Q&A on the Metro Budget

Where does the money in Metro’s budget come from?

For Fiscal Year 2020, which ends in June, the budget called for funds to come from the following sources:

  • 45.7% property taxes
  • 20.6% local option sales tax
  • 18.3% grants and contributions
  • 15.1% fees and other taxes
  • 0.3% fund balance

Where does the money in Metro’s budget go?

For Fiscal Year 2020, which ends in June, the budget called for funds to go to the following areas:

  • 39% education
  • 21% public safety
  • 14% debt service (schools and general)
  • 11% general government
  • 5% infrastructure and transportation
  • 4% recreation and culture
  • 4% health and social services
  • 2% other

What is the issue with Nashville’s Fiscal Year 2021 budget?

Nashville is facing a series of challenges leading into discussions of the Fiscal Year 2021 budget:

  • A FY2020 budget dependent on one-time sales
    The budget counted on one-time revenues and unrealized revenues, like the ill-fated parking privatization plan. This led to the further draw-down of the rainy day fund.
  • The March 3 tornado
    Tornado response and recovery cost Nashville approximately $40 million.
  • COVID-19
    It is estimated that the pandemic will cost Nashville $192 million in lost revenues in the current quarter and $280 million in the next fiscal year.

This all leads to a $566 million FY2021 budget gap as follows:

  • FY2020 Adjustment: $70 million to replace one-time sales and fund balance
  • FY2020 Adjustment: $192 million in missing Q4 revenue
  • FY2021 Effect: $280 million in missing revenue
  • FY2021 Effect: $16 million to handle “continuity of service” obligations
  • FY2021 Effect: $8 million in needed cash reserves

So what is being proposed?

A lot of changes, but the most-publicized part of the budget presented by Mayor Cooper is a property tax rate increase of $1.00, which is the equivalent of $63/month on a $300,000 home.

Can’t we cut spending instead?

We can cut spending. “Instead” is where things get tricky.

Over the past two years as property tax revenue dipped due to a record low rate (our rate was cut by $1.17 in 2016), Nashville made several rounds of departmental cuts, froze hiring, and skipped cost of living adjustments and other pay raises for first responders, teachers, and our other employees.

More recently, departments located $12 million in targeted savings, Mayor Cooper executed a corrective action plan that resulted in $42 million in savings, Metro pursued and anticipates receiving $40 million in tornado relief, Metro froze travel and hiring and reduced spending by another $13 million, and Metro Schools’ hiring freeze and closed schools saved $35 million.

All told, management actions since Mayor Cooper took office have resulted in $234 million in savings, reducing the budget hole from $566 million to $332 million.

How about other options?

Several other suggestions have been offered. Among them:

  • Acquire recovery funding from the federal government
    Two rounds of relief for have been approved at the federal level. Unfortunately, the first round (grants) does not allow money to go to local governments to offset lost revenue. The second round (loans) are only for cities of over one million people.
  • Charge impact fees to developers
    There was legislation in the Tennessee General Assembly to allow us to charge big developers for the extra strain their development puts on Nashville’s roads, schools, and public safety functions (like Williamson County charges). Disappointingly, legislators from outside Nashville killed the bill in committee.
  • Shift more of the property tax to large businesses
    This is controlled by state law, meaning we can’t ask the skyscrapers to pay a larger share of property taxes. (Currently, businesses pay a higher rate and account for about 50 percent of collections.)
  • Draw more tax dollars from tourists
    Nashville can only levy taxes directly authorized by the state. Furthermore, state law directs a lot of the downtown spending by tourists to the Music City Center rather than the general fund.
  • Charge developers higher fees and levy higher fines
    State law only allows us to charge fees equaling the cost of providing the service. Fines are maxed out at $50 by the state Constitution.
  • Seek adequate state funding for education
    As the state has backed off funding public education, placing us near the bottom nationally, Nashville has had to pay a larger and larger portion of the Metro Schools budget.
  • Increase the sales tax
    Nashville’s sales tax is lower than most counties in Tennessee, but we are only authorized to raise it another half cent. In a boom year, increasing this would generate about $100 million, but with sales tax revenues currently tanking, it is unknown what kind of revenue this would generate.
  • Declare bankruptcy
    Courts typically refuse applications from cities to enter bankruptcy because cities have the ability to pay their creditors by taxing. Even if the courts backed entrance into bankruptcy, it would only delay payments to creditors while the city made payment arrangements. Nashville’s issue is not crushing debt but a large dip in recent revenue.
  • Cut out the soccer stadium
    Several years ago, Metro agreed to pay $25 million toward bonds on the professional soccer stadium at the Fairgrounds. However, the impact on the FY2021 budget is $0.

What about all the new construction? Shouldn’t that generate the revenue we need?

Setting aside for a moment that new residents bring new expenses like schools and other infrastructure, here are the calculations at the root of the question.

In the past two years, Nashville’s total assessed property went from $29,693,024,881 to $30,648,469,915, an increase of $955,445,034.

Of that increase, $335,736,217 is assessed at the state-mandated residential and farm rate (25%), and $619,708,817 is assessed at the state-mandated commercial and industrial rate (40%).

That’s an increase in collections of between $9.8 million and $10.2 million. That covers only a small portion of the budget hole.

How do our current and proposed property tax rates compare to what the rate has been in the past?

Here are rates in the general services district (GSD), which includes Bellevue:

2021 (proposed)
$3.755
2018-2020
$2.755
2014-2017
$3.924
2013
$4.04
2010-2012
$3.56
2006-2009
$4.04
2002-2005
$3.84

How does our property tax compare to surrounding cities and Tennessee’s big cities?

Here are some rates:

Nashville GSD
$2.7550
Fairview
$3.0965
Franklin
$3.2270
Pegram
$3.2710
Murfreesboro
$3.5090
Nashville GSD (proposed)
$3.7550
Cookeville
$3.9160
Clarksville
$4.0200
Knoxville
$4.5840
Chattanooga
$5.0420
Memphis
$7.2460

Okay, how does that translate to the property tax owed on a $300,000 home?

Nashville GSD
$2,066 ($172/month)
Fairview
$2,322
Franklin
$2,420
Pegram
$2,453
Murfreesboro
$2,632
Nashville GSD (proposed)
$2,816 ($235/month)
Cookeville
$2,937
Clarksville
$3,015
Knoxville
$3,438
Chattanooga
$3,782
Memphis
$5,435

What about the property tax owed on the average home in each of these cities?

Pegram
$1,442
Nashville GSD
$1,514
Cookeville
$1,524
Clarksville
$1,602
Murfreesboro
$1,668
Knoxville
$2,002
Nashville GSD (proposed)
$2,064
Chattanooga
$2,160
Memphis
$2,577
Fairview
$3,233
Franklin
$3,369

(based on the median home value in each city’s county)

What happens if you try to compare Nashville to peer cities on total taxes and fees – property tax, income tax, sales tax, utility fees…?

Nashville
$7,462
Nashville (proposed)
$8,087
Denver
$8,870
Jacksonville
$8,958
Charlotte
$10,493
Austin
$10,900
Louisville
$11,921
Indianapolis
$13,911

So does this mean the property tax increase is the only option?

As of right now, the only options that have been put forth that are mathematically sound are the mayor’s proposed tax increase and mass layoffs, the latter of which would lead to the elimination of essential services that would likely impact property values in a much more costly way than any tax increase.

That said, it’s never too late for an alternative, whether that means the federal government coming through in a way that many mayors and governors are asking for; the state government coming through as the pass-through for a federal loan as mentioned above; or a creative solution from here in Nashville.

What kind of property tax relief is available?

  • Property Tax Freeze Program
    This program allows qualifying homeowners to continue paying the same total tax they are currently paying, regardless of whether the tax rate changes. Homeowners age 65 or older with a household income below approximately $45,000 are eligible. The deadline to apply is July 1. Learn more here.
  • Property Tax Relief Program
    This program provides qualifying homeowners with a voucher to cover a portion of their tax due. It is available to certain homeowners age 65 or older, disabled homeowners, disabled veterans, and widow(er)s of disabled veterans who meet other qualifications. The deadline to apply is July 1. Learn more here.
  • Property Tax Deferral Program
    This program allows qualifying homeowners to defer payment on their taxes until they die or sell their property. It is available to homeowners age 65 or older or disabled homeowners with a household income below $25,000. The deadline to apply is December 31. Learn more here.

These programs are specifically authorized by state law, and Metro cannot change the parameters.

Can I read the budget and look at other documents?

Absolutely:

What’s next?

Here’s the current budget calendar:

  • Tuesday, May 5: First reading of budget ordinance (procedural)
  • Monday, May 13 – Wednesday, May 15: Departmental budget hearings
  • Wednesday, May 20 – Thursday, May 21: Departmental budget hearings
  • Wednesday, May 27: Budget Chair’s alternative budget released
  • Tuesday, June 2: Public hearing and second reading of budget ordinance
  • Thursday, June 4: Budget Committee work session
  • Monday, June 8: Budget Committee work session
  • Thursday, June 11: Budget Committee work session (tentative)
  • Monday, June 15: Budget Committee meeting
  • Tuesday, June 16: Third and final reading of budget ordinance
  • Thursday, June 18: Budget Committee meeting (if budget is deferred)
  • Tuesday, June 23: Budget Committee meeting (if budget is deferred)
  • Tuesday, June 23: Third and final reading of budget ordinance (if budget is deferred)

What if the Metro Council can’t agree on the budget?

If an alternative budget does not get 21 votes, the mayor’s budget automatically becomes law on June 30. This is what happened last year when the alternative budget failed by one vote.