Metro’s FY20 Audit

Metro’s FY20 audited financials have been posted online. These are through June 30, 2020. Typically, the final audit is released in December. With all the crazy events of last year, it took a little longer this time. The audited financials package is 312 pages long. I’ll run through the main things I looked at in my first pass through the audit.

(I’ll refer to the page number of the audit and also the PDF page number. For example, when I refer to “A-5, 29”, this means the page that is labeled A-5 in the audit, which is on page 29 of the 312 page document.

I started by looking to see the financial impact from COVID, the March 3 tornado, and the May 3 significant wind event.

At A-5, 29, you can see certain categories of revenue decreased over the prior year. For example, Local Option Sales Taxes were at $444M compared to $450M in FY19. For sales tax, remember that Metro collects sales tax two months after people pay it. So if you pay sales tax in March, Metro doesn’t get its share of that money from the State of Tennessee until May. So any epidemic impact on sales tax collections for FY20 would have been limited to Metro’s May and June collections from the state.

Hotel occupancies taxes are collected more directly by Metro and therefore were impacted more dramatically. Those were $81M compared to $108M in FY19. Same with beverage taxes — those were $55M compared to $62M in FY19. This same page shows Metro cutting back on expenses also. Metro’s spending on “Recreational & Cultural” was $80M compared to $90M in FY19. There are other categories where Metro clearly cut back in last part of FY20.

There’s a reference on B-47, 83, that describes Metro spending $16.7M on direct expenses related to the tornado and the May 3 wind event. The notes say that Metro expects to be reimbursed for these from the state and federal government.

Despite these problems in the broader community, Metro continued to collect property taxes in line with historic trends. At G-12, 250 and H-22, 288, we see that Metro collected 99.34% of the property taxes it charged in FY20. The total delinquency (of less than 1%) was $9.9 million. That’s consistent with $9.6M in FY19 and $10.6M in FY18.

The fine print of the audit shows some of the day-to-day struggle the Finance Department had in late FY20 to keep Metro’s finances stable in the face of multiple emergencies. Pages iii-iv, 9-10, describe how Metro made $12.1M worth of spending cuts permanent, refinanced tax increment financing loans to free up $9.3M, skipped employee longevity pay (basically, holiday bonuses) to cut $3.9M, and used $22.3M of federal money to maintain WeGo transit service.

Despite these aggressive efforts, Metro’s Fund Balance was decimated by the self-inflicted financial crisis that carried over from the prior administration and the multiple new emergencies. As of June 30, 2020, Metro’s Fund Balance was NEGATIVE $286M (compared to a positive $35.6M as of June 30, 2019). See pages B-108-109, 144-145. The details show that Metro raided its capital projects funds for cash to keep the government running in the end of FY20.

You may ask how a city can have a negative fund balance of $286 million at the end of its fiscal year. Check out page B-113, 149, and you’ll see a description about the Metro Council approving $285M of tax anticipation notes, or TANs, effective July 1, 2020. These TANs were worked out in cooperation with, and approved by, the State Comptroller because of the extraordinary circumstances of the last year. Metro will use property tax revenue collected during the current fiscal year to repay these amounts to Metro’s capital projects funds before June 30, 2021.

None of this scramble in the final months of FY20 is new information. It is stark though to see the data compiled. To me, all of this underscores that getting Metro’s finances on solid footing will be an ongoing process. Like with everyone else, there’s a lot of fiscal trauma here that will take some time to work through.

Bonds

The details about Metro’s bonds start at B-58, 94.

You can find details about how much Metro will owe in principal and interest for bonds in future years at B-62, 98 and G-18-21, 256-259. Again, no new information here. But it’s good to have an updated set of data.

Details about Metro’s commercial paper program are at B-62-63, 98-99.

Details about Metro Water’s large bond issuance in April 2020 are at B-63, 98.

Details about the Sports Authority’s bonds and other financing are at B-69-70, 105-106.

Pension

The details about Metro’s pension funds start at B-71, 107. Metro has one main pension fund and five “closed funds.” The main pension fund is 93.8% funded. This is extremely good and Metro’s pension continues to be a bright spot in Metro’s finances.

OPEB (Other Post-Employment Benefits)

The details about Metro’s OPEB obligations start at B-89, 125. Unlike the pension, Metro is fully “pay-as-you-go” for OPEB, which pays for retiree health insurance. So while the pension is 93.8% funded, the OPEB obligations are 0% funded.

The amount of unfunded obligation for Metro and MNPS as of June 30, 2020 was calculated by actuaries to be $4.261 billion. This is down somewhat from $4.563 billion for FY19. This is the first time this liability has come down at all in many years. There is much more work to be done to reduce this risk to Metro.

Economic incentives

It is notoriously difficult to track down information about Metro’s economic incentives in one place. That’s a shame because the numbers are never as high as most people think. When I served on the Metro Audit Committee, I pushed to have a lot of this data gathered in the annual audit. While it’s still a work-in-progress, it’s a lot better now than a few years ago.

You hear a lot of talk about job credits that Metro pays. At pages B-102-103, 138-139, you can see that the total job credits paid by Metro in FY20 was only $2.1 million.

At pages B111-112, 147-148, the total tax abatements for FY20 were $9.7 million.

At pages B104-106, 140-142, you can see details about almost every other type of deal Metro has, including payments for Bordeaux, Knowles, the Omni, NMAAM, and more. You can also see details about money coming to Metro from the Convention Center.

I refer to these pages often through the year when people ask me about particular deals. The only thing that is really missing here is the amount of tax increment financing loans. That information is available on MDHA’s web site. MDHA posts their annual reports (as a result of legislation I sponsored last term with more than half the Council) here.

Other interesting information

With multiple emergencies last fiscal year (and this year too), it’s important to keep in mind that recovering is a long-term job. There is a note in the audit about roads and street paving. See B-114, 150. It’s easy to skip past the roads data. But the details show that Metro’s target for roads in “fair or better” condition is 70%. The note points out that the 2010 flood degraded Metro’s road conditions from 70% to 52.7%. It took until FY17 for Metro to get it’s “fair or better” scoring back over the target of 70%. For FY20, it’s up to 74.1%. Again, this is an example of how fully recovering from emergencies takes a while.

Page H-19, 285 lists out the last 10 years of property tax rates.

Page H-20, 286 shows the largest property tax payers in Metro. The top 10 pay 8.71% of all property taxes in the county.

Page H-33, 299 shows the 10 largest employers in the county.

Wrap-up

These are the highlights of what I looked at on my first skim through Metro’s FY20 audit. At 312 pages, there obviously is a lot more to review. Feel free to email me at bob.mendes@nashville.gov with any questions. Thanks, everyone.