After #SOM58, before we see the budget
I want to share some quick thoughts now that we’ve heard yesterday’s State of Metro address, but before we see the actual budget ordinance. Yesterday’s State of Metro was an Oprah-style political speech — there was something for everybody. Depending on some details that aren’t out yet, there was a lot to like. After years of squeezing constituents on services and employees on pay, yesterday’s proposals took some big steps in the direction of fixing chronic problem.
My thoughts in real time during the address were with the hundreds and maybe thousands of Nashvillians that worked hard during the 2018, 2019, and 2020 budget seasons to push the government to not be afraid of itself and fix a property tax rate that was way too low. State law pushes and mandates that city governments fund themselves largely with property tax and sales tax. We have no choice in that. And since our sales tax is already near the maximum allowed by state law, Nashville will continue to be heavily funded by property taxes. A well-run city would set a tax rate that it was confident could fund 3-5 years of paying for what we need to do. That way, we would have more predictable, more modest, more reliable tax rate changes designed to keep up with the costs of a growing city. For all the people who busted their tails in 2018, 2019, and 2020 to finally get the city to raise the rate last year, thank you. Your efforts made the much needed fixes announced yesterday possible.
After these thanks, my thoughts quickly turn to the idea that announcing the new spending is the easy part of the sustainability cycle. The next questions are:
Does Metro have a multi-year cash forecast for how long it can afford to maintain the current property tax rate? From the early 80s until 2005, the city raised the tax rate every 3-4 years based on actual multi-year cash projections. Since then, the rate went up only twice, in 2012 and 2021. The best spin you could put on this period is that multiple Mayors kept deciding to push off adjusting the tax rate and then their time in office ended before they did it. Is there a plan to get back on a 3, 4 or 5 year cycle? To be blunt, it is fiscally foolish to get over-excited about this year’s new spending without knowing the answer to this question.
What is the expected Fund Balance as of June 30, 2021, and June 30, 2022? I don’t think this will be the case, but if the new spending announced yesterday were happening by spending down Fund Balance just one year after a rate increase, that would be very bad. I don’t think I could support that. I need to hear more about this before taking any sort of position on the proposed budget. Also, the total amount of the Fund Balance matters. I’ve written previously about how dangerously low it was before COVID. Just like a business or a household, I’d like to see a Fund Balance for Metro equal to at least two months of expenses — that’s about $400 million.
How much of the increase in the size of the budget is from restoring sales tax revenue to pre—COVID expectations, and how much is due to organic growth of the city? This has dramatic implications on whether the new spending can be sustained into the future. It is important for people thinking about the budget to get a sense of how much revenue growth is organic actual growth. This is the growth that should be considered more reliable in the coming years.
All of these factors have nuance. But if the Fund Balance is reasonably sufficient and isn’t being degraded in the Mayor’s budget, that’s a good thing. Beyond that, I’ll urge my colleagues to focus not only on the overdue and much needed new spending in this year’s budget, but also the future. What cycle are we on? How long can the current tax rate reasonably fund the government most Nashvillians want and need? Are we going to stick with a once-in-forever cycle like 2005 to 2020? Or will Metro make this more predictable and get back to a 3-5 year cycle between rate adjustments.
I know there is a risk that these financial details can sound like a numbers guy talking numbers. Blah blah blah. Who cares? Here’s the deal though — if you want to move away from crisis and fixing crisis, and toward a vision for the future, you MUST get the financial piece stable and predictable. The only way to have a healthy civic debate about who we want to be as a city as we move into a tech future, a future where Nashville is expected to be majority minority in the next 20 years, is to have some confidence that the numbers work. There’s no time for deciding where to sail our ship if we have to become preoccupied again with bailing it out.
I do not want to diminish my excitement about the initiatives announced yesterday — especially on schools. I am really proud of everyone who worked on this since 2018. I also hope that people who voted “no” on a rate increase in 2018 and 2019 (including our current Mayor…) are taking note that, if they had voted “yes” in 2018, the city would have had $450 million in additional revenue by now and some of the pain of the last year would have been avoided.
I’m glad we finally have a chance to hear an Oprah-style State of Metro address again. Going forward, we have to know that “best in the State teacher pay” now can quickly erode into “crappy teacher pay” again we aren’t committed to a culture of regularly keeping the revenue structure (aka, property taxes) on pace with spending needs. We have to keep an eye on these questions in order to have the Metro government keep up with our dynamic growing city and to have Nashville be all it can be.
I’m looking forward to seeing the Fund Balance numbers in the budget ordinance. I’m very curious about how much of the new spending is due to organic growth of the city. I’m hoping to not annoy my colleagues when I ask for some of our budget discussion time to focus a few years down the road.
(I also didn’t hear anything about libraries, parks, or arts in the State of Metro address…curious what’s happening with these too…)