Archive for the ‘Pension’ Category
September 2, 2014
Return On Investment
The City of Memphis pension board voted to change their investment strategy to raise their return on investment. I hope they are successful but they are taking a chance like the gambler at Tunica on the crap table. Seven come Eleven.
Look at this Asset Class Return Chart. These sectors rotate from very good to average to bad to very bad. Anyone that says they know what the future will be, will be very rich or very poor if they are risking their money. If they are risking someone else’s money, they will be very sorry but well paid for their advice.
Now here is what I would like to see. What is the return on the investment for the $43 million dollar development known as the Beale Street Landing? I went there a few days ago and below are some pictures. I would like to see a financial report on the return on investment for this structure. This is not like spending money for roads, sewer lines, parks, street lights, public safety and criminal justice. We must have that for a civilized society. But the Beale Street Landing must produce a return on the investment. Give us a report on RETURN ON INVESTMENT and a reason to continue to hire the high priced staff that brought us this investment. Here are some shots from our $43 million dollar investment. Parking $5.00 minimum, $15.00 maximum. Nice restaurant and bar with average lunch prices but they cannot get a professional restaurateur to operate it so they are running it themselves. Hours, 9 AM to 4:30 PM Monday through Thursday, 9 to 7:30 on Friday, 11 to 7:30 on Saturday and 11 to 5 on Sunday. Where is the romantic nighttime supper watching the boats on the mighty Mississippi?
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.
July 30, 2014
Work Time Versus Time Off
The CA has been on the case of certain judges concerning the amount of time they are working versus their time off. While this criticism seems to be justified it also applies to the City of Memphis, Shelby County and most other public employees.
First look at the salaries of the various officials we are currently voting on.
CHANCERY COURT CLK
CIRCUIT COURT CLERK
CRIMINAL COURT CLERK
GENERAL SESSIONS COURT CLERK
JUVENILE COURT CLERK
PROBATE COURT CLERK
I am conflicted in my opinion about judges. I am very much in favor of term limits. I think the people should elect the judges but it (more…)
July 24, 2014
On The Back of Taxpayers
We hear the constant slogan, “Don’t balance the budget on the backs of
current employees and retirees”. In past years there was a used car lot on
Lamar with the sign saying “We Tote The Note”. As taxpayers, we have
been toting the note for years. Look at the facts.
The annual cost per retiree at the City of Memphis is $32,518 versus
$19,218 at the County.
The unfunded pension liability at the City of Memphis is $709 million versus
$161 million at 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.
In 2012, I calculated the cost of retiree health care cost per retiree
paid by the taxpayers. For Memphis it was $8533, for MLGW it was $7440
and for Shelby County it was $5605.
The inescapable conclusion is that City of Memphis has had a loose
June 30, 2014
Trust The Free Market
I followed Mayor Wharton’s proposals in his state of the City speech and in the PFM group’s 5 Year Strategic Fiscal And Management Plan for the City of Memphis. I congratulate the Mayor for hiring this group and for the well written and realistic facts in the plan. Now that part of the plan has been voted on and passed (OPEB reform of health care) I would like to propose an alternative plan for pension reform, another major part of getting the City’s fiscal house in order.
PFM recommends various pension plans for non vested (less than 10 years of service) and future new employees. The recommendations include a defined contribution plan or a combination of a defined contribution plan and a limited defined benefit plan similar to what the state of Tennessee has done for teachers and state employees.
Several years ago I participated in a pension reform study for Shelby County which ended up in Plan D for the county for new employees. The City adopted a similar plan for new employees only basically doing away with the disastrous 25 year retirement formula (regardless of age). At that time I recommended a Hybrid plan which would put public employees on an equal footing with private sector employees promising a minimum of social security return but possibly a much better return from the free market.
Social security promises a lousy return by sending your money to the Washington DC lockbox which is empty due to the politicians spending all the social security money. What this proposal would do is have the same 6.2% contribution from the City and the 6.2% from the employee and let it grow at the market rate until retirement. The market has returned over 9% at the City and the MLGW since inception even including 2008. The social security return is -.95%.
Of course the IRS would probably have to bless such a plan but that should be no problem since the City has good relations with the current administration. We should consider all options and the employees should get on board with the free market and take the same risks that all private sector taxpayers take, market return. You can hardly do worse than putting your faith in social security.
June 19, 2014
Congratulations Mr. Mayor and City Council Majority
My wife and I have been out of town visiting two of our daughters, our son in law and our 2 year old grandson in California. You can imagine my delight in reading Wednesday morning that the City Council has taken the recommendation of Mayor Wharton to start the process of reining in our City finances and getting control of our unfunded liabilities.
This is just the first step and it will be painful and seemingly unfair to the retirees but this is what the County did years ago and the financial statements show the difference. However this is just the first step. More needs to be done next year. Pension reform in July this year and then line of duty disability, sick day reform and other areas of benefits that are more than private sector comparisons.
On a lighter note but with some significant contrasts I list below some items from the Carmel California Pine Cone newspaper which I picked up on my trip. (Carmel is where Clint Eastwood used to be mayor).
Police & Sheriff’s Log Crime Report
1) Subject reported the loss of a wallet while wine tasting in Carmel. Exact location of loss unknown.
2) Man was walking northbound on Mission Street when he saw a subject who was staggering and almost falling to the ground. He made contact with the subject and called the police. Upon arrival the police contacted the subject who had been drinking. He was reunited with his spouse, who was sober, coherent and staying at a hotel approximately one block away.
3) Person came into the station to report the loss of a wallet and personal contents. Person later located the wallet at a restaurant patronized last night.
Then an article with the headline “Council adopts $24M budget at first pass”.
In the article
In the article there is the following information. The biggest chunk of spending goes to public safety (fire, police and ambulance) accounts for 32% of expenditures. In Memphis this figure is 70%.
Memphis is obviously not Carmel California but what a difference in the vital area of public safety.
June 5, 2014
More Talk, Delays And No Answers
The clock is ticking and all we get is more delays and can kicking down the road from the city Council. Positions seem to have hardened. Janice Fullilove and Joe Brown are in the “over my dead body” camp. Bill Boyd has ruled out any retiree OPEB reductions for health care. Jim Strickland and Shea Flinn want to pay up in 2 years instead of 5 but don’t come up with where the money is coming from.
The most clear eyed vision seems to come from the PFM January 2014 City of Memphis Fiscal and Management Plan. For instance on page 46 while employees were supposed to pay 30% of the cost of health insurance, the City only collected 24.2%, leaving the taxpayers to pick up nearly $4 million in cost left on the table. This under billing has been going on for a number of years. Then on page 43, we see that we pay employees (Fire and Police Services) college incentive pay amounting to $6 million per year.
NEWS FLASH FROM THE BAT CAVE. IT IS REPORTED IN THE MORNING PAPER THAT THE CITY HAS A NEW POT HOLE BAT TRUCK REPORTED TO FILL HOLES FASTER AND CHEAPER. THE MAYOR ASKS ALL CITIZENS TO REPORT ALL HOLES DEEPER THAN KNEE HIGH.
Then on page 130 we see that one of the biggest problems we have in Memphis (potholes) is reported. According to the Division, the number of lane miles pavedl has dropped from 236 in 2007 to 105 in 2011, a decline of 56%. “WATCH OUT, HOLY POT HOLE BATMAN”.
As to the proposed health care cost reductions, this is where the real money is. According to the Affordable Care Act, costs will be reduced by $2500 dollars per family, you can keep your doctor and you can keep your plan. PERIOD. Let us take them up on this promise.
June 2 2014
Paying For Pension Reform In 2 Years
A good friend sent me a copy of Councilman Jim Strickland’s thoughts in paying this unfunded liability off in 2 years rather than 5. Jim is a good guy and a responsible city council member. He is correct in that paying it off in two years rather than five will save in the long run. Last year we added $68 million to the unfunded liability due to the small payment to the pension fund rather than the recommended ARC payment.
What is missing from him is the specific details of how we are going to pay for this pension load without raising property taxes. He needs to detail the immediate dollar savings for 2015 such as health care reform for active employees and retirees, sick pay, vacation reform, college education benefit reduction or elimination, line of duty reform and salary reductions to bring salaries in line with private sector. Also while going to the proposed defined contribution will not give immediate relief, it will change the future projections of the pension auditors reducing the unfunded liability projections.
Also concerning the health care proposed changes, I believe that those retirees under age 65 who are not eligible for medicare (or their spouse is not on medicare) can pay for back medicare eligibility to make them eligible.
I would agree with paying in two years rather than 5 but only if it is accompanied with passed and agreed on reforms like the above detailing where the money is coming from. We do not need more property tax increases. Look at the county and their proposed (more…)
May 29, 2014
What Are The Others Doing About Pensions And OPEB?
Memphis is struggling with what to do about their unfunded liability in pensions, OPEB (retiree health care) and general fund finances. I have talked about what Memphis has done compared to the Shelby County government and pointed out that due to past actions and good management, the County is in relatively good shape compared to the City of Memphis. Memphis must make hard decisions or possibly the State will step in and do it for them.
Then I wondered about Germantown, Bartlett and Collierville. This is quite interesting. They are all over the ball park. Germantown has a defined benefit plan. Collierville had a defined contribution plan and went to a defined benefit plan in 2007 (a year before the crash). They also have two other plans, a defined contribution and a state plan.
Percentage of pension and OPEB funding.
Pension Funding Percentage: Memphis 72.6%, SC 87.4%, Germantown 76%, Collierville 80.4% and Bartlett 67.1%.
OPEB Funding Percentage: Memphis 1.7%, SC 25.7%, Germantown 32%, Collierville 58.8% and Bartlett 9.9%.
Here is more of what I found.
Germantown amended the retirement plan in 2001. All employee retirement benefits are provided through a single employer, defined benefit plan. Under the Plan, all full time permanent employees at least 18 years of age (age 21 for Emergency Services Employees) participate and are vested after 10 years of service, 5 years if the employee was hired before January 1, 2003. Benefits are calculated at 2.25 percent of Average Monthly Earnings multiplied by the number of years of service subject to a 30 year maximum. The maximum accrual is 67.5 percent of base salary.
In addition, to the pension benefits, Germantown provides certain post-retirement health care benefits to employees who retire from the City under the provisions of PERS (Public Employee Retirement System). The City, in conjunction with PERS, has established benefit provisions and contribution obligations. The premium charged retirees is a percentage of the group rate. Prior to January 1, 2008, the City’s insurance became secondary to Medicare Insurance. After January 1, 2008, the plan was changed whereby future retirees could only obtain the City’s dental and prescription drugs.
Collierville’s long-range financial plan is to provide retirement and post-employment benefits to employees. The Town provides (more…)