Archive for the ‘OPEB’ Category
January 11, 2016
Who Is Responsible For The OPEB Debacle?
The City of Memphis, The State of Tennessee and the active and retired employees of the OLD (no longer existing) Memphis City Schools woke up recently as there was a noise rattling around in the closet. When they opened the closet door out jumped the ghost of over $1 billion dollars of unfunded OPEB (other post employment benefits). (OPEB is the promise of furnishing retirees health care and life insurance at a highly subsidized rate without putting the money aside to pay for it).
Now everyone is saying the ghost doesn’t belong to me. Well here is the story which I have been pointing out for years.
Every politician has been ignoring the OPEB ghost for years. However some have been more responsible than others.
The most responsible people again have been Shelby County people, the old Shelby County School Board and the Shelby County Government. They recognized the problem after the 2007 GASB-45 (Government Accounting Standards Board) regulation. See the attached page showing the 2010 actions of the Board in reducing the unfunded OPEB liability from $548 million in 2007 to $242 million in 2009. They reduced the retiree benefit rules.
Now look at the old Memphis Board of Education report from 2010. They did nothing and the unfunded OPEB liability was $1.5 billion dollars. This is 6.3 times higher than the county but the active payroll of the city schools was only 2.5 times higher than the county school payroll.
Clearly the irresponsible parties are the Old Memphis City School Board, the Old Memphis School Administration and any politicians (City and County) who ignored the growing OPEB problem.
Now, how do we solve the unfunded promise? Unfortunately we have to do to the school system retirees what we had to do to the City of Memphis retirees and to a much lesser extent what the Old County School system had to do to their retirees in 2010. We have to cut their retiree health care benefits. Promises were made by elected people who should have known better or made regardless of knowing better and the chickens are coming home to roost.
December 29, 2015
A Year End Report Card From Joe Saino
Looking back over more than 10 years of reporting on local government I have hope for the future of Memphis and Shelby County. My score card for the major local governments is as follows.
Shelby County Government- A
City of Memphis- C
Shelby County Schools- D
This is not a scientific scoring, just years of experience and dealings with these large government entities. Hopefully the City of Memphis will improve with the inauguration of our new Mayor, Jim Strickland. I have high expectations for him. Past problems at the City can be laid at the feet of past mayors and especially the voting majority of past City Councils. They refused to make the hard choices until the State of Tennessee came in with the fiscal bullwhip.
MLGW under Jerry Collins is well run and efficient. I could wish that they publish more information on their website like annual pension and OPEB reports so that customers do not have to ask for this information through an open records request.
Shelby County has a proven record of good management and is open and above board. Their record on pension and OPEB management compared to the City of Memphis and the old and new school boards has been outstanding.
The old Memphis School System and the new replacement Shelby County School System is a puzzle. The new school system at first looked like they wanted to enter the modern open records world but then when they had the chance; they closed the door on common sense requests. Then they filed a huge lawsuit against the state which is going to cost millions in legal fees and are also trying through the Tennessee School Board Association to charge the public a fee just for asking for access to public data and records. It is a puzzle. They are saying in effect “We know best how to educate your children, so shut up with your requests for information.”
Enough of my scorecard so here is some real data from recent pension reports that I obtained from Memphis, Shelby County and the MLGW.
Payroll of active employees:
MLGW $152 million
Memphis $340 million
County $243 million
Retirees and beneficiaries
MLGW 2597 receiving an average of $38,601 annually
Memphis 4239 receiving an average of $34,014 annually
County $3598 receiving an average of $19,914 annually
MLGW 33 receiving a total of $491,000 annually
Memphis 653 receiving $17,370,000 annually
County 72 receiving $1,506,240 annually
Need I say more? The problem at the City of Memphis is obvious. We need to change the pension board makeup and go to the County disability system.
November 24, 2015
Oh No, A Water Rate Increase
As a former MLGW board member, I have a history of praising and criticizing the Division. I follow and read the Division’s annual financial reports. The latest report is for the calendar year 2014 which ended December 31, 2014. The 2015 year report will not be out until well into 2016. However I am sure the Division knows what will be in the report.
Division President Jerry Collins went before the City Council to ask for a 22% water rate increase. He said that the rate increase is necessary to keep the water division from recording its second straight year of negative net income at the end of 2016. A state board is required by state law to step in and set rates after two straight years of negative net income. He said the board has consistently favored higher rates, including a 42 percent increase in Bartlett’s rates.
I have looked at the past financial reports and the Water Division has had a very slim margin (changes to net assets) in 2013 and 2014. Apparently they know that 2015 they are going to show a decrease in net assets (a loss) and without an increase they will lose more in 2016 due to losing a large customer, Cargill Corn Mill. Two years of losses would bring in the state board to dictate an increase in water rates according to state law.
The usual suspects on the City Council refuse to study the facts as they demonize the Division as heartless and cruel. Facts do not make any difference to them as they play to their voting base. Another fact is that the Water Division has been paying $2.5 million dollars per year due to the City Council agreement to finance the FedEx arena. The agreement is effective through the year 2028. During 2014 the Water Division was authorized and directed by City Council, per City resolutions, to make an additional annual $1.9 million transfer payment each year through fiscal year 2017. Transfer payments to the City for 2013 as compared to 2012 increased due to a City resolution authorizing and directing an additional payment of $1.8 million in exchange for the release of any rights the City may have had to receive water from the Water Division free of charge during 2013 under the MLGW Charter.
The MLGW has a history of being fiscally responsible and being run mostly by professional management. Their employees are well trained and do a tough job. However the City Council would be well advised to look in to areas such as MLGW’s OPEB program. They should bring their rules concerning the cost and availability of retirees and their spouces health care to match the same rules as Shelby County Government retirees. Shelby County has these rules in effect since 2007. The MLGW pension and OPEB funds are in good shape due to funds paid for by MLGW’s customers’ utility rates. Compare their pension and OPEB funds to those at the City paid for by property, sales and other taxes.
As a final note I have been informed by President Collins concerning Sewer Rate Fees. “Sewer fees are governed by Public Works. To the best of my knowledge Public Works is not planning a sewer fee increase.” MLGW is just used as a collection agency for 1) Sewer Charge, 2)Solid Waste Fee, 3)Mosquito/Rodent Control Fee and 4) Storm Water Fee.
August 17, 2015
Pilot Promises! Are They True?
There was an editorial in the CA August 16th about Pilots and attached tax breaks. This is a subject that is up for discussion and debate. On one side is EDGE (economic development growth engine) led by Reid Dulberger. On the other side is many of the local unions and other groups who wonder where is the promised benefits of EDGE’s website.
If you look at EDGE’s website you will see $711 million dollars in projected new tax revenue. WOW!! Boy do we need that. No future pension and retiree health care problems. We are on easy street.
But looking back on City and County revenues for many years I don’t see any such massive flow. Revenue just seems flat but with some inflation increases.
What we have here is a lack of facts. Here are some problems and suggestions that I would suggest could shine some light on the PILOT discussion.
If you look at Shelby County Trustee website (currently under David Lenoir) you will see a list of annual County Pilot reports. In those reports is a section entitled Contracts Aged by Expiration Date. This section shows how much the property should pay in Shelby County property taxes and how much they are in fact paying under the Pilot reduction.
In order for the public to have some basis for confidence in the pilot program, some entity should look back at the expiration date of each pilot and determine if after the pilot expired, did the property pay the full amount in the future or did they get an extension, a reduction, or did they leave town or whatever. This does not sound too hard but it is beyond my resources.
Another problem is that the City Treasurer (the City equivalent of the County Trustee) does not publish a similar report. We are talking millions and millions of dollars in abated taxes. Once the pilot expires, are we getting the full amount or not? I say Prove it.
Joe Saino 901-7540699
Let’s Take a Look At OPEB, Retiree Health Care Costs!
July 28, 2015
Yesterday there was an article in the Wall Street Journal entitled “Relief for Cities’ Budget-Busting Health-Care Costs”. It talked about new accounting rules for retiree health care plans. Nationwide the total unfunded liability is close to $1 trillion dollars.
For the first time the Government Accounting Standards Board (GASB) will require local government to report their obligations to retirees as liabilities on their balance sheet. (Side Note: The Federal Government wants cities to report this but the federal government continues to ignore their multiple front unfunded liability.)
So I decided to take a look at Memphis, Shelby County, Shelby County Schools and Nashville.
Unfunded Liability for OPEB, 7/1/2014
Memphis $716 million
Shelby County $243 million
Shelby County Schools $1.43 billion
Nashville Metro $2.03 billion (including metro schools)
The striking thing about this is that the only adult in the above group is the Shelby County government. There was a warning back in 2007 from the GASB about unfunded OPEB liability and Shelby County took action and forced retirees over 65 who were eligible (or their spouse was eligible) to use Medicare as the primary payer with a County supplementary plan as the backup. They required those retirees under the age of 65 without a Medicare eligible spouse to pay a higher health care premium based on years of service. The City and apparently Nashville did nothing. This led to the above huge numbers.
The City of Memphis finally took action which has led to the current turmoil among the retirees and the unions. The school system and Nashville are finally facing their fate and will be required to make hard choices. I call on the City of Memphis to not go back on their late hard choices on retiree health care costs and go forward with their adopted but late difficult decision.
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.