Archive for the ‘budget’ Category

The Fairgrounds TDZ

Tuesday, December 16th, 2014

December 16, 2014

There has been a lot of discussion back and forth about approving this project and its impact on our economy and education funding. I have been doing some research on this matter and it is quite confusing. I would like to point out the most important points.

  • The use of a TDZ is proposed because it is supposed to be risk free. The proponents claim that the tax payers are not at risk and the risk is all on the bond purchasers. That is not true because if the incremental sales tax increases are not sufficient to cover the principle and interest, then the taxpayers are the backup less the ad valorem (property tax) tax base. My point here is that if these bonds issued for the Fairgrounds TDZ are the same as those for the downtown TDZ zone and if the incremental tax revenue is not sufficient to cover the required bond payments, then all city revenue other than the Ad Valorem Tax (basically property taxes) will be called on to make up the difference. It is not risk free. If you look at the City of Memphis 2013 general fund budget you will see that ad valorem taxes are about 40% of the revenue. The rest presumably would be subject to the bond insurance.
  • There is a question about the effect on education funding of a TDZ zone. According to the Tennessee Department of Education, half of the 2.25% portion local option sales tax must be appropriated to education.
  • Another important point is that each year a new base will be set for the TDZ zone at the level it grew or declined to the year before. The increase in sales taxes will be measured from this new last year level. Only this increase less the education portion will be available to pay the bonds.
  • There is a lot of push back in the proposed size of the proposed fairgrounds TDZ zone. The proponents of the fairgrounds project want to include Cooper Young and Overton Square because these areas are successful areas and the proponents of Fairgrounds want to take advantage of their success to finance the Fairgrounds. They are afraid that it cannot stand on its own merits. See the attached map of the proposed zone area.
  • Finally there is a possible increase in the 7% portion of the sales tax in the TDZ. This portion will go first to pay off the bonds. If there is any left over after paying off the debt, it will go to the local government for education and other purposes. The problem with including Cooper/Young and Overton Square is that their success will be used to finance the Fairgrounds risky venture.

This is another real estate venture done by the government rather than development professionals with taxpayers taking the risk rather than private investors.

Pension Reform At The City Of Memphis

Thursday, December 4th, 2014

December 4, 2014

 

Pension Reform At The City Of Memphis

Finally the Memphis City Council has taken action to address our unfunded pension liability. Eight members decided that we needed reform and took decisive action to get this under control. The unions are not happy and will probably take this action to court in a lawsuit.

Mayor Wharton originally proposed that the City of Memphis go to a defined contribution system for all new employees and those unvested employees with less than 10 years of service. There were, of course, objections to including those unvested employees and later on a different proposal came out from the administration which was a cash balance plan. A cash balance plan needs some explanation and you can read about cash balance plans in the attached article.

In the City Council meeting it appeared that Myron Lowery’s plan which would include only new employees and would have the least savings for the City of Memphis would get the seven votes. However the City Council voted for the Hybrid cash balance plan (8 YES, 5 NO) and only those with more than 7.5 years of service would be covered under the old expensive defined benefit plan. Everyone else as of the start of the plan in 2016 would be under the new plan.

The impact on the unfunded liability of the approved plan in year one would be a savings of 6.8 million dollars and would reduce the unfunded liability in the first year by 60 million dollars. This is as compared to the Myron Lowery plan of zero savings the first year in dollars and unfunded liability reduction.

Again this is not the final decision and according to the commercial appeal this approval will be discussed again in committee in two weeks. Stay tuned. Attached are the Hybrid pension options.

The Fairgrounds TDZ Zone

Thursday, November 20th, 2014

November 20, 2014

The Fairgrounds TDZ Zone

Here we go again with another proposed development project directed by the City of Memphis development wizard, Mr. Robert Lipscomb. Now it is the Fairgrounds involving the old Coliseum, Liberty Bowl Stadium and all the other buildings and improvements on the fairground property.

In an August 2014 article in Smart City Memphis it was stated that “the TDZ does not siphon dollars from the city’s tax base because no city general fund money is spent on the project, and in fact, it may expand the city’s tax base by increasing adjacent property values and citywide sales taxes.  That’s one of the reasons we prefer TDZ and Tax Increment Financing (TIF) over PILOTs: the project pays for itself with the taxes created by the project itself.  In other words, it is self-financing, but best of all; the new incremental taxes in the TDZ are predominately state sales taxes that stay here to pay for the project rather than being sent to Nashville where about 80% of it would be spent all across Tennessee.”

However here is what a Moody’s investor’s service bulletin said about a Memphis Center City Revenue Corporation’s $20.1 million Stadium project and other Tourist Development Zone projects downtown.

The current issue is ultimately secured by all non-tax revenues that are legally available, other than ad valorem revenues, in the city’s General Fund. The ratings of the bonds are based on the city’s pledge to replenish the debt service reserve fund in the event of a draw on non-ad valorem tax revenue.

My point here is that if these bonds issued for the Fairgrounds TDZ are the same as those for the downtown TDZ zone; then if the incremental tax revenue is not sufficient to cover the required bond payments, then all city revenue other than the Ad Valorem Tax (basically property taxes) will be called on to make up the difference. It is not risk free. Take a look at the attached general fund revenue sheets from the 2013 City of Memphis budget. You will see that ad valorem taxes are about 40% of the revenue. The rest presumably would be subject to the bond insurance.

ON THE EDGE (Economic Development Growth Engine)

Thursday, October 30th, 2014

October 30, 2014

ON THE EDGE (Economic Development Growth Engine)

Last Tuesday I attended the Memphis Rotary Club Luncheon at the University Club. The speaker was Mr. Reid Dulberger, President of EDGE and related entities.

He presented an excellent presentation of the PILOT (payment in lieu of taxes) program. His main point in favor of Pilots is his contention that without the Pilot program Memphis or Shelby County (or both) would lose the opportunity for new jobs or investment and future enhanced tax revenue. An example would be a company that expresses an interest in investing here or somewhere else. Unless we give them a tax break for up to 15 years, they say the company will go elsewhere.  So the choice is nothing or something. That seems clear enough.

Another example is an existing local business taxpayer who says they want to expand but they need a tax break or they will not expand or they (more…)

A Change In Pension Changes

Tuesday, October 21st, 2014

October 21, 2014

A Change In Pension Changes

Just when I thought things were moving in a fiscally responsible direction, here comes another pension change proposal. I do not want to prejudge the proposal but just by reading a description of the plan, it sounds more expensive than what was previously proposed by the Administration. I hope that City elections being less than a year away are not a part of this change but we will see. Here is the information on the proposed new plan that I have to date.

  1. A letter to employees
  2. Plan for unvested employees to be sent to a cash balance plan
  3. Plan for a cash balance plan and a defined contribution plan

What we need is a look at the detailed cost analysis by Segal Consulting, the actuary consulting firm hired by the council. This will be given to the City Council at the private executive meeting today.

Stay tuned as this is only the beginning of a fight to save Memphis and don’t be surprised if the taxpayers are called upon to fill any fiscal gaps caused by coming election thoughts.

The November 4th Ballot

Sunday, October 19th, 2014

October 19, 2014

The November 4th Ballot

The upcoming ballot is important from a national, state and local level. As usual I will tell you how I am going to vote and give you my reasons as succinctly as possible. You, of course, will vote as you see fit based on your own conscience and principles.

For Governor I am voting for Bill Haslam.

For Senator I am voting for Lamar Alexander.

For the 8th Congressional District I am voting for Stephen Lee Fincher.

For the 31th Senatorial District I am voting for Brian Kelsey.

For the 83rd Representative District I am voting for Mark White

If I was in the 9th Congressional District I would vote for Charlotte Bergmann.

If I was in the 30th Senatorial District I would vote for Dr. George Shea Flinn.

Now as to the Wine at retail food stores, City of Memphis, I am reluctantly voting in favor as I have seen this as inevitable and it seems to work in other states without putting individual liquor stores out of business.

NOW THE FOUR CONSTITUTIONAL AMENDMENTS

Amendment #1(Gives Tennesseans back the right to legislate on abortions) – I am voting YES. The US Supreme County has already ruled that abortions are legal. This Amendment would allow the enactment of reasonable medical safety and sanitary provisions to prevent the terrible situation that occurred in the Gosnell clinic in Philadelphia which resulted in the murder conviction of Dr. Gosnell. Also remember that the Planned Parenthood v. Sundquist case (TN Sup Ct 2000), effectively prohibited any TN regulation, even for the safety of the mother. That’s why the approval of this amendment is crucial.

Amendment #2(Changes the way the Supreme Court or Appellate Judges are appointed) – I am voting NO. This is a close call but I trust informed common sense voters more than I trust the legal profession. I could go along with this amendment if it had a term limit provision limiting judges to one eight year term. Then at the end of a distinguished private legal career, outstanding fair minded lawyers could finish their career on the bench. Otherwise I would rather let the voters decide rather than lawyers and politicians.

Amendment #3- (Prohibits any Tennessee tax on payroll or earned income). YES, YES, YES

Amendment #4- (Empowers the General Assembly to permit lotteries). I am voting NO. I am against gambling in general and there has been corruption in these lotteries in the past.

FINALLY- For City of Memphis voters there is a little understood Memphis City Ordinance change to Ordinance #5512 to Improve Effectiveness of Civil Service Hearings. I am reluctantly voting YES for the amendment as I have been assured by the proponent of this amendment (City Council member Kemp Conrad) that it will help reduce the backlog of civil service cases and make it easier to discharge non productive employees of the City. It seems strange that this proposal is adding 7 members for a total of 14 members of the Civil Service Commission and asking to pay them $400 per day (or more) whereas the Shelby County’s civil service merit board has 5 members who are paid $50 per day and seems to be quite efficient. I think the difference is the culture of the City versus the County. The City has a history of tough union agreements and the unions support keeping their members employed by the City regardless of their job performance and history.

I will be glad to answer any questions that you might have about the election. Vote your preference but please vote.

The Upcoming Election on Tuesday, November 4, 2014

Monday, October 13th, 2014

October 13, 2014

The Upcoming Election on Tuesday, November 4, 2014

 

You are probably aware that a very important election occurs on the first Tuesday in November this year. The composition of the US Senate and House is a critical issue as we struggle to restore the constitutional balance between the executive and legislative branches. Early Voting begins October 15, 2014 at ALL 21 Satellite Sites and continues through October 30, 2014. Please get out and vote.

I will be publishing my thoughts on the local and state issues by next Monday, October 20th. There are four proposed Tennessee constitutional amendments involving abortion (#1), electing or appointing Tennessee Supreme Court Judges and Appellate Court Judges (#2), income taxes in Tennessee (#3) and lotteries (#4).

But today I am curious about another item on the ballot and that is Memphis Ordinance No. 5512. This proposed ordinance would increase the number of civil service commission members from 7 to 14. Brian Collins (City Director of Finance) certifies that the net cost to the City of Memphis will be $0.

Here is what channel 3 said about this proposed change in 2013.

(Memphis) With a back log of more than 70 cases, Memphis City administration and employee unions said they have come up with changes to the Civil Service Commission that will make the system more efficient. (more…)

Finally A Defined Contribution Pension Plan

Tuesday, October 7th, 2014

October 7, 2014

 

Finally A Defined Contribution Pension Plan

 

Today the City Council will consider a defined contribution pension plan for City employees with less than 10 years of service (as of July 1, 2015) and new employees hired after that date. I have been recommending this for years and finally the City Council will consider this reasonable plan. Here are the proposed ordinances.

Ordinance #5554-Adopt a defined contribution pension plan.

Ordinance #5553- Transferred participants to the defined contribution plan.

Ordinance #5552- Five or more years of service and age 65.

I have been recommending a defined contribution pension plan for years ever since I was on the Shelby County pension revision committee. This is fair for the private sector taxpayers who generally have no defined benefit retirement plan. It will probably be better for those City of Memphis employees in the future if the City’s pension investments perform as they have over the last 25 years (over 9% return).

Will the City Council and the Administration follow through and pass these ordinances? We will see but you have to consider that a year from now there will be an election for the new City Council and the city Mayor. What do politicians do when faced with an upcoming election? You have to look no further than the upcoming November 2014 national election. These changes are needed and should also apply eventually to the MLGW. Shelby County should adopt a similar plan but only for new employees, not those currently employed but not vested. This exception is in recognition of their past good fiscal responsibility as compared to the City of Memphis.

There Are Promises And Then There Are Promises

Thursday, September 18th, 2014

September 18, 2014

There Are Promises And Then There Are Promises

 

Promises are only as good as the character of the promiser and laws to back up the promise. The City of Memphis made promises in the past about pension benefits and also about retiree health care benefits. The pension benefits were backed up by law and generally could only be changed by bankruptcy (look at Detroit). However retiree health care benefits are not protected by law and are subject to change by the governing body.

 

Recently certain publications have pointed to Nashville as the model that Memphis should emulate. Therefore I decided to look at Nashville (Metro Davidson) and see what their numbers look like.

 

The first thing that struck me was that the Nashville Metropolitan Council consisted of 41 members. Our 13 is bad enough. Imagine a meeting where all 41 want to get their opinion on the record.

 

Then I looked at the pension and OPEB numbers. Their pension liability was funded to 84.6% as compared to 72.6% for Memphis. However their OPEB unfunded liability is $1.88 billion compared to $1.29 billion for Memphis. Therefore the state of Tennessee looked at Memphis and said that you are low on gas for the pension fund and also the OPEB fund and therefore you have to do something. However Nashville gets a pass because they can always cancel the OPEB promise in the future if they get in a pension contribution bind. Would you want 41 metro council members rather than the 26 we now have (13 City and 13 County) representing the City and County especially when the County has been doing a good job compared to the City.

 

Nashville is certainly vibrant and has grown whereas Memphis has been basically stagnant. However, you should be careful about claiming that the difference between Memphis and Nashville is the result of a metro government versus two separate governments in Shelby County.

Confusion At City Hall

Wednesday, September 10th, 2014

September 8, 2014

Confusion At City Hall

 

It was interesting to watch the confusion at the committee discussions Tuesday (a week ago)  about the budget. The following was in the budget document.

 

The proposed FY 2015 Operating Budget includes an increase of approximately $15 million to help fund our pension system. Combined with a FY14 contribution of $20 million, pension payments will be approximately $35 million. Since 2008, financial constraints have prevented us from paying the full Actuarially Required Contribution (ARC) needed to maintain solvency long-term. The current ARC is approximately $95 million.

 

Under newly enacted Tennessee law, the City will be required to ramp up our annual contributions until we reach 100%, no later than 2020.

 

The FY 2015 Operating Budget includes fundamental changes to medical benefits provided to current and former employees. First, the FY 2015 Budget assumes that the city will no longer pay 70% of the health care premium of retired, Medicare-eligible employees, their spouses and dependents. These retirees will have options: remain on the City’s plan; join plans offered by either their current employers or their spouses’ employers; purchase Medicare supplement plans; or join the new Affordable Care Act’s health insurance exchanges or private exchanges. This change will save approximately $27 million in FY 2015. Also, it will be the first step toward eliminating the $1.3 billion unfunded OPEB (Other Post Employee Benefits Programs) liability. Second, the Budget assumes that we implement long overdue changes to the base health plan that will result in an additional $4 million savings in FY 2015.

 

The City Council and the Administration are looking for ways to save money to increase the pension fund contribution. The easy target was the health insurance costs for active employees and retirees. However the real problem is the pension structure itself. We have too many retirees  from the City when compared to the County. The ratio of retirees to active employees at the City of Memphis is 79 per 100 versus 57 per 100 at the County. This of course means more retirees on the City health care plan. Then consider that the average City pension is $31,000 versus $19,000 at the County. Also the average health care cost for retirees at the City is $10,900 versus $7,100 at the county. The whole pension fund at the City needs an independent study to determine why more people proportionally are retired at the City than the County. This and the past refusal to take needed reforms is the root cause of the current problem.