Archive for the ‘OPEB’ Category
July 20, 2015
FEW (family/education/work) IS THE SOLUTION
There have been lots of articles last week, both locally and nationally, about income inequality, middle class wages, poverty percentages and solutions. It must be the upcoming elections, locally this year and nationally next year, that has politicians spouting out their solutions.
One local article cited a study that pegged Memphis as a national leader in both income gap and economic distress. The four local leading candidates for mayor were asked the question “How do we fix that?”
Here is a recap of what the four said.
Collins, a City Council member, said the city needs better-paying jobs before it can reverse poverty trends and close the income gap, and took incumbent A C Wharton to task for not doing more to get those jobs. Collins said he also plans to “force” the Greater Memphis Chamber to recruit businesses in technology, engineering, finance and other industries with higher average salaries. For instance, he said, the city should be targeting companies fleeing California because of the drought there.
Strickland, also a council member, said wage gap and poverty issues “run hand-in-hand” with population loss. Keeping people and jobs in Memphis is the best way, he said, and the city needs a mayor who “has the strength to fix things.”
Getting into the specifics of his plan, Strickland said he would focus on the “basics of government,” which he said are “not being done.” That includes “drastically” reducing crime and cleaning up the city, he said. “We must have a city government that is run effectively to create a safe and clean community where businesses and people want to be,” he said.
A C WHARTON
Wharton, the incumbent, said his administration has worked on reducing unemployment and income inequality in a number of ways as part of his Blueprint for Prosperity plan and with the recently announced Jobs Plus grant.
“If we are successful in getting Choice Neighborhood Implementation grants, this will provide significant support for my strategic priority of prosperity and economic opportunity for all citizens,” he said.
Wharton said the city already has some of the best workforce-readiness programs in the country at the Workforce Investment Network and through the Greater Memphis Alliance for a Competitive Workforce, which equip people with the skills needed for current and future jobs so they can “become more marketable and command higher salaries as businesses compete for top talent.”
“The Choice Neighborhood grant funds would help us leverage and maximize all of these efforts to address poverty, unemployment, income inequality and depressed neighborhoods,” he said.
Williams, the president of the Memphis Police Association, said the key was to invest in quality of life and public services instead of giving property-tax breaks to businesses.
“The profits are not being shared,” he said. “That’s why you have the (Greater Memphis Chamber) raping the city coffers. And that has to stop. Until it stops, we’re going to continue to generate poverty in this city.”
Drawing a distinction between himself and Wharton, Williams said he is opposed to “putting a clamp on excessive spending” — which, under Wharton, has translated into health care and pension changes that resulted in city retirees protesting at City Hall.
Instead, Williams said, the government should increase spending on services to make Memphis more attractive to both employers and employees.
So here is what I get out of these answers.
Collins-Get high tech companies from California but we do not have a skilled high tech workforce.
Strickland- Reduce crime, clean the city and reduce taxes.
Wharton– Get federal grant money for short term training programs and neighborhood programs.
Williams– Stop Pilots, stop cutting expenses and employee benefits which translates into higher taxes and more people leaving Memphis.
The truth is that there is no immediate solution to the problems in Memphis. The only answer is FEW, (FAMILY, EDUCATION, WORK) and it is a long term solution. Since the end of the Second World War we have been digging this hole (family breakdown, poor education and welfare dependency). Look at Detroit, Baltimore and unfortunately Memphis. Raising the minimum wage, income redistribution, unsustainable pensions and health care benefits will not solve the problem. Politicians will tell you otherwise but there is no one year or even four year solution. Restore your family, educate your children and take any job to start up the hard economic ladder. Any other solution is a lie. What is your opinion of the candidates and their solutions?
June 22, 2015
Why OPEN RECORDS Is SO Important
You may have read a front page article last Saturday in the Commercial Appeal by education reporter Jane Roberts. The article announced the creation of an open records reading room (Room 121) in the SCS Coe building at 160 S. Hollywood St. here in Memphis.
I have been working to open local public records since 2004 and have been greatly aided by many local citizens, particularly John Malmo, Eddie and Eve Settles (backinrivercity.com) and Ken Welch. I want to thank these people and many others who have contributed to this effort.
As Ken Welch has said many times, all public records are technically open to the public unless specifically named and restricted by state law. Then why can’t we get all this information easily? The answer is that public bodies and the leaders (Presidents, appointees, Governors, Mayors, Superintendents, etc) can make life difficult and expensive if they want to. The Tennessee open records law clearly states the following. However the particular public organization can drag their feet, threaten big charges paid in advance, refuse you entrances to offices without an appointment and then refuse to make an appointment. What has happened at the SCS system offices is different and significant.
Therefore this is why our agreement with Supt. Hopson and Chris Caldwell is so important. They have shown that they are open to making all legally open records actually open to the public. After all, we (the taxpayers) paid for all this bureaucracy and we are the employers. We recognize that we need good education, good fire and police services, good roads, efficient water, gas and electric services and many other public facilities. However we paid for them and we expect answers to all our reasonable and legally available questions.
Open Records is so important because without transparency there is often corruption, favoritism, waste and inefficiency. The sunshine of OPEN RECORDS and vigilant citizen can prevent this. There are many details to work out and our open records group is willing to work with the Shelby County System to make access easy and convenient. If we can make this work efficiently, we would look forward to using this as a template for other public bodies. Any suggestions from the you, the public, would be welcomed. We need to join together for full open records access.
May 26, 2015
The Great OPEB Dump
OPEB (other post employment benefits), basically retirement health care benefits, are much in the news. Retirees are acting like it is a great surprise that their health care plans are being cut and possibly it is a surprise. They made the mistake of believing political promises.
But look at the facts. Funding for the school systems (the old Memphis City Schools and the old Shelby County Schools) was always the responsibility of the Shelby County Government. The City of Memphis kicked in some money over the years and then when things got tight at the City, they cut that funding and the Courts said NO, they had to continue the funding on the basis of the principle of MAINTENANCE OF EFFORT.
For years the old City of Memphis Board of Education had a free hand and they loaded up the budget and the teachers and other unions participated in the loading. In particular look at the OPEB provisions of the old City School Board versus the old Shelby County School Board.
Here is a statement from the 2010 Shelby County audited financial document. Their unfunded OPEB liability went from $787 million in 2008 to $242 million in 2009. Look at the reason.
“The Board began recognition of OPEB on July 1, 2007. Limited trend information may be discerned from the three valuations made to date. The change in AAL for OPEB from the June 30, 2008 to the June 30, 2009 valuation date was due to actuarial assumption changes related to reduction in claim costs for post-65 retirees. Effective January 1, 2011, post-65 retirees formerly covered under the self-insured plan will be covered under an insured Medicare Supplement plan which is estimated to reduce claim cost by 63% to 72% depending on age. Additional reductions are anticipated due to census changes, changes in retiree contributions, and any retirements or terminations that did not occur as expected in the prior valuation.”
Then look at the old City of Memphis School Board OPEB condition and lack of action from their 2010 CAFR (Comprehensive Annual Financial Report).
AS OF JUNE 30, 2010, THE ACTUARIAL ACCURED LIABILITY FOR BENEFITS WAS $1,534,912,045 (that is $1.5 billion), ALL OF WHICH WAS UNFUNDED.
They failed to take the actions that the old Shelby County School Board took. They eventually dumped this unfunded liability on the new Shelby County School Board and the County and City taxpayers.
Again this is the result of failure of the old City School Board to recognize the huge unfunded promise and like the City of Memphis they will be forced to make the retirees pay for their past poor decisions.
March 4, 2015
In a recent CA article, it was pointed out that the cash strapped City of Memphis will have to come up with another $13.5 million to cover the underestimated cost of City of Memphis retirees OPEB cost. This is because of the City’s liberal policy differences versus the County concerning what health care policies are available to retirees.
I have attached a resolution dated June 18, 2007 entitled “RESOLUTION TO PROVIDE FOR OPEB BENEFITS AND APPROVE CHANGES TO HEALTH INSURANCE BENEFITS PROVIDED TO EMPLOYEES AND RETIREES”
It is signed by none other than A C Wharton, then County Mayor.
The main difference is that County retirees over age 65 that are eligible for Medicare (either the retiree or spouse) will only be eligible for a Medicare supplemental plan, not the regular county plan. Also the retiree’s share of the premium will be based on years of service. This saved the county millions of dollars since 2007.
Meanwhile the City of Memphis did none of this even after County Mayor Wharton became City Mayor Wharton. It took a city pension and OPEB financial crisis to get the City to change and then they got the numbers wrong to the tune of $13.5 million. Then add to that the millions they could have saved between 2007 and 2015 had they followed the County example, but they did nothing.
Last Tuesday I braved the ice (black and otherwise) and went to the City Council committee meetings at City Hall. There were two particular subjects in which I had an interest and they were the Pension Funding Policy chaired by Jim Strickland and the Executive session on Debt Restructuring chaired by Myron Lowery.
These two subjects are related because due to the 2010 scoop and toss bond refinancing and the State of Tennessee demanding that the City of Memphis increases its pension ARC (annual required contribution). It turns out that the 2010 refinancing created a bubble starting in 2016 making it difficult to pay both the increased ARC and the bond payments at the same time. The answer, scoop and toss again. The City (Brian Collins) claims that this is reasonable due to low interest rates. Jim Strickland, Harold Collins, Wanda Halbert and Shea Flinn raised questions as did the Commercial Appeal. Here is the presentation given at the meeting.
I decided to investigate some past bond financing so I asked the City of Memphis for some bond information on recent bonds such as the stadium project and the Pyramid and Pinch District redevelopment. All I got from them was a computerized reply with answers to follow SOME DAY. So I went online and got the following Moodys financial analysis report.
Here are some of the things that the report says about Memphis.
- The current issue is ultimately secured by all non-tax revenue that is legally available other than ad valorem revenues in the city’s general fund.
- The Series 2011B and 2011 C subordinate are secured by a second lien on TDZ revenues with a pledge from the city to replenish the debt service reserve in the event of a draw on non-ad valorem tax revenues.
The negative outlook on the Series 2013A&B and 2011B&C reflects Moody’s expectation that the city’s financial position will remain challenged as fixed costs, including debt service, pension and other post-employment benefits represents 42% of operating expenditures in fiscal 2012.
In spite of all this the City continues to spend on questionable projects like the Raleigh Springs Mall renovation and to talk about the fairgrounds project as if these will all be paid for by tax incremental financing and fairy dust.
November 27, 2014
The MLGW Island
There was a very good and interesting article in a recent issue of the Memphis Flyer. It was written by Les Smith, a reporter for WHBQ Fox-13 News. The point of the article was his belief that the MLGW is and always has been tone deaf to its customers. The most recent example of the deafness, according to Les, was MLGW announcing the need for a 2 percent hike in the residential water rate just after receiving a tongue lashing from City Council member Wanda Halbert.
As a former member of the MLGW Board of Directors and a long time observer of their services, I have the following observations.
- Over the past years MLGW has been a well run organization delivering electricity, natural gas and clean water in a professional manner. However there have been times when politics caused problems with the management, specifically when Mayor Herenton put Joseph Lee in charge.
- The employees generally are well trained and they respond to weather related outages in a prompt and professional manner.
- With the exception of Lee, the top job at the MLGW has been filled by professionals with the highest integrity.
- Utility rates are competitive compared to other cities of similar size.
I have studied the MLGW financial statements over the years and they are clear and complete. I have in the past contested the surplus in net worth as inconsistent with their constitutional nonprofit status. However they contend that they need a certain percentage of unrestricted assets to cover unpaid bills and expenses. You can argue about the size of the unrestricted cash but I do not think it is unreasonable.
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.
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.
August 18, 2014
Property Developer With Other People’s Money
A recent CA article stated the following “After a delay of several months, Robert Lipscomb said recently that his team is ready to move forward with a long-standing plan to redevelop the Mid-South Fairgrounds into a sports complex and retail center.”
What a remarkable statement. Most professional property developers risk their own money or gather together other investors based on their good track record. However Mr. Lipscomb uses government programs such as TDZs (Tourist Development Zones), TIFs (Tax Incremental Financing) and various State and Federal programs paid for by the general taxpayers. Bonds are issued with the promise of payment from a fund of incremental taxes over and above a predevelopment base tax rate. If the incremental taxes are there to pay off the bonds then everything works out fine. If they are not there, then the local taxpayers pick up the load.
My question is who appointed Robert Lipscomb as chief Memphis property developer? If the City of Memphis is his property development company, then we need to study the financial records of his company. The State of Tennessee through the office of (more…)
August 4, 2014
A Smoking Gun
I have a reluctance to throw out old files that I have from 2001. So I decided to start cleaning out and throwing away old files. The first one I came across was an open records reply from 2007. It was a Mercer Health and Benefits report dated July 24, 2006. The title was “City of Memphis Retiree Medical Landscape 2006 and Beyond”.
Take a look at this report. It was a warning of what was coming from GASB (Government Accounting Standards Board 43 and 45) concerning OPEB reporting, Medicare Coordination, Service Based Contributions and Future Hires.
Why was this report Important?
- It will be a required part of the annual audit statement
- This will impact bond rating
- Unfunded liability is potentially 50 times current retiree health-claim cash flow
The report recommended plan changes such as
- Coordination of benefits on medical and surgical coverage with Medicare (Parts A & B) for all post 65 retirees.
- Adopting an age and service based contribution rate structure.
- Plan design changes to the retiree medical plan that will reduce costs to some reasonable level and help manage the liability.
- Medicare coordination will mean the City of Memphis will provide coverage for post-65 retirees only on a secondary basis and all post 65 retirees will be required to buy Medicare coverage.
- The City of Memphis will adopt separate rates for pre-65 and post-65 retirees.
- Retirees will contribute different amounts depending upon their length of service in active employment.
Is it any surprise that the City of Memphis ignored these recommendations and the County took the warnings to heart and adopted a similar recommended plan? This lack of action by the City in 2006 explains the current crisis we have at the City of Memphis.