Facing a projected revenue loss of $470 million over the next 16 months, $216 million of which would occur in the 2021 fiscal year, Democratic Mayor John Cooper said Tuesday his proposed $2.45 billion budget would increase the property tax rate by $1 to generate $332 million in new revenue. If passed, the property tax rate would go from $3.155 per $100 of assessed value to $4.155 per $100 of assessed value, representing an increase of 31.7%, according to a city presentation.
In a statement, Cooper said that the times were both difficult and unprecedented and the decision to raise taxes was especially hard because of the thousands of residents who have lost their jobs during the pandemic.
"As I mentioned during the State of Metro address, the city has thinned its cash reserves to a point where we find ourselves without a rainy day fund during a stormy season," Cooper said. "This is a crisis budget — not a discretionary budget — that will ensure Metro and Metro Nashville Public Schools can continue to meet our community's needs."
The local government is the Metropolitan Government of Nashville and Davidson County, a consolidated city-county government. The city's 2021 fiscal year begins on July 1, and the Metro Council has to pass a substitute budget by June 30, or the mayor's budget will go into effect.
The mayor's office said revenue declines in the fourth quarter of the 2020 fiscal year have already forced spending cuts and caused the city to spend part of its fund balance.
The mayor's administration said it's already taken actions to save about $234 million through reductions, savings and deferred spending and that the tax increase would help restore about $100 million in fund balance, while making up about $216 million in net revenue losses and funding $16 million in other needs.
The budget includes no employee pay raises or cost-of-living adjustments, but doesn't lay off employees or cut their pay.
City Councilman Robert Nash told Law360 on Wednesday that the reception so far on the tax increase has been relatively mild, but the proposal is still new, and a vote on the budget won't happen for a few weeks. Nashville's finances were in a "very critical position," he said, because city officials have declined in the past to adjust the tax rate, spent down reserve funds and sold off properties to provide one-time cash injections to fill holes for ongoing operations.
"With the perfect storm presented by the recent tornadoes and the COVID pandemic our budget is past critical, it is in full crisis," Nash said in an email. "Something must be done. No one on the council has yet seen the actual budget documents, so we can't say what adjustments might be made yet."
Councilwoman Erin Evans told Law360 that the mayor has assembled a strong team working on budget projections to come up with the almost 32% increase, but the council has yet to see the complete budget to analyze if there are opportunities for more cuts to avoid steep tax increases.
"So far the feedback I have received from residents is that we need an alternative budget to consider," Evans said.
Evans said she was withholding judgment until she saw additional details but added that the situation illustrated what happens when a city that relies on tourism and sales taxes isn't prepared for a severe economic downturn.
The Nashville mayor's proposal comes as states and localities across the country are facing steep revenue declines. Credit ratings agency Moody's said this week that states could lose up to $160 billion in tax revenue in 2020 and 2021 because of the novel coronavirus pandemic, and recoveries could depend on state tax structures and the willingness to increase taxes.
The United States Conference of Mayors and the National League of Cities this month released a survey of localities that found that the COVID-19 pandemic has caused a precipitous drop in revenue for nearly every American city. The survey, which received answers from 2,463 cities, towns and villages, found that 88% of cities expected a revenue shortage because of the pandemic.
--Editing by Joyce Laskowski.
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