insights (2006-18)

Haslam’s Bolstered Budget

Mayor Bill Haslam has succeeded in turning the fiscal lemon he inherited when he took office two years ago into what looks a lot more like lemonade.

The budget he presented last week for the fiscal year ahead reflects both substantial improvements in the city’s financial condition and a sustained commitment to citywide improvements. The city’s rainy-day fund, which had eroded to $14 million in 2003, has been replenished to the $30 million level that equals 20 percent of the city’s operating expenses—a benchmark that bond rating agencies use as a measure of financial good health. At the same time, the city’s debt, which had ballooned to $248 million to finance a new convention center, has been reduced to $221 million with no new borrowing in prospect.

Proceeding on a strictly pay-as-you-go basis, Haslam’s new budget sustains a commitment to more than $30 million a year in capital improvements. The funding to support them comes in part from the fact that revenue streams dedicated to debt service now exceed annual debt payment requirements by more than $6 million. In addition, nearly $11 million is being transferred from the city’s operating budget to support capital projects. But the biggest boost comes from $13 million in federal grants—most of which are just the first installments on five-year commitments that were earmarked in the massive transportation bill that Congress approved last year.

While Rep. Jimmy Duncan and Sens. Lamar Alexander and Bill Frist deserve a large measure of the credit for those earmarks, Haslam was also instrumental in obtaining them. And, their five-year contribution toward meeting vital city needs is enormous. Consider: there’s $11 million toward construction of the city’s new downtown transit center on which work is due to start in June; $5 million for improving access to Interstate 275 from the former Coster Shop and other barren industrial sites along its corridor; $6 million for roadwork to support the city’s boldest new initiative, development of the South Knoxville waterfront; $1.6 million for improving pedestrian access from the State Street Garage to the long-awaited downtown cinema on Gay Street; and $546,000 toward an Upper Second Creek greenway—a large segment of which would traverse Jackson Avenue from Broadway to Gay Street.

Haslam’s biggest coup of the year has been landing Sysco Corp. to build a $34 million food distribution complex on the 44-acre Coster Shop site. The Sysco facility will bring more than 300 jobs to the center with average pay of more than $50,000. According to the president of the Knoxville Area Chamber Partnership, Mike Edwards, “At the crucial stages of the negotiations, Haslam found ways to seal the deal. It wouldn’t have happened without him.”

Haslam also came to the rescue when it looked as if the city-backed Five Points Village development in East Knoxville was foundering. The operator of its anchor grocery store pulled out abruptly, and it took a lot of doing to come up with a substitute. But a grand opening is now scheduled for May 5.

One deal that’s proven elusive is the complex financing package that was due to cover the $11.5 million cost of the Gay Street cinema. As a result, cinema construction has been delayed, and it’s opening, heralded for this November, has now been pushed back to next Spring. The elusive part has been obtaining a federal tax credit that was to cover $1.7 million of the cost. Haslam says, “The new market tax credit has become the tail that’s wagging the dog on this whole process. At this point in time I’m almost thinking that we’d have been better off to figure out some other way to do it, and in the end we may still have to.”

Progress along the rest of Gay Street continues unabated, and the city’s capital improvement plan will augment it by providing up to $3.5 million for sidewalk and streetscape improvements centering on the 100 block. One thing that’s neglected in this year’s budget, though, is any provision for refurbishing the blighted stretch of Jackson Avenue that abuts the blighted McClung Warehouses. Over $500,000 included in last year’s city budget plus the $546,000 federal grant are being held in abeyance. “We’ve been waiting for a long time for those buildings to redevelop, and I don’t know how smart it is for us to invest those dollars now,” the mayor says.

Haslam’s biggest budget challenge, as he has often stated, is overcoming a gap between operating-expense growth that’s been running about four percent a year and revenue growth on the order of two percent. He now believes that “in terms of expenses we can control, we’re making great progress. We’ve cut our health insurance costs by $1.5 million this year through an innovative approach, and we’ve also cut costs in lots of little ways.”

The rub is that what he terms uncontrollable expenses have ballooned, causing a 6.1 percent increase to $155 million in budgeted operating expenses. A $2.5 million rise in gasoline costs and a $1.6 million spike in mandatory pension fund contributions alone account for half of that increase. However, Haslam says, “There’s a very realistic expectation that pension contributions will flatten out next year and then do better than that.” And while the price of gasoline is unpredictable, there would seem to be more room for it to go down than go up even further.

So as Haslam approaches an almost certain bid for a second term next year, he may be able to do so with an operating budget that is almost in balance and with a further roll-off of the city’s debt that will give him yet more fiscal capacity. And all of that without the prospect of a tax increase.

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