Alarm bells were ringing loudly last week when Tennessee Comptroller Justin Wilson told Metro leaders that the state sees a city with its finances in disarray — and if that disarray is not addressed promptly, his office could be forced to impose dire measures.
Wilson clearly spelled out his office’s concerns with Metro’s budget decisions and its overall debt burden, noting the city will be very close to running out of money when the fiscal year ends in June. I can’t recall a Metro budget that scraped the bottom of the barrel more than this one.
Wilson’s blunt report reiterated that it’s the Metro Council’s job to balance the budget that provides Metro’s essential services. He did assign responsibility to decisions made by former mayors who increased debt load, and pointed out that the decision not to adjust the property tax rate in 2017 exacerbated Metro’s budget woes. But he also said it’s the council’s job to fix these problems.
We’ve taken on too much debt and haven’t made adequate plans to either increase our income or reduce spending to pay for that debt. I have written about our debt and budget issues before, but despite various warnings coming from different directions, Metro hasn’t taken major steps to fix our serious borrowing and spending problems.
During his initial weeks in office, Mayor John Cooper has worked to shore up our fiscal status, including an agreement that funnels $12 million a year from the Music City Center’s surplus as a “payment in lieu of taxes.” The PILOT payment gets some revenue for the general budget while still complying with state and local guidelines governing how revenue flows to the MCC. Mayor Cooper also announced changes to the way Metro itemizes major capital projects (estimated at $5 million or greater) so they will be more accurately identified going forward, with full anticipated costs clear from the get-go. These steps will help future budgets, but they don’t directly help our current budget crunch.
Debt service payments use up 14 percent of our current FY2020 budget; that’s the latest in a long series of increases. FY2019’s budget allotted 13 percent to go toward debt service; FY2018’s budget had 12 percent of it eaten for debt service payments; a mere 10 percent of FY2017’s budget went toward debt service. These incremental increases don’t sound too terrible when you’re talking percentages. A jump from 10 to 12 to 14 percent sounds fairly small, right?
But every year, our debt service is a bigger piece of a bigger pie. That jump from 10 percent to 14 percent means our debt service payments take an additional $100 million out of the budget. Going back further could make us all a little queasy, but here goes: Only 10 budgets ago, our remarkably smaller budget included 6 percent for debt payments. In FY2010-11, 6 percent of our $1.52 billion budget would have been $91.4 million. Today, the allocated total for debt payments is $326.4 million. That’s a scary increase in debt burden, no matter which way you slice it!
Our debt service payments have grown more than 350 percent in 10 years. Moody’s downgraded our municipal bond rating in 2014, citing our above-average debt burden, which was then only $2.2 billion. Today it stands at $4.55 billion, yet we’ve only just managed to hold onto our bond rating. Moody’s only just kept our bond rating at Aa2 in October 2018, and the credit-rating agency’s description of the factors that could lead to a further downgrading included “declines in Metro’s current reserve or cash levels” or “sizeable increases in debt burden.” We’re staring both of those two factors in the face.
That’s a direction no city wants to go. We have crumbling infrastructure, aging schools and bridges closed due to disrepair — we have precious little to show for our massive debt.
It’s no wonder we’re in such a state, with two restrictive budgets in a row and more likely to come — all the while balanced on the backs of our teachers, firefighters and law enforcement officers, many of whom serve in Metro departments that were asked to reach “targeted savings” in their departmental budgets. We’ll be paying off this debt for decades. We can’t fix that in a single budget, and we’re stuck with paying off debt that previous mayors and councils chose to accrue. Changing what we spend and how we spend it is our only option. Mr. Wilson’s comments only magnified the severity of our challenges.
The state is watching our budget decisions closely. They have a duty to ensure that cities’ fiscal matters are handled prudently. As one of the state’s primary economic drivers, Nashville has a duty to itself and to all of Tennessee to get our fiscal house in order.
Bill Freeman is the owner of FW Publishing, the publishing company that produces the Nashville Scene, Nfocus, the Nashville Post and Home Page Media Group in Williamson County.