NASHVILLE, TN (WSMV) - Metro Government has implemented a hiring and promotion freeze, cut operational spending and furthering the non-essential capital spending freeze in advance of a ballot initiative that would reduce the city's property tax increase to 2%.
Director of Finance Kevin Crumbo, Human Resources Director Shannon Hall and Chief of Operations & Performance Kristin Wilson sent a memo to department heads and elected officials on Thursday stating "Effective immediately, we are freezing hiring & promotions, requesting operational spending reductions, including additional reviews of discretionary contracts, and furthering our non-essential capital spending freeze."
"Colleagues, we face a significant challenge in the coming weeks, one that is perhaps most grave to our mission delivery as a metropolitan government," the memo states.
The Davidson County Election Commission will meet on Friday to decide whether to hold a special election for a charter amendment proposed by "4GoodGovernment."
The amendment would limit the Metro Council to a 2% increase of property taxes unless the increase is approved by a referendum vote. The measure would also rollback the 34% increase enacted by the council in June for the fiscal year that began July 1.
"Given these cash flow concerns already presented by the introduction of uncertainty to our upcoming tax collections, as well as our already challenging financial position of thin cash balances, we believe it is in the best interest of Metro to implement steps to reduce spending now," the memo stated.
The memos says the referendum creates significant legal, operational and financial concerns to the Metro government and Metro Nashville Public Schools.
"Should the referendum pass, the proposed amendment would move the budget out of balance, and Metro would be compelled to take immediate corrective actions. Few corners of the Metro government, including emergency services and schools, would be spared significant reductions or eliminations. The impact would be staggering since these changes would occur midyear and not be spread over an entire fiscal year," the memo says.
While Metro believes the amendment will be "judicially challenged, it is our collective responsibility to begin alternative planning for the challenges ahead that this referendum represents."
The proposed referendum is already causing substantive concerns and damages to Metro's financial position.
- It is possible that Metro's trend of property tax receipts will slow. A majority of taxpayers make early payments in December with other end of calendar year activities on in February before the final payment deadline. If a sizable number of taxpayers who normally make early payments would delay those payments in hope of a lower tax bill, then Metro's normal cash inflow would be disrupted and its ability to fund operations affected.
- Financial rating agencies would likely downgrade Metro's outstanding bonds and financial outlook if the charter amendment is placed on a ballot. This may result in increased borrowing cost and limit Metro's ability to complete significant transactions if the public loses confidence in Metro's financial stability. This has already caused the government to re-evaluate a bond refinancing that would have presented significant savings to taxpayers and greater capacity for investment in infrastructure needs.
There will be no new hiring or promotions authorized after Thursday, except for front-line public safety and other essential services.
Finance requests all department heads to review their operating budgets for immediate cost reduction opportunities and identify spending unrelated to the pandemic responses and other essential services that can be suspended or deferred through December 2020.
The city remains under a travel freeze, as implemented in the FY21 budget. No out-of-town travel is authorized, except public safety requirements such as extraditions. This includes meetings, conferences, or any purpose.
The city has been in a non-essential capital spending freeze since late March. This freeze is extended and subject to further tightening of exception criteria. Currently, exceptions are approved only on an emergency basis for those projects that are lift/health safety-related, grant-funded or in other situations of significant financial risk from delay to the project and/or stopping a project already in process would cause meaningful disruption. For those projects in process, department heads are asked to review project plans to determine if a suspension in activity would be possible without creating a life/health safety or significant financial risk.
The Mayor's Office plans to present a 4% Fund spending legislation proposal to Metro County, but only for limited spending that meets the criteria.
The uncertainty also creates concern about the city's ability to fund the public health crisis response. It may be appropriate to preserve the remaining unallocated $27M from the CARES Act to sustain operational response for the pandemic. These needs include assessment centers, homeless shelters, contact tracing, communications, PPE and other direct services that may be required for vaccine distribution and other aspects of the response.
"We acknowledge that so many of these actions will be challenging and difficult to implement, particularly after our FY21 budget had over $50M in operating cuts year-over-year. There is tremendous financial uncertainty regarding the outcome of this proposed referendum," the memo said. "If it appears financial risk is reduced in the near term, we hope there will be opportunities to return to operations as budgeted. However, should risks increase, then it is likely further steps will be taken to reduce spending.
"We are grateful for your leadership through the many challenges Metro has faced in these recent weeks. We regret the uncertainty and serious risk expressly presented by in this potential referendum. We are working on countermeasures to the cash flow risks, and we welcome your questions and suggestions."