The Current State Of Metro Finances
Given my background as a CPA, it is ironic that my first blog will be about city finances. By now, many of you have heard of the Comptroller’s visit to Metro Council last week and the ensuing conversation about Metro water rates and budget. Below is an excerpt from the presentation about the state of Metro General Fund. In summary, according to the Comptroller, Nashville is in a financial crisis. Many of you may be frustrated, wondering how we got here and how we can move forward. It is important to note that while the situation is dire, it is also solvable.
How did we get here?
In simple terms, Metro has been spending more money than it is bringing in. I’ve outlined the five major problems that may have contributed to our current situation below.
Metro has been spending from its savings.
Increased expenses without a corresponding increase in revenue has created a deficit over the years. To make up the deficit Metro has been spending off of its savings (fund balance). The problem with this is that it is not sustainable. As with any budgeting, spending savings without increasing income eventually exhausts funds.
Metro has been borrowing too much money.
Metro has been funding its expenditures using loans/credit. The problem is that loans only provide temporary relief and do not resolve the larger issue. This can lead to problems when repayment is due and there aren’t enough funds to pay it. Metro is now at a point, according to the Comptroller, where it is close to exhausting its borrowing capabilities.
Metro has been selling off its assets.
In my opinion of all the temporary solutions, selling off assets is the worst. It is the equivalent of pawning personal belongings out of desperation. The sale of an asset is a non-recurring type of revenue. It only provides revenue for the year of sale and provides no benefit in subsequent years.
Metro does not have access to all of the city’s revenues.
Many may wonder, how can Metro not have enough revenue with all the recent growth and development? The problem is that not all money collected from these resources is available for use. A portion of the revenue collection is tied up in paying for bonds and other obligations. For example, part of Metro revenue, goes to the Music City Center. As part of an agreement with the State, monies collected are restricted to payment of obligations relating to building the center and not available for general use.
State funds are not meeting Metro’s needs.
Metro sometimes receives less funds from the State than anticipated. For example, state funding for education decreased between FY19 and FY18. When this happens, Metro must make up the difference using its funds.
Where do we go from here?
The situation is serious but also resolvable. Here are some proposed steps for moving forward.
Ensure greater oversight and accountability.
One thing that became obvious during last week’s presentation was the lack of communication between department heads, the administration, and the Council. Without being privy to all pertinent information, it is impossible for the Council to make the right decisions. To mitigate the challenges caused by lack of communication the Council, lead by CM Mendes, has proposed two ordinances:
- BL 2019-43: This bill requests that departments and the administration be required to share all communications from the State with the Council.
- BL 2019-77: This bill requests that the Council receives full cost itemizations of capital expenditure prior to approval.
Instate Budget Revisions and a New Cash Management Policy.
The Comptroller’s Office has demanded a cash management policy as well as a revised FY20 budget. The new finance director will be presenting this to the Council soon. I will update as soon as it is available.
Metro water rates increase in January 2020.
The average increase will be roughly 30%, an increase of about $4 per month for the average household. The additional funds from the water rates will go towards necessary water and sewage infrastructure updates. While an increase in bills is never an ideal solution, this is the only option Metro has as the State will enforce the increase with or without Metro’s approval. In order to minimize their water bills, residence are advised to decrease their water usage where possible. Tips to reduce your water bill can be found here.
Explore Recurring Sources of Revenue Including But Not Limited To Raising Property Taxes.
Over the past few years, Metro has attempted to reduce costs but this has proven ineffective. A conversation around increasing property taxes to create a source of recurring revenue is inevitable. Stay tuned for my next blog where I will go into further detail about the property taxes.
Improve Collaboration between the Council and the State.
As mentioned earlier, the State played a part in getting us here, and for that reason it seems only right that they play a part in getting us out. A great option, will be for the State to allow the amendment of the current Convention Center agreement, which will allow Metro access to the funds. We will also explore working with the State to close the funding gap, such as the decrease in school funding.
Though the state of Metro finance is a challenge, my colleagues and I are committed to working through it. I welcome your suggestions, comments and questions.
Do whatever you have to do, as long as it’s not on the backs of teachers. The 3% raise in January has been promised before teachers started their assignments.
Do not steal from Teachers!!!
Thank you for your honesty and transparency. I will be sure to call my council person to ask if they support the two bills. Thank you!
Thank you, Ms Suara,
I am impressed by the clarity and easy to understand explanation. The chart at the top says it all.
The inter-departmental borrowing that the comptroller mentioned must be stopped. How else can the council really know what expenditures and expenses are so that a long-term plan may be developed.
I agree with another comment, funds should not be taken from teachers salaries or salaries of the police. These are two groups that requires focus on potential salary increases and staffing levels.
Your clarity is much appreciated! Proud of my vote for you!
Thanks for the explanation Councilwoman Suara. Very refreshing transparency. Keep up the good work!!
Thank you for this candid And realistic assessment of where we are. This helps citizens like me to sift through all of the political noise and see the situation for what it really is and to know what needs to be done. I appreciate this communication. I look forward to future updates
Thanks for sharing !!!
You have raised the bar on communication with constituencies, Zulfat. And you make it very easy for me to learn about what’s going on in my hometown. Your transparency is refreshing. Thank you fo your service.
Thank you Councilwoman Zulfat for enlightening us , the taxpayers, about the historic reasons for the city’s current financial situation and how we move forward .
You’ve set the example for all district representatives to follow about being transparent
Thank you for such a clear explanation. I liked that there wasn’t a lot of finger pointing but instead an excellent analysis of the situation. I’m so glad that we voted for you. You are a true “asset” to the council.
Councilwoman Zulfat,
Thank you for educating us on what’s happening. I appreciate your efforts around transparency and accountability. You’ve inspired me to connect with my local representative.
Thank you!
So glad to have a CPA on the Council!!! Very much appreciate efforts to keep us citizens in the loop.
Great info. Thank you.
I absolutely love your ability to be transparent and realistic about this situation. It’s time for everyone to know the truth about our city’s finances….instead of just telling us how much Nashville is “growing”. Thank you for your voice and information.
Thank you, Zulfat. I knew you would do a great job. Electing educated people is never a bad idea. As an earlier poster stated, do not take that 3% raise from those teachers! Their morale is in the basement. If you ignore them again, we will lose even more good teachers who have held on without a raise in years.
Thank you. So glad you are willing to communicate so clearly with us taxpayers, and so glad you are on the Council. You are already an asset.
Based on your numbers, the average water bill is $13. 33. That doesn’t sound right.
Please note the increase is for water, sewer and for water and sewer infrastructure. It also includes taxes. The $4 in my post is for users with 2cc usage. Others will see a higher increases. So the more you use the more you will have to pay. Hence the advice on how to reduce usage. The rate increase can be found at the following link: https://www.nashville.gov/Portals/0/SiteContent/WaterServices/docs/2019%20Rates/Rate%20Increase%20Infographic%20-%20Residential%20Rates%20-%20Final.pdf
Thanks for the update! If we’re unable to re-coop costs from the Music City Center and other Downtown activities directly (as some even have breaks on property taxes which are also likely to increase without seeing an increase), maybe this is a moment to see treatment happening more equitably with that district seeing a higher hike in water services, rather than it hitting residential areas. While many of us can afford $4/month, some cannot. Let’s not see the taxes piled on residents while businesses (like Amazon), continue to get breaks.
Such a helpful, understandable analysis! Thank you, Zulfat.
Thank you CM Zulfat Suara for the financial explanation. Regarding the restricted funds allocated to convention center, why cant an amendment be made so that the the property taxes collected for the center only fund the annual obligations on the bonds, but the overflow amount goes back to metro general fund.
Unfortunately, Metro cannot make the amendment on its own. My understanding is that it is complicated and must include the state. I do agree with you. It will help a lot, If the state will allow us to make such amendment