Municipal CFO Series: Richard Riebeling, Nashville

Richard Riebeling was appointed in November of 2007 to the position of Director of Finance for the Metropolitan Government of Nashville and Davidson County. Riebeling has spent the past 12 years in public finance and served as the Commissioner of the Department of Economic and Community Development for the State of Tennessee.

How has the continued recovery from the devastating May 2010 flood affected Nashville’s budget priorities? Did that disaster change your perspective on emergency preparedness and disaster response? 

It was obviously a disaster when we woke up one day and part of downtown was flooded, neighborhoods were underwater, and the giant Opryland Hotel was underwater and evacuated. It was a sobering experience. We have recovered extremely well. We put together response teams on the financial side as well as the management side, and have come through the thing pretty much unscathed. FEMA stepped in and provided a lot of coverage. Our insurance policies provided us a lot of coverage. From a financial standpoint, it ended up having a minimal impact on the city.

I think from an ongoing basis, it has tightened our awareness of these situations. Anytime there is a threat of any kind, we go on full alert. We are moving towards where we are going to have to have a backup emergency center because we found the one we have now is somewhat outdated. Long-term, there will be costs associated with this because we see the need for being better prepared long-term. We are working with the Army Corps of Engineers to build levees around major parts of the city, including downtown. This would be several hundred million dollars worth of improvement. Obviously, we would be looking to get some federal assistance to fund that, but it is something we figure we have to do for the future.

Nashville and the metro area have made some significant investments in its downtown and infrastructure, including the ongoing Music City Center. What do you hope will be the payoff of these investments for the metro area?

Most of the debt for the Music Center was Build America Bonds, which were part of the stimulus package. Nashville is in a very good position right now; poised to grow. Right now, our hotel occupancies are among the highest in the country and we are starting to see a raise in demand. The center was an investment. A conference center is going to lose money on an ongoing basis, but it generates a stimulus to the economy.

We made a political decision in the middle of the recession that we were going to make a major investment. It was not without controversy, needless to say. I was much younger, it seems like, before I got into that! But after debating it across the city for over two years, I think it will create economic opportunity in the long-term.

We think it will be a good stimulus to the city and important to our economy long-term. It opens next May––on time and on budget––which in and of itself is not bad. If you put it to a vote, it would be a close vote. It may have been 50-50 and it may have failed; I am not sure, it was that close. Now that the building is almost done and now that people can see it, and the impact it is already having, I think it is much more popular now. I think people view it as a good economic engine.

Earlier this year, you and Mayor Dean outlined a choice between decreased city services or the first property tax increase in over six years in order to maintain Nashville’s budget sustainability. How did you work with Metropolitan Council members and citizens to sell and implement this kind of politically unpopular decision?

Obviously, tax increases are not a politically popular thing to do. Historically, property taxes have been raised in Nashville once every four years, or somewhere in that period of time. During our first term, right in the middle of the recession, we made a decision that we were not going to raise taxes. We made some cuts, we reduced spending, and we did some restructuring of debt, which allowed us to move back some of the principle payments, yet keep our debt small so that we were not risking a bond rating. We worked with some of the ratings agencies to make sure that was good. So we demonstrated over a four-year period that we were willing to cut costs. I do not think we were viewed as a tax and spend sort of liberal economic thing. So I think we had built up some good capital and a good track record over those four years.

I think, frankly, that we were anticipating a much harder fight than we ended up having. We were prepared for a major political fight, but we knew there was a way to get there. We narrowed it down to funding specific things that were priorities of the city. While each item would not get a 50 percent majority collectively, we put together a good coalition that found support in it.

I think we have to pat ourselves on the back a little bit. We showed that we were not doing this just to be doing it, but we needed to have the tax increase to keep the city moving forward.

In our 40-member council, a three- or four-person faction is not very relevant. I think we had 18 new council members, and I think on the 40-member council, only five or six of them had ever voted on a tax issue before. So we have a new group thrown to the wolves right away, right after they took office. But because of our support and our past track record, we were able to convince them. Again, frankly, I am very surprised—we were prepared to do a major media campaign or whatever needed to be done, and we just didn’t have to do it.

Prior to this year’s proposed tax increase, you had already cut $59.2 million out of the metro budget. Were you coming to the table with some additional political cover?

We had done some of the hard work. At the budget kickoff, I put together for the government departments a full presentation that showed how we were coming out of the recession finally—how our sales tax numbers had actually dropped. We were below what we had collected in 2006 or 2007, and we were slowly starting to build up on that, but you can’t without some new revenue. We were going to have to do some things that other cities have had to do—layoff police, layoff firemen, reduce school funding––none of which we wanted to do. I think the public understood that if we wanted to keep the level of services, then we would have to make tax increases.

Do you foresee any future cuts in city services? Alternatively, are there any city services that are off the table in terms of budget reductions or negotiations?

No. I think generally speaking, we will be able to maintain our level of city services for the next few years. We start with public safety and education being the priorities. Mayor Dean’s famous line is that he has three pitches he says every day: “public safety, education, and jobs or economic development.” So police have been pretty much a sacred cow. We have not cut, but have grown the police force in the last few years. We have more police on the street than we ever had. The city sees crime rates have gone down, murder rates have gone down, so they like what they see. If there were a sacred cow, it would primarily be police, but secondarily fire department and emergency services, and schools of course.

What are some of your priorities for maintaining fiscal sustainability or promoting future growth in Nashville?

The biggest pressures that our government faces, like all governments, are employee benefits. That is the biggest uncontrollable number you have, especially on the healthcare side. There is little that we can do to control healthcare costs other than reduce benefits and that is not something that you want to do to employees. We have good healthcare coverage and you do not want to reduce it. But that is outside of the domain of what you can control.

Some of the supplemental budgets are needed to keep those programs fully funded. We have an injury on duty program, or worker’s comp, that is growing exponentially higher than anything else. We started to trim back benefits slightly this year. It will not impact any current employees, but it will affect employees hired after January. They are going to have a longer vesting period before they are eligible for a pension, and some of their medical benefits, once they retire from the city, are going to be reduced. Once again, that did not affect current employees, but those are the kinds of things you have to tweak to remain solvent. We have an older workforce. People are living longer on the pension side, so the pressures on those are continuing to grow and we will have to continue to refine it.

Obviously, public benefits and public pensions have been a major topic of conversation across the country and we have not gotten to the level of rioting in the streets like in Madison. We either make some changes now that are relatively minor in nature, or we would have to have major changes down the way.  Tennessee is a right to work state, not a very strong labor state in general. Labor is not as it is in Wisconsin or Chicago or places like that, and they were agreeable. They agreed to these changes, so we were able to make some changes.

Nashville is an unusual city in that it is a blue city in a red state, and things like mass transit and environmental issues are all important to the core Nashville resident. So we are looking into how to expand our bus system to a more mass transit kind of system, what city buildings need to be LEED-certified from a sustainability standpoint.

Are there any things that you are doing in Nashville that could be a worthy example for another CFO? Is there anything that you would want replicated?

We all do the same things with a little twist to each city, and every city is different. The tax structures are different. We have a school system a lot of other cities don’t have to fund, and things of that nature. It is hard to find complete apples and oranges to compare. My advice to any CFO is to get out of businesses and functions that are not in their core mission.

We have a Farmer’s Market, which is a great little market, that we subsidize to the tune of a half million bucks a year. I think someone in the private sector might be able to do that better. I think everyone here gets that you have to decide what your core is and start trimming to that core and get rid of stuff that doesn’t really serve that.

You also have to be willing to look at each department and reduce costs. You buy a lot of political will with the public if they think you are serious about their dollars. You have to buy some goodwill—politically it is smart—and you can’t do business as usual, you have to be open to new ideas, and you have to be willing to make cuts.

In Nashville, it was travel. Every department had separate travel budgets, and we took all travel money out of the departments and created a central fund that they have to apply to if they want to go travel somewhere. We went from around $800k in travel to around $200k in travel. People can do essential travel, but these are the kind of little things like this that the public sees and appreciates, and then they will give you the benefit of the doubt.

You mentioned the Nashville Farmer’s Market,which required a supplemental budget this year. Is there an opportunity for an increased public-private partnership to offset this cost? Are there any other public-private partnerships on the horizon?

I hope so—we are working on that. We have some people looking at that, and we are putting out a request for information or request for proposal later this year or early next year to look at taking over the operation of that.

One of the biggest issues we face is that we have a city hospital that has a very modest number of patients, and yet we subsidize to the tune of $40 million dollars a year. We are starting a political process to look at whether that is the right thing to do, and that will be very controversial. I mean, it is a hospital that only has about 45 people a night, but you think from the public outcry that we were putting people on the streets. You have to be willing to engage in those processes. I don’t think that we will get rid of that entire subsidy, but there is a good chance that with a public-private partnership to help run the hospital, we can reduce the costs considerably. That is the kind of thing that I find fun—challenging, but fun. You have to have some political will to do that, because the status quo is easy. You can’t just keep going back to the taxpayers for more money.

Are there any initiatives in Nashville that you think have been particularly effective? 

I think so. I think that we are starting to see our area become a little more environmentally sensitive. All our new road programs have to be complete streets with bike lanes and sidewalks, and we have been much more aggressive about that than the city has been in the past.

We have been very aggressive in terms of economic development. We are willing to incentivize companies to relocate and for developments. We see the value in that long-term and see it as a net gain for the city. I think those are the kinds of things that we have done to grow the tax base so that the burden does not just fall on existing numbers.

I have done a couple of different things in my career, and this is without question the most challenging and most rewarding job that I have ever had. The idea of being involved in all these decisions day-to-day and money. Everything eventually comes down to money, and so it puts you in the middle of all of these decisions.

With my background, I get to see a lot of different perspectives. As a reporter, you learn a lot of different perspectives. You learn to see that your ideas are not necessarily right, but to see and understand where other people come from. I think that is important to a budget. A budget is a political document—it is a document with priorities and consensus building. And I think being able to understand how to do that helps you create a working budget at the end, and something that is constructive to the city.

Where do you get your own information—who are the people you talk to, who are the people that play into your decision-making?

That’s a good question. You have to start with the facts. I have a great budget staff. Our revenue forecasting is really good, so we sort of know where we are to begin with––we are not guessing. When I sit down with the mayor early in the budget process, I feel pretty good that we know how much money that we have to spend and how to divide it up. Having lived in Nashville for a long time now, I know a lot of people. I think we do a balancing act—there are key council members you talk to early on who care about the whole picture and can give you a sense of what needs to be done—there are developers, there is the chamber, there are just interest groups that sooner or later that you will talk to. You try to talk to as many people as you can to find out what is important, but ultimately, that is really the mayor’s job. My job is to take his priorities and turn them into reality.

Fortunately, he has good priorities. We do not always agree, I might add, but he knows that if there is something he wants done, we are going to have to figure out a way to get it done. And we will do it.

He deals with the political side, much more than I have to. What we do, the way our government works, the mayor hires me and he fires me. I think a lot of the CFOs, they work for a city manager or they are appointed or civil service. I mean, if he is doing something that we can’t afford or crazy, I will obviously speak my mind, but to a great extent, I am outside of the political world. He deals with the political world, and I figure out with the real world what we are going to do with our priorities.