May 16, 2021

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The Music City Meltdown – WSJ

4 min read

For more than a decade, Nashville, Tenn., has been one of America’s hippest and fastest-growing cities. Anchored by the country-music industry and boosted by a hospitable state tax climate, the city and surrounding region attracted businesses and residents. While its music scene made it a tourist mecca, Nashville also lured a generation of college-educated transplants, earning a position as one of the country’s new “brainpower cities.”

These days Nashville is making its way onto other, less distinguished lists. The Institute for Truth in Accounting recently ranked it one of the country’s five worst “sinkhole” cities, with $22,000 in debt per resident. Its bonded debt alone has increased by more than $1.25 billion in 10 years. City leaders have used deficit financing to balance Nashville’s books and spent much of the city’s reserve funds. The Tennessee comptroller has threatened a state takeover, and even the Biden administration’s lavish stimulus isn’t enough to plug Nashville’s budget hole. Amid all this, angry local groups are trying to spur a special election to roll back a gigantic property tax increase. What was once called a miracle in Music City increasingly looks like a meltdown.

That’s quite a dubious record of achievement for a city with enviable economic growth. Rebounding robustly from the 2008-09 recession, greater Nashville gained nearly 300,000 jobs between 2010 and early 2020, an almost 40% increase. Employment in its hospitality industry expanded by 53% as developers added thousands of hotel rooms. Financial-services jobs grew by 46.9%, while professional services employment leapt by 69%. By March 2020, Nashville boasted an unemployment rate of only 3.4%.

With economic growth came more government revenue. Sales-tax collections increased by $200 million, or more than 70%, in a decade. Receipts from other fees and levies grew even faster. Nashville’s main tax, its property levy, increased more slowly. A state law limits the effect of rising property values on taxes, but even so the city’s total budget expanded over a decade by 50% to $2.33 billion.

Still, Nashville had trouble making do. Its leaders cultivated an ambition to make it a world-class city. Nashville built bright, shiny new things with debt. It spent more than $600 million to construct the Music City Center with bonds financed by hotel taxes and other fees. City leaders also built a minor-league baseball stadium for $91 million and a downtown amphitheater that cost $52 million. Now they have pledged city debt to help construct a $275 million soccer stadium.

It’s easy for governments that employ debt cavalierly to become addicted to it. In 2011 Nashville faced a $50 million budget deficit and papered over its financial woes by engineering a bond offering that saved the city $77 million in short-term payments at the cost of tens of millions of dollars in future obligations. In part because of such tactics, the city’s annual cost of servicing its debt has more than doubled over a decade to $336 million.

Like many cities, Nashville is also in hock to pensioners, with $4.3 billion in unfunded promises for retiree healthcare. And though Nashville’s pension system is well-funded, it is also expensive to maintain because employees contribute almost nothing, leaving taxpayers on the hook for about $110 million in annual contributions—and potentially more when investments tank. Despite the burden, the city resisted adopting reforms the state enacted in 2013, when Tennessee switched to a pension plan that requires employees to contribute 5% of their wages.

Nashville’s balance sheet wasn’t in any shape to endure a massive pandemic hit. Led by a 50% decline in tourism, the city’s economy slumped last spring, and unemployment soared above 15%. That punched a $332 million hole in the fiscal 2021 budget, prompting then-Tennessee Comptroller

Justin Wilson

to warn in September of a state takeover. The city could become “kind of like a teenager coming to their parent asking for $20 to go to the movies,” he said.

Mayor

John Cooper,

who has been critical of Nashville’s past financial practices, said that cutting government so much to close the deficit would make the city “unrecognizable.” Even the recent federal stimulus, which earmarked $267 million for the city, won’t be enough. Officials are hoping a 34% property tax increase enacted last fall will generate $370 million of added revenue.

That’s sparked a tax revolt led by local attorney

Jim Roberts,

who told Nashville Public Radio that he was recruited by downtown business leaders who said, “This is going to kill us.” He got enough signatures to put an initiative to overturn the tax on the ballot, but a judge threw the initiative out on a technicality in November. Mr. Roberts is back with another ballot initiative he hopes answers the judge’s objections. It includes changes that would impose term limits on officials and give citizens the right to approve expensive projects.

One local councilman has criticized Mr. Roberts’s initiative, saying it would bring “California-style governance by referendum” to Nashville. The problem, however, is that after a decade of mismanagement, Nashville already has California-style debt problems.

Mr. Malanga is a senior fellow at the Manhattan Institute and senior editor of City Journal.

Main Street: Unlike Hollywood’s woke, at least its Communists could make good movies. Images: Everett Collection/A.M.P.A.S. via Getty Images Composite: Mark Kelly

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2021-04-28 18:46:00

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