $91 million First Tennessee Park, home of the minor league baseball Nashville Sounds. Those have dedicated streams of revenue outside of tax collections, although Metro is ultimately on the hook.

At-large Councilman John Cooper, who is considering challenging Briley for mayor in the August election, said the debt burden is often glossed over during budget discussions.

“You could say, ‘it doesn’t really matter — we’re a growing city,’” Cooper said. “But this shows up in debt service, and debt service is the biggest driver of our budget decisions currently.”

Briley spokesman Thomas Mulgrew said Nashville's favorable debt ratings "clearly demonstrate the city’s sound financial status. Those ratings came after extensive examinations of economic factors such as revenue, debt, liquidity and governance."

As a result of an unanticipated revenue shortfall last year, Briley and the council approved a budget with no cost-of-living pay increases for city workers and $37.7 million less in revenue for Metro schools than had been requested. (Most employees were still eligible for others sorts of pay increases).

How we got here

Nashville’s debt burden has been steadily climbing since 2011, after Metro leaders refinanced debt and made interest-only payments for two years — a move akin to making only the minimum payment on a credit card.

Then-Mayor Karl Dean and the Metro Council in 2010 refinanced about $190 million in debt to help get through the Great Recession, allowing the city to save $77.2 million over the next year and $141 million over three years.

The strategy, orchestrated by former Finance Director Rich Riebeling, who retired from Metro in October, was billed as a way to avoid raising property taxes or making an estimated $50 million cut to city services.

But the restructuring, approved by a 33-3 council vote, was projected to ultimately cost the city about $47 million over the next 10 years.

“It wouldn’t have been right to raise taxes to balance our books while the families in Nashville were working hard to balance their books,” Dean said in an interview last week. “I think what we did worked.”

He pointed to Nashville’s economic resurgence and its record-low unemployment rates in recent years.

One of the only dissenters in 2010 was then-Councilwoman Emily Evans, a municipal finance professional who now serves on the Blue Ribbon Commission. The group was created by the council last year following the rocky budget process.

“We engaged in some financial engineering practices that were a departure from long-standing policy,” Evans said. “We said, ‘OK, let’s take the easy way out and refinance the debt.' That’s a practice we have to now live with.”

Dean, a Democrat, lost Tennessee’s race for governor to Republican Bill Lee in November.

Following the debt restructuring, Nashville entered a period in which the city undertook expensive municipal-financed projects under Dean and his two predecessors. Each increased the city’s debt load.

Projects included Music City Center in 2010, which used hotel tax revenue and other dedicated taxes and fees to pay off the project’s debt. In addition, Dean led the construction of First Tennessee Park, the $52 million Ascend Amphitheater and Cumberland Park on the east bank of the Cumberland River, among other large capital projects.

Dean’s administration also turned more aggressively to tax incentives for corporate relocations compared to previous years. The subsidies meant that Metro sacrificed property tax collections in exchange for new jobs.

Last year, Briley won approval of a $275 million Major League Soccer stadium project, first introduced by former Mayor Megan Barry. It will have Metro borrow on the front-end. An ownership group led by billionaire businessman John Ingram will pay off around $9 million annually to help retire an estimated $13 million in annual debt.

The city has guaranteed at least $4 million from sales tax revenue collected at the stadium and a $1.75 ticket tax, but the city would be on the hook if those revenues don't meet expectations.

Balancing the budget

How the city balances its debt with other obligations will be key during upcoming budget negotiations.

The Blue Ribbon Commission is tasked with saving $20 million annually in the city budget by identifying inefficiencies, subsidies and other costs that can be trimmed.

“As a city like Nashville continues to grow, it is expected that our debt also grows,” said Councilwoman Tanaka Vercher, the chair of the Budget and Finance Committee. “We have to make sure we balance it with the revenues coming in and what we’re spending.”

At-large Councilman Bob Mendes advocated for a hike in the property tax rate last spring, but the proposal was narrowly voted down.

“I personally can’t believe you can have a world-class city with world-class amenities and a low tax structure,” he said. “You can’t just go crazy incurring new debt when you don’t have the revenue.”

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Reach Mike Reicher at mreicher@tennessean.com or 615-259-8228 and on Twitter @mreicher.