Metro's debt load is bigger than ever before — something critics say can't be sustained 

Place Your Debts

Place Your Debts

In 2010, as Nashville was reeling from a thousand-year flood, Metro officials made a gamble they hoped would help keep the city's head above financial waters. They refinanced $190 million in existing debt.

The move raised eyebrows in some fiscally concerned corners. But it was framed as a one-time action that was defensible given the financial circumstances facing the city at the time. It freed up millions of dollars in the short term in exchange for bigger payments later.

And now, the future is here.

The current Metro budget includes $57 million in additional debt-service payments over the previous year's — a bump that forced a $45 million withdrawal from the city's rainy day fund. Mayor Karl Dean and Metro Finance Director Rich Riebeling explained it as a move they would prefer to avoid as a general rule, but one they had planned for in advance.  

Now as another budget process looms, so does another increase in the city's annual debt payment.

At his annual budget kickoff presentation last month, Riebeling was faced with walking a familiar line — make the budget constraints clear without freaking everybody out. Due in part to the 2012 tax hike, property tax revenues are on the rise, as are sales tax collections. At the same time, employee costs — like salaries and health care — and pension obligations are growing as well. Plus the city must pay to operate new buildings like the Bellevue library and the Midtown police precinct. Metro departments will be asked to come to the mayor's budget hearings next month with a 3-percent-cut scenario.

And then there's the debt. Riebeling tells the Scene that Metro's outstanding General Obligation debt currently sits at $2.3 billion. That figure doesn't include the cost of big-ticket Dean administration projects like the $585 million Music City Center — the largest municipal project in state history — or the $65 million Nashville Sounds ballpark project. If all goes as planned, those projects will be paid for with dedicated tax revenues, as opposed to annual payments from the Metro budget.

Riebeling stresses that "the vast, vast bulk of these funds are used to build critical community projects including schools, roads, parks, etc."

For the coming fiscal year 2015, Metro expects to pay a little more than $209 million in debt service — around $20 million more than the $189 million accounted for in the current fiscal year. But that shouldn't come as a surprise.

"Clearly, when we did some of the refinancing that we did after the flood and some other things, we knew that before this term was over, that some of the debt service payments were going to come," says At-Large Councilman Ronnie Steine, who also serves as chairman of the council's budget and finance committee. "And we knew, in some respects, at that point in time that we were pushing the ball down the road a little bit, but I think in view of what we were facing at the time, it made good sense and it still does now."

Steine, who is typically aligned with the mayor, also chaired the budget and finance committee under former Mayor Phil Bredesen, whose administration also presided over a variety of big capital projects that had some fretting about the city's debt and overall fiscal health.

If higher debt payments this year and next shouldn't surprise anyone, neither should some of the voices calling attention to them. At-Large Councilman Charlie Tygard, who along with Steine is one of the body's senior members, says the growth in the city's debt since the turn of the 21st century — when it was still under $1 billion — is "unsustainable over time."

Councilwoman Emily Evans, a former municipal bond trader who has made a name for herself in Metro politics by serving as a reliable foil to the Dean administration on fiscal matters, voted against the refinancing in 2010. Evans says she's worried about the trajectory of the debt in terms of annual payments as a percentage of the overall budget. For the current fiscal year, debt service was about 10.4 percent of the $1.8 billion-plus budget. It will occupy a slightly bigger share next year.

"Once you cross the 10 percent mark, you represent a certain credit risk to the bondholders," Evans says. "Now, I'm not suggesting that there's a downgrade imminent to the metropolitan government, but we're not headed in the proper direction. We're headed in the wrong direction."

It's no surprise that Riebeling disagrees.

He notes that debt-service payments account for a smaller percentage in the current fiscal year than they did the year Dean took office, when they made up 10.93 percent of the operating budget. Going forward, he says, Metro anticipates the percentage staying in a similar range as it has mostly since fiscal year 2006 — somewhere between 10.5 percent to just under 11 percent. He also reiterates, as he often does, that the city has maintained a AA rating from ratings agencies Standard & Poor's and Moody's.

Indeed, a March 2013 report from Moody's assigned Metro an Aa1 rating — its second highest rating — but also tagged the city with a "negative outlook." In explaining the rating, the report listed Nashville's role as the state capital and its "strong management" as strengths, but noted the continued financial support of Metro General Hospital, the requirement for a referendum on any property-tax increase above a certain threshold, and "above average debt" as challenges.

Moody's spokesman David Jacobson also tells the Scene that Nashville is among the cities under review for a possible downgrade, due to a change in the agency's methodology that puts less emphasis on economic factors and gives more weight to pension liabilities. Still, he says, the city's current rating is a "high quality" one and that it's "subject to very low credit risk."

Current estimates put Metro's debt-service payments as high as $210 million in fiscal year 2017. But this coming budget will be Dean's second to last. After that, someone else will be looking for change when the bills come due.  

 Email editor@nashvillescene.com.

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