A cruel paradox: Despite thriving economy, Nashville struggles to fund schools, city services

• Mayor David Briley is not proposing a property tax increase.
• At-large Council member Bob Mendes is proposing a 16% increase.
• Council member Steve Glover has proposed a 3.6% jump.
• For a homeowner with a $250,000 home, the increases would mean between $72 and $328 more a year in taxes.

Property tax rates. Debt payments. Operating budgets.

From protests on the steps of the Metro Courthouse to power broker lunches at Midtown Cafe, the state of the city finances is the conversation permeating every corner of Nashville.

The swirling conversation about city finance affects everyday life for Nashvillians —everything from a proposal for an unprecedented increase in annual property taxes to the salaries for public school teachers and even how we pay to park hangs in the balance.

How did a city thriving by so many economic metrics reach a point where it must sell an old fire hall in Green Hills or privatize its downtown energy system to meet its budget?

Construction cranes color the Nashville skyline and Fortune 500 companies may be hurrying to open corporate headquarters here, but there’s a growing chorus of residents, mayoral candidates and other stakeholders who argue that the city is in a precarious financial situation.

The head of the school board’s budget committee called it a cruel paradox.

“As you know, Nashville’s economy is doing very well. In fact, doing so well that many employees cannot afford to stay here,” school board member Anna Shepherd told the Metro Council in her pitch for the district's proposed $76.7 million budget increase. 

But understand, she said, that the request doesn't come close to "fully funding" Nashville schools. 

"We would not be so bold to bring that before you without being secure in the knowledge that the city was ready for that level of investment," Shepherd said.

She said funding the budget the school board approved would merely show a measure of respect for district employees and make modest investments in critical areas. 

"It allows us to tread water all while looking forward to the day when our city resources match the need of our children," Shepherd said.

How did Nashville end up in this situation? 

TAXES AND THE CAMPAIGN:Where Nashville's top mayoral candidates stand on a proposed property tax increase

Dean: The economic development mayor

Start with the decisions made a decade ago under former Mayor Karl Dean’s administration. 

Dean left office with a remarkably high favorability rating, credited by many in the business community for deftly navigating the 2008 Great Recession and the historic flood in May 2010 in a way that set Nashville up to become an international "it city."

Supporters say Nashville is in excellent financial position because of Dean. Property values are skyrocketing, and tourism-fueled sales tax collections continue to increase. 

In the last year alone, Amazon and AllianceBernstein have joined the list of notable companies coming to Music City.

Dean ran for election in 2007 on the promise of not raising property taxes. The former public defender and city legal director kept that promise in his first term.

When the recession hit, Dean and his team of advisers, led by Finance Director Rich Riebeling and Deputy Mayor Greg Hinote, had to cobble together a budget that, for the first time in the history of Metro government, featured declining overall revenues.

To meet its budget during those difficult years, Dean eliminated open positions, laid off some staff and refinanced debt. Those moves created breathing room.

Beginning in January 2010, the city went on offense. Dean successfully pushed a financing plan for the $623 million Music City Center through the council, and in his second term, began aggressively offering incentives to recruit major companies to move here or to help existing corporations expand.

After the flood did billions of dollars in damage, Dean’s team did its part to stimulate the economy. Looking back, his advisers say those moves worked.

Dean raised property taxes once during his eight years in office, a modest 23-cent increase in 2012. By the time his tenure ended, Nashville was attracting major tourism investments with new hotels, restaurants and music venues.

The strategy of investing in tourism and corporate relocations, combined with maintaining a low tax rate, helped turn the Nashville economy from struggling to thriving.

When Dean navigated his early budgets, a hypothetical 1-cent tax increase represented about $1.5 million in revenue for the city. In 2019, that same increase would bring in $3 million, according to an analysis by The Tennessean.

Across Davidson County, property values have shot up and up.

More big-ticket items like a new Nashville Sounds baseball stadium and a renovated downtown riverfront, including a new amphitheater, earned Dean the reputation as Nashville’s economic development mayor.

His advisers say those decisions helped more than just downtown.

“As the city came out of the recession, we saw new developments arising across the city as it invested in its largest project in history, the overwhelmingly successful Music City Center,” Riebeling said.

“It was that same belief in investing in yourself that provided many of the decisions to provide incentives to some of Nashville’s leading employers such as HCA and Bridgestone that made significant new investments in our city."

The city’s investment generated thousands of jobs and also spurred growth in other parts of the city, in areas like Madison and Antioch with the Ford Ice Center.

Decisions coming home to roost

But now, the decisions made by Dean are coming home to roost. 

The deferred debt payments, thanks to his refinancing decision, are now ballooning.

Although overall tax revenues increased by an estimated $103 million over last year, the city doesn’t have the full benefit of that growth because $44.1 million will go to the escalating debt payments, much of it from the refinancing.

Because the city has raised taxes just once in the last decade, Nashville’s tax rate is among the lowest in Tennessee and in the nation compared with peer cities.

Not everybody is looking back on the Dean era so favorably.

Emily Evans, who served on the Metro Council during Dean’s tenure in office, said it would have been fine for Dean to simply tighten his belt after the recession and flood, or for him to raise taxes in conjunction with property reappraisals and invest more in big-ticket projects.

“But when you don’t raise taxes and you spend more, that’s when you have a problem,” Evans said, adding that the decision to refinance debt was especially problematic. “Our property taxes in absolute relative terms are not high.

“A little tweak of them probably could have saved us a lot of heartache," she said, highlighting how the debt payments have since skyrocketed to compensate for when they were low during the Dean years. 

Will Pinkson, a Metro school board member — who has announced his resignation — said that while Dean focused on "monuments," he let other basic functions of government, largely schools, "basically dying on the vine." 

"I think what he did in his second term was just double down on bricks-and-mortar stuff and he forgot about everything else," said Pinkston, who served as district budget chair the past year until March when he unceremoniously resigned that post. 

"It was all, 'Let's get an amphitheater. Let's get a ballpark. Let's get a sidewalk in the sky,' " he said. "I think it's great that they were done, and I think it adds value to the personality of the city, but at what expense and what cost? It's been considerable." 

Barry: The short-lived mayor 

Dean’s successor, former Mayor Megan Barry, also eschewed a property tax increase as property and sales tax revenues grew. Barry’s administration focused on backing a public referendum to create dedicated funding for mass transit.

Schools, Pinkston said, also went on the back burner under Barry's leadership, when she put all of her chips and political capital on transit. 

"When you're mayor, you want to affect the things you can affect," he said. "And, at the time, the school system was in a lot of turmoil, much like it is right now. And she decided to just say, 'Let's go all in on transit' ... she was going to deal with schools at some point in the future."

The decision, he said, created an environment in the city where there wasn't "real discussion" about revenue measures, until the city got past the "big, financially overwhelming" transit conversation. 

"Strategically, I don't think it was a bad move," he said. "Unfortunately, it didn't work out for anybody, including transit and her."

Barry’s time in office was cut short by an affair and the scandal that culminated in a conditional guilty plea to felony theft and her resignation. Nashville voters defeated the transit referendum, and the city did not raise property taxes during her term.

Nashville had its reappraisal in 2017 during Barry's tenure, but failed to capture the growth when Barry decided not to raise property taxes, a typical move by Metro. 

The combination of the decisions made in the decade, Nashville getting its major lick as the so-called "it city," and the cost of living skyrocketing created an environment hard to dig out of politically and fiscally.

Briley: The replacement mayor

For the two previous years under Barry, revenue grew by $220 million, allowing the city to make major investments and avoid cuts. But in 2018, the overall growth flattened to $87.8 million, largely due to successful reappraisal appeals.

Nashville’s property reassessment in 2017 triggered an appeals process that caught officials off-guard. A greater portion of people were successful in their appeals than in 2013.

At the Metro Board of Equalization 64 percent had their values changed, while in 2013 the figure was 55 percent. The vast majority of those were revised downward, after the property owners made their case.

Instead of going on offense, Nashville Mayor David Briley has pushed ahead with a tighter budget.

Faced with lower-than-expected revenue and dwindling reserves, just two months after falling into the city's top job, Briley unveiled a $2.23 billion operating budget for the 2018-19 fiscal year — less than 1% over the previous year. 

The budget fell more than $40 million short of the school district’s funding request and did not fulfill a cost-of-living salary increase promised to Metro employees.

Finance Director Talia Lomax-O’dneal called it a “real tight budget year,” with the administration’s goal to “balance the needs of the city.”

But Briley’s administration also banked on generating $38 million in new revenue.

To fill the gap, Briley proposed selling three publicly owned properties. That didn’t go so well. One property sold for less than the appraised value, and two didn't initially sell.

The move to make one-time sales to fill a budget hole has been met with resistance. The Metro Council unanimously passed an ordinance that takes effect in the new fiscal year prohibiting the sale of Metro land to cover operating expenses. 

Briley also hoped to make up $15 million this past year by outsourcing the management of the city’s on-street parking — a decision met with even more overwhelming public disapproval. His opponents in the Aug. 1 mayoral election have tried to capitalize on that decision.

But unable to secure a deal in time, Metro filled the anticipated hole with money from the city's fund balance that closed higher than expected this year. Briley "hit the pause" button on the private parking deal, citing a need for a comprehensive discussion because of public confusion. 

It's unclear how the Briley administration will replace the $34 million in upfront payments that was supposed to come from the parking deal.

How the budget impacts you

One of the most tangible ways the budget crunch affects Nashville residents is in the form of taxes. The Metro Council will have three property tax hikes to consider when it votes on a final budget Tuesday.

At-large council member Bob Mendes, for the second year in a row, is leading the charge for one proposal. Mendes and council member Anthony Davis are calling for a 52.5-cent property tax increase — about a 16.6% hike — to generate about $162.8 million in new revenue to help the city budget.

If the increase is approved, a property owner with a home appraised at $250,000 would pay about $328 more annually in taxes.

Council member Tanaka Vercher — who serves as Metro's Budget and Finance Committee chair — is seeking a 14.9% tax hike to generate $146 million more for the city.

For a home valued at $250,000, the Vercher proposal would mean an increase of about $296 per year.

Council member Steve Glover is proposing 3.5% property tax increase to generate about $34.34 million for the budget. Under his plan, it would cost about $69 more per year for homeowners of properties valued at $250,000

"The conventional wisdom in the courthouse is that the administration will propose a property tax increase next year — after the election," Mendes wrote in his blog. "The administration’s proposed budget squeezes employees on pay and citizens on services in the meantime. It deepens problems when it should be creating capacity. It worries about opposition when it should be inspiring change."

Political challenges often keep local governments from raising the property tax, leaving the question of how to pay for rising costs looming large. It's especially difficult to find support during campaign seasons.

"We hear, 'Let's get past the election and then we'll do the right thing,' " said Brad Rayson, president of SEIU Local 205, the labor union that represents Metro employees and school district support staff. "People are elected to be leaders. Making tough decisions is part of being a leader and doing the right thing and helping people understand."

The current tax rate is $3.155 per $100 of assessed value in the Urban Services District, the lowest rate in the history of Metro government, coming under 1968's $5.30 rate.

The closest to Davidson County is Wilson County's rate of $3.51. The highest in the state is Shelby County with a rate of $7.77.

Supporters of an increase argue that it would address the city's core revenue problem and fulfill commitments to Metro employees and deliver desperately needed funding for schools.

The average support staff employee in Metro Schools, Rayson said, earns about $24,000 a year — nowhere near enough to get by in Nashville.

But Briley remains opposed to a property tax increase, and his administration has been lobbying council members to vote against them at Tuesday's meeting.

With revenues up, and even more building permits being pulled, Briley said he doesn't want to further burden the taxpayers.

“This is not the right time to raise property taxes,” Briley said, adding that when the right time comes, he'll make a case to Nashville residents.

“It’s good for the people who live here, that they can spend that money on what they choose to spend it on," he said. "It’s a good indicator that the city is not in a bad shape if we can lower the rate that far and essentially do what the city is doing."

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Mike Reicher contributed to this report. 

Reach Nate Rau at nrau@tennessean.com or 615-259-8094 and on Twitter @tnnaterau. Reach Yihyun Jeong at yjeong@tennessean.com and on Twitter @yihyun_jeong.