Cordova Triangle – Politics versus Governance

Monday night’s Board of Mayor and Aldermen (BMA) meeting was another example of politics versus governance.

The area known as the Cordova Triangle has been a hot topic for nearly a year. This area is basically bordered by Germantown Road to the east and Cordova Road to the west. It is just west of Germantown Road from the corner of Neshoba where Thornwood is being built.

At Monday night’s meeting, the BMA voted on the third and final reading on an ordinance to rezone that land back to residential as it was prior to the adoption of Smart Code. It had been a part of the code that allowed the multi-use planning that allowed Thornwood retail, apartments, hotels and single-family homes.

The change passed with a 3-0 vote with Aldermen Mary Anne Gibson, Dean Massey and John Barzizza voting for it and Alderman Rocky Janda abstaining (Alderman Forest Owens was out of town for fall break).

Before the meeting, the BMA met in closed session with legal counsel who recommended keeping comments limited but specific to why each alderman voted for or against the zoning ordinance due to possible litigation following the vote. Everyone except Alderman Massey seemed to heed this advice, with Alderman Janda even pointing out his comments had been reviewed by legal counsel.

It was disappointing to see Alderman Massey take this as an opportunity to repeatedly call out what he perceived as flaws in the city’s processes and point fingers at “city officials.” He seemed more concerned with scoring political points rather than protecting the citizens of Germantown. He put his personal agenda ahead of residents around the triangle with language that could fuel a lawsuit.

The meeting was so volatile that it even caught the attention of The Daily Memphian’s suburban columnist, Clay Bailey.

Massey calls Smart Growth a Utopian Social Engineering Plot

He seemed more concerned with pointing out a topic he has touted since being elected. He stated he believes the Smart Growth plan for Germantown is a “utopian social engineering plot for the financial benefit of landowners.”

He appears to actually believe that your friends and neighbors, people you see at church, high school ball games and the grocery store are a part of a social engineering plot if they support smart growth principles.

That in and of itself is another blog post for another day. For now, we’ll stick to how his actions Monday night may have put Germantown at risk.

For example, Mayor Palazzolo mentioned Massey called the attorneys for the land owners of the Cordova Triangle who are upset with the zoning change. Making a phone call like that means he, as a representative of the city, is going beyond his authority to directly speak with the opposing party’s lawyer. In litigation, parties should never speak directly with opposing party’s lawyer.

In this move, along with his comments Monday night, Massey put all the citizens of Germantown at risk if a law suit is brought over this change in zoning for the property. Additionally, his speech was not germane to the zoning of the Triangle, despite his assertions otherwise. 

It is in this context that the mayor and his peers attempted to encourage Alderman Massey to stop reading his script. He did not have legal counsel review his comments and he even challenged the Mayor to have him removed from chambers when he didn’t follow the rules governing the meeting.

Massey asks the Mayor to have him removed from the dais.

This behavior is dangerous to our city and puts us all at financial risk. It appears he would have loved nothing more than to have video of him being removed from the chambers to use against the Mayor for a political victory.

As seen in the video below, during the second reading of this change in September, Alderman Massey acknowledges that the residents of Neshoba North asked him to keep his comments short in order to limit potential legal exposure.

Massey admits citizens asked him to limit his remarks.

He then goes on to talk about his duty to protect all citizens of Germantown. Is he doing that when he reads a ten-minute prepared speech on a topic that is the likely subject of legal action? A speech that hasn’t been vetted by legal counsel? Unfortunately, Alderman Massey is not legally liable for his actions, the city is. Who pays any potential fines or settlements that result from his statements? The tax payers do.

Additionally disappointing is that every alderman but John Barzizza asked Alderman Massey to stay on topic. While he did limit his remarks as legal counsel advised, he allowed Massey to continue his political remarks.

Taking the advice of legal counsel is governance. Ignoring that advice to push a political agenda is politics.

Too Tough Talk?

John Barzizza likes to talk tough, but when is talking tough too much?

On August 26, an event was held in Enclave Estates billed as a “Development Update” with “Alderman John Barzizza from the city” giving an update on what is going on in the city. This was not billed as a campaign event. If you look at the invite, it appears to be from the homeowners association. My parents received this flyer on their front door.

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This invite appears to be sponsored by the homeowners association. The HOA (my father is the HOA president) sent an email to members explaining that not only wasn’t this sanctioned by them but an event such as this would jeopardize their nonprofit status.

Once the nonprofit status was cleared up, and the event appeared to be an official update from Mr. Barzizza in his role as an Alderman, my father invited me to attend with him and my mom as their guest and I agreed.

Why would I want to go you ask? Regular readers might guess I have made up my mind on who I want to vote for. Well, I feel it is important to understand both points of view to make an informed decision. That doesn’t happen from reading political handouts, but from also listening to people present their views with passion. At this event I also had a chance to have a positive discussion with one candidate and his campaign manager about shared concerns over rhetoric and threatening behavior that we have mutually witnessed.

The message at the event echoed much of what you see on social media about threats of school overcrowding and their concerns of massive numbers of apartments. We address this in our blog here. I even heard statements made about concerns over people that own rental homes who don’t live in our community.

However, the part that bothered me most was when I heard Alderman Barzizza introduce Scott Sanders. He started by saying that the retired U.S. Marshal “knows how to kick in doors.” Okay, I can understand tough talk to get a laugh. However, the disturbing part followed when Alderman Barzizza proudly stated that as a business owner he knew how to “kick employees” to get things done and continued to say that’s how they would “make a good team.”

Tough talk for sure and somewhat humorous on the surface, even drawing laughs from a few attendees. I am sure Scott Sanders is not campaigning to kick people’s doors in. However, I can’t just gloss over the reference about kicking employees. In a conversation my Dad had recently with another concerned citizen, it appears that Alderman Barzizza made similar comments at another meet and greet. When we heard that this was being said at other events and not just a one off slip we felt it was important to share these words.  This is not just a funny way to introduce someone.

There are many hard-working men and women employed by the city that need to be treated with a much higher level of respect beyond being “kicked” to get things done. Maybe that worked in his business, but our city is staffed with professionals who are doing an excellent job. Germantown has been great for a long time and it continues to be the place to live in Shelby County.  This was done by skilled employees with good leadership, not by prodding and kicking.

This tone matters.

My Mom, Dad and I all heard this and as we recall the quote like this: “I think he knows how to kick in a door and being a business man I know how to kick employees to get things done.”

Is that how you want your city employees treated? I know I don’t.

Tax Rate Truth – Part 4: Reserve Funds

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It is vital that we maintain the healthy reserves that keep our community fiscally secure. Alderman Massey refers to these as “profits” in his discussions on the topics; however, it is more accurate to think of them as savings accounts. In the next to last reading of the budget Alderman Massey (seconded by Alderman Barzizza) proposed a property tax cut (discussed in this blog). Their proposed cuts remove the funding that goes into our reserve balances and potentially require the draw down of those reserves.

Reserves are built over time with the knowledge that there are significant investments in infrastructure that are needed to maintain a city like Germantown. This is something the city has done very well over the last 20 years. Responsible fiscal management has lead to award winning budgeting processes and allowed our city to not just grow but thrive. This firm financial base is the foundation for our best in class city services like our Fire and Police. They don’t come cheap and require investment to maintain those levels long term, along with our schools and quality of life amenities like GPAC, Library and Parks.

Let’s look at a real world example. The city will likely need a new fire station in the not too distant future. This is something that is in the city plan and part of the strategy for building reserves. We as a community could pay for this one of two ways. We could build reserves and pay for most of it as the expense is incurred or we could borrow money to pay for it. At current rates and a 20 year bond term we would pay $6,476,702 for a $5,000,000 fire station as opposed to paying cash out of our savings.

But the implications of borrowing money go beyond the cost of borrowing money. This is where experienced financial leadership and municipal planning become extremely important. If you borrow money for the fire station you can’t borrow money for other improvements or even maintenance items in the city. Think about all the deferred maintenance that is being addressed for GMSD as they catch up on years of neglect. Like your household, the city has limited borrowing capacity so we need to be wise about what we choose to use the bond funding option for. It doesn’t stop there either. The more you borrow the more reserves you need to maintain your bond rating or the rates for borrowing go up. The other option is that you get a tax increase every time the city has to do a major project. Poor planning puts the city in a “paycheck to paycheck” mentality and increases the likelihood of more frequent tax increases.

The other thing of concern is that if we follow the policy proposed in the last budget meeting it is likely that we would lose our AAA bond rating. This just compounds the fiscal issues by raising the rates at which we borrow money. While this policy may reduce your tax rates in the short term it is very concerning in the long-term impact of raiding the piggy bank for a short-term win. It takes years of disciplined fiscal management to get in our enviable position. Unfortunately, one bad budget can undo all of that work.

Tax Rate Truth – Part 3: Sales Tax Risk

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Too much dependency on sales tax leads to a need to raise property taxes when the economy slows down. Improperly tying support of our schools to sales tax revenue also will lead to property tax increases.  Here we see a clear example of this in FY14, proof that we need to be careful about how we use our variable revenues. Recent budgets show the City has learned from these lessons and remains conservative in their sales tax revenue projections. What does that mean in layman’s terms? If you are paid on commission for your work, you probably shouldn’t build your household budget for the year on your best month of sales. Alderman Barzizza and Massey both pushed for the last two budgets to include a higher dependency on sales tax revenues.

Hear him in his own words here. Then listen to Patrick Lawton explain the way sales tax is budgeted and why.

Shortfalls in sales tax projections first impact Infrastructure Replacement Programs (IRP) and then Capital Improvement Programs.IRP projects are things like roads, drainage and water main projects that provide services to our city.  CIP projects are investments in our future like a fire station, schools or greenway improvements. Being conservative in our estimates allows the city to pay cash as opposed to issuing debt and maintains our fund balances needed to keep our rates low. Click here for more info on the Reserve Balances in Tax Rate Truth – Part 4

The budget doesn’t clearly call out the impact of the sales tax shortages other than showing a 4% shift. High level math says that a 4% shift in the General fund of $43.6 Million would be a $1.7 Million shift into property tax funding. With the FY14 Budgeted Property Tax Revenues of $28 Million that implies that roughly $0.12 of the $0.445 increase is due to Sales Tax short falls.

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Keep in mind that the value that you get for that $1.97 (or $1.95 for FY19) tax rate. Our neighbors in Memphis pay $4.05 or over double our rate. Collierville pays $1.83 but they have a much larger dependency on Sales tax with more big box stores like Lowe’s, Home Depot and Walmart. They also see more sales tax revenue from car dealerships and the Carriage Crossing Mall. Collierville’s dependency on sales tax, and shortages this year, resulted in them having to cut positions from their FY19 budget. We don’t want to be in that position.

Tax Rate Truth – Part 2: Do The Math

For over 15 years I have worked in corporate finance. I have made a living telling stories with numbers, helping executive leadership to understand complex investments, operations and projects in as simple terms as possible. It is easy to get turned around by all these numbers, it happens to the best of us. That is why I have worked with my father, a retired Certified Financial Planner, to double and triple check these calculations.

The first step in this process is to look at the FY14 rate and its individual components. As you read this you will find that there are clear economic, legislative and community needs that drove the increases.

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Step two is to account for the impact of the FY18 reassessment impact. The reassessment raised the average value of property in Germantown by 9.7% between FY14 and FY18. That doesn’t mean that every house went up in value by that amount, it is simply the weighted average impact to assessed values of property in Germantown. To keep comply with the Truth in Taxation laws and keep the revenue generated from the city’s property tax rate flat, it was calculated that the rate should go down to $1.76. So all of the items above that used to sum up to a $1.93 tax rate now sum up to $1.76. I will refer to that impact as rate restatement. That means that the base rate in FY14 is no longer $1.485, the impact of the reassessment make that $1.354. The math in the table below shows the breakdown of the FY14 rate in FY18 terms.

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One major part of our concern is that the impact of the FY14 reassessment is lumped into their calculation for the tax increase. In FY14, the decline of property values meant that the rate had to be increased to hold revenues flat (the inverse of what happened in FY18). That is the second of the two lines highlighted in red above. That going forward that number is included in my FY14 base as it is not an assessment impact as opposed to a rate increase.

To accurately state a growth rate you have to have a good starting number. When they use $1.485 as their starting point they are omitting two key factors for accurate analysis, assessment impact and rate restatement. So when you restate the rate it is $1.354 and add back the assessment impact of $0.087 your growth rate should be calculated based on $1.441 in terms of the FY18 tax rate.

The table below shows how you add up the restated components of the FY14 tax rate with the FY18 increases to get the final rate approved by the BMA.

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Now we are in a position to calculate a growth rate. We have a correctly adjusted base number to have a true apples to apples comparison. You can see the components that drive the increase. Please take a moment to understand the importance of the Sales Tax Impact and why we must be conservative in our budgeting of it by reading Part 3 of this blog. It is also important to understand that the FY14 increase was intended to restore reserve balances that had been lowered due to the Great Recession, read more about that in Part 4 of this blog.

Also keep in mind that these rates help fund our schools and 9% points of the total increase of 36.7% directly funds the needs of our new elementary school and Forrest Hill improvements needed to access it. The Hall Tax is a state income tax that was allocated to municipalities and is being phased out. That funding gap needs to be addressed. When you look at the components, it is clear to see your taxes were not frivolously raised for no reason. As stated previously, there are clear economic, legislative and community needs that drove all of these increase. These rates have helped fund deferred maintenance at GMSD, invest in parks, improve the police force and add ambulance service. All these things add to quality of life in Germantown and make it the place to live in Shelby County.

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Keep in mind that the value that you get for that $1.97 (or $1.95 for FY19) tax rate. Our neighbors in Memphis pay $4.05 or over double our rate.  Collierville pays $1.83 but they have a much larger dependency on sales tax with more big box stores like Lowe’s, Home Depot and Walmart. They also see more sales tax revenue from car dealerships and the Carriage Crossing Mall. Collierville’s dependency on sales tax, and shortages this year, resulted in them having to cut positions from their FY19 budget. We don’t want to be in that position thus we budget conservatively.

 

Tax Rate Truth – Part 1: Summary

Screen Shot 2018-09-20 at 9.52.10 PM.pngWhen the Barzizza, Brown and Sanders team quote that your tax rate is up 44.1% since FY14 (Fiscal Year), they are wrong.  They rush to over simplify complex financial concepts to raise emotions. They are either not doing research, willfully ignoring fact or blatantly lying to voters.

This topic is complex and requires attention to detail to understand. To assist in this we are breaking the blog up into multiple posts to highlight important key aspects. While this post covers most of our key points, I encourage you to read them all for a better understanding so that you can make an informed decision, not an emotional one.

First and foremost the FY14 increase of $0.445 included a state required $0.095 increase to offset the impact of lower property value assessments. Shelby County reassesses property values every four years and Tennessee’s Truth in Taxation law requires that the rate be adjusted so as to not  impact the revenues collected by the city. FY14 is when you saw continued impacts of the down economy resulting in lower assessment prices. With lower assessments a higher rate is needed to collect the same revenues for the city. Because not all homes are impacted by assessments the same way, your actual tax bill will very even if there were no change in the rate. The $0.095 assessment impact is clearly called out in Mayor Goldsworthy’s cover letter on they FY14 budget.

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Had nothing else changed in FY14, the tax rate would have increased $0.095 and it would not be considered a rate increase.

Second, you need to do what is commonly referred to as an apples to apples comparisons of the increase to calculate the growth. It is like buying a car.  One cannot fairly compare cars on price alone – features must also be compared to adjust for price differences. My math below is a summary of several steps taken to do an apples to apples comparison of the base rate in FY14 vs. the easily identifiable increases that make up the FY14 and FY18 tax increases. Since FY14 your tax rate is up 36.7%, yes that is significant but not the 44.1% they claim. Based on my research I was able to isolate a few key drivers of the tax rate increase. The column on the right shows you just how much your taxes increased for each of these drivers.

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Tax Rate Truth – Part 2: Do the Math. My detailed calculations to normalize rates due to the impact of assessments are available here.

Two of these factors simply replace tax revenues from other sources. The FY14 shortage in Sales tax and the elimination of the Hall Income Tax. These two items account for $0.19 (or 13.2% points) of the $0.529 (or 36.7%) increase.

It is important to understand what makes up that increase and what you get for those dollars. The city’s investments include the addition of ambulance service, a new police precinct and capital spending for GMSD as part of this funding. Keep in mind that GMSD inherited $26 million of deferred maintenance from Shelby County. The last estimate I saw was that we had worked that down to $11.4 million in just 4 years. A significant portion of that being covered by capital funding from the city.

Now, let’s put the increase into context. In finance, we use a calculation called Compound Annual Growth Rate or CAGR to put into context growth that occur over time or at random intervals. It helps you to see what the increase would look like if it were steady as opposed to occurring at random intervals. The CAGR calculation tells us that the annual growth rate of property tax rate in Germantown was about 2.5% between FY04 and FY17. The current tax rate is expected to support the city for another 5 years and if that holds true the CAGR would drop to under 2%. During these 14 years the CPI or inflation rate has had a CAGR of approximately 2%. Thus our city has grown, given pay raises, serviced debt, added a school system, upgraded roads, parks and built stable reserve funds all at the cost of living increase in taxes.

That kind of growth shows strong fiscal management over the long term. Keep in mind that property tax is intended to generate flat revenues over time even if the value of your home changes, unlike income tax where you pay more as you make more.

In addition to the assessment impact, the FY14 rate includes adjustments for sales tax shortages and funding of reserve balances. High level math indicates that the sales tax shortages left the budget short $1.7 million. We have warned about the dependence on sales tax in our school funding blog, this is a real world example of potential impacts. Even in a strong economy, an over dependance on sales tax has created problems for Collierville this year and resulted in cutting employees. The city has learned from this lesson and now budgets sales tax revenues conservatively in order to protect the property tax rate. Alderman Massey and Barzizza have both pushed for higher dependency on sales tax in the last two budgets. Tax Rate Truth – Part 3: Sales Tax Risks.Click here to read more about the importance of managing sales tax conservatively, hear John Barzizza’s comments and see the story about Collierville cutting employees due to this issue.

Reserve funding sounds like a savings account for a rainy day. In some cases it is and in other cases it is used as a savings account to be able to pay cash for things. Reserves also play a big part in our credit rating and the interest rates on money we borrow. Tax rate stability is also very dependent on reserve balances. Inflation impacts just about everything. For example, many vendors have escalation clauses in their contracts. To keep tax rates stable I may build a reserve early in a contract and draw down on that reserve later in the contract. For simplicity, say I am obligated to pay a vendor $100 over 5 years. I would build a reserve for that by putting $20 a year into the fund. My actual payments may be $18 in year one,$19 in year two, $20 in year three, $21 in year four, $22 in year five. Still a total of $100 but if I don’t use a reserve I have to raise rates every year. Click here to see more about the importance of reserves and how they are helping us meet our demands for schools, fire and parks. Tax Rate Truth – Part 4: Reserve Funding. Click here to see more about why reserves are a crucial part of our financial stability.  

“Warn your neighbors and friends?”

Jeff Brown continues to champion a narrative that schools are going to be overcrowded despite the clear data that states otherwise. I have been out of town for two weeks out west celebrating my 10 year anniversary with my wife and then spending a week elk hunting with my Father. When I got home I was made aware of comments by Alderman Massey on one of Dr. Brown’s posts. See below.

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He gives no factual basis for stating it is flawed data. Just because the outcome of professional analysis doesn’t support your personal theory doesn’t mean it is wrong.

Betsy Landers’ treasurer happens to be my Father. Betsy is a friend from church. So, as you can see, the roots of whatever conspiracy he is insinuating have a real shady basis (I am rolling my eyes as I write this). The problem is that Alderman Massey implies that everything is a conspiracy. If you are friends, neighbors, members of a commission or club or just support the same person you are clearly part of a conspiracy in his mind.

Alderman Massey uses his platform to question people, so now I am going to use my platform to provide the truth.

His comments insinuate that my father and sister are of questionable character and that the public should be warned. This conversation could be about any of the people listed above. Alderman Massey impugns the character of anyone that disagrees with him. That includes many good people who he believes have no valid opinions because in his eyes they support the mayor. He doesn’t attack the ideas; he attacks people.

So yes, warn your “neighbors and friends” that a man who is a nationally respected financial professional is supporting the election of School Board candidate Betsy Landers. A man with integrity, my father, founded a company which pioneered fee-only financial planning in the Mid-South. Making sure that his company’s goal aligned with clients as opposed to selling the highest commission product. Yes, warn people that a man that helped establish Habitat for Humanity of Greater Memphis and raised his kids to work on weekends putting siding on houses in Rossville is supporting a candidate.

He is so nefarious he is receiving the lifetime achievement award from the Estate Planning Council of Memphis and has been a leader in the Community Foundation of Greater Memphis. On our drive home from the elk hunt, he spent an hour on the phone coaching a Missionary in Costa Rica whom he helps. I could go on and on about his work with Rotary International and many other community and mission organizations. Most of all, he is a man of faith; the basis of his integrity. I am proud to be his son. I can’t tell you how many people stop me to tell me what a good man he is.

He raised his daughter, who lost that election Mr. Massey mentioned, to give back to her community. Service that continues even after that loss, with thousands of volunteer hours in our schools. Not service for recognition, but service for love of our schools and the children of this community. He raised his daughter to have values that turn tragedy into hope for others. She and her husband gave the ultimate gift of her late son’s organs following his untimely death at age 2.  She became an advocate for organ donation and took a role as a member of the Advisory Board for Mid South Transplant Foundation and the National Kidney Foundation.

Me, I am just lucky to call these people family. I am proud, too. So yes, I am on my soapbox but if you want to warn people about my family please go ahead and show them this blog.

I have only known Alys for a couple of years and honestly, I thank you for that Dean. Had you not blocked me, we would have probably would not have crossed paths. Your mission to suppress open conversation about issues brought us together. Alys and I stand by what we write. We have a common goal to covey the truth and provide context to a political environment that has become way too convoluted with spin and lies.

Your instinct to brand people as the “Mayor’s Supporters” is a detriment to you. You should learn that we all bring value and perspective to the conversation. Instead, you choose to ignore people who don’t align with your view. Either way, this election falls out, you will need to work with the citizens you look down upon. The issues facing this city require that we work together for the common good. Perhaps when you realize this, we can work together.

Note: It appears this post has since been deleted. Clearly Dr. Brown wants to maintain the perception of distance between him and Alderman Massey. I don’t blame him but how separate are they when they have both so strongly tied themselves to Candidate Barzizza?