Nashville council approves debt refinancing plan over tax hikes, spending cuts

Mayor Dean's plan will refinance about $190 million in debt By Michael Cass • THE TENNESSEAN • May 19, 2010 Mayor Karl Dean's plan to balance the Metro budget by refinancing part of the city's debt instead of raising taxes or making deep cuts to services was approved overwhelmingly by the Metro Council on Tuesday. The council voted 33-3 for the plan, which will refinance about $190 million in debt. The move will save the city $77.2 million for the 2010-11 budget year, which starts July 1, and $141 million over three years. Councilman Ronnie Steine, who chairs the Budget and Finance Committee, called the plan "the underpinning" of the next two Metro budgets, with $54.4 million in savings due in 2011-12. He said the idea was sound before the floods that struck earlier this month and looks even better now. "Now it's an even more important vehicle to keep our government operating," Steine said during debate on the council floor. "Without this refinancing, our options will be severely limited." Without the refinancing, Metro Finance Director Rich Riebeling said, the city would need to balance the budget with a property tax increase or about $50 million in cuts to services. Even with the plan being approved, Dean's operating budget proposal calls for an $18.1 million, or 1.2 percent, cut from the current fiscal year's funding. But the debt restructuring ultimately will cost the city about $47 million over the next 10 years. Metro will be forced to pay about $188 million in additional debt service between 2014 and 2020. The refinancing takes advantage of lower interest rates available through federal Build America Bonds and extends much of the city's long-term debt to 25 years instead of 20 years. Steine said the city eventually will have to "pay the piper" but might have a better economy to work with by then. Critics dislike policy Councilwoman Emily Evans, who voted against the plan, said it isn't sound debt-management policy. "We are balancing our budget with one-time money to an extent we've never done before," Evans said in an interview before the meeting. "When you balance your budget on nonrecurring money, eventually you have to put that money back, and that has implications to our tax rate and our ability to spend money on other things. "We're using a financial tool, which is debt, in order to solve a political problem, which is an unwillingness to raise taxes or to cut expenses." Asked if the city should raise taxes, Evans said many residents believe their taxes went up with last year's property reappraisal. Some residents also saw their taxes go down as a result of the reappraisal. Councilmen Eric Crafton and Jim Hodge joined Evans in voting against the proposal. But Councilman Randy Foster said the refinancing makes sense for the city during a difficult economic period. "We don't have much money right now," Foster said. "As much as I wish we didn't have to do it ... there is sufficient wisdom that we ought to vote for this." Contact Michael Cass at 615-259-8838 or mcass@tennessean.com.