Archive for the ‘Property’ Category
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.
February 18, 2015
Cost of pensions/ City Versus County
I recently asked for and promptly got a copy of the Shelby County Pension Actuarial Report dated June 30, 2014. I also asked for the City of Memphis report and have yet to get it. However I have the June 30, 2013 report from the City of Memphis.
I first read the Shelby County report and it was like reading a financial report from, your favorite profitable well run private sector firm. Not exciting but very comforting. Not racy but secure.
Then to add spice to my day I took up the City of Memphis pension report. Talk about “A Tale of Two Cities”. Here are some comparisons.
Active Employees, City of Memphis- 6280; Shelby County 5302
Retirees, City of Memphis- 4782; Shelby County 3469
Unfunded Liability, City of Memphis- $709 million; Shelby County $243 million
Retirees on disability, City of Memphis- 635; Shelby County 80. Most of the County disability retirees are regular, not line of duty. Most of the disability retirees from the City are line of duty. They get 60% of their highest average salary tax free for life. The problem is the composition the approving pension board at the City made up of their fellow employees. Shelby County gives approval to a disability insurance company. This is costing the City $14 million per year.
Total annual pension payments, City of Memphis $155 million; Shelby County $66 million
Average pension per retiree, City of Memphis- $32,518; Shelby County $19,273
Do I need to say more?
February 11, 2015
Insure Tennessee! Let Us Have A Discussion
Recently I heard a talk given by Dr. Scott Morris, founder of the Church Health Center. He talked about the Sears Tower planned renovation and it was fascinating. If it comes off successfully, it could lead to great benefits for midtown and for Shelby County.
Before he got into the Sears Tower presentation, he talked about the recently defeated proposal for Insure Tennessee. This is Governor Bill Haslan’s proposal to take federal money from the government to expand Medicaid coverage under the Affordable Care Act to people who do not qualify either for existing Medicaid programs or to buy coverage on an exchange.
Haslam unveiled Insure Tennessee in December after nearly two years of negotiating with the federal government because Insure Tennessee was not a straight expansion of Medicaid. It required a waiver approval by the U.S. Department of Health and Human Services because Haslam opted to craft a state-specific program that modeled many aspects of commercial health insurance using funds from a tax that Tennesseans are already paying under the ACA.
Dr. Morris stated that this was a no brainer as the money was sitting there and there were people who needed the medical services and after all it was our Tennessee tax money and additionally tax money from other states.
February 3, 2015
Fancy Expensive Jobs And Titles
Recently Mayor Wharton gave a State of the City address. In that speech he cited the case of Willie Woods, owner of Woods Painting Co, who turned to the City of Memphis when the recession knocked down his revenue by 30 to 40 percent. Mr. Woods wanted help finding jobs and financial support. He, no doubt, had a lot of company during the recent severe downturn.
The Mayor’s answer was typical for most politicians, local and national. The Mayor proposed creating a new “cabinet level” department, the Division of Minority Business Services.
Well let us look at the current 2015 City of Memphis budget. In this budget we find the Office of Talent & Human Capital. The mission of this office is “to secure the City of Memphis competitive position in the knowledge economy by supporting innovative strategies, tactics and initiatives that focus on retaining, recruiting, and developing the nations’ most talented workforce.”
Now look at eight budget pages from the 2015 City of Memphis budget. You will see that we propose to spend $1,251,805 and give employment to 6 people. That is a cheap price if Dr. Scarboro, Executive Director, achieves this objective. Cities across the nation are spending billions to achieve this goal and the national government is spending trillions.
Let us be realistic about these made up positions and jobs. They are what politicians at all levels do to make the public think they are addressing the problems with real solutions. This is nothing against Dr. Scarboro. I am sure he is a great guy who has done significant good work. However creating another division with another Executive Director is not the solution to solving Mr. Wood’s problem or the human talent problem. It will take years of education reform and family social services to attack the poverty, family dissolution, crime and local low educational levels that are at the base of low human talent levels. Another fancy title and another cabinet level division and another million plus spending will not help Mr. Woods get more work. Being the best painting contractor offering fair prices and great work is the answer to his problem.
January 8, 2015
There was a recent editorial in the CA about the upcoming 2015 city elections and term limits. This is a subject that is close to my heart. Let me be clear. I am for reasonable term limits for all elected public offices from the President on down.
At the Federal level, thank goodness that the office of President is limited to two four year terms. Now it is time for the senate and the house to institute at least a twelve year limit (two six years terms and six two year terms). The argument that our politicians need long experience in government to make good decisions is greatly overrated by actual performance.
Now as to the new term limits for the City of Memphis. I would like you to remember how this came about.
Without going in to a long history lesson, it came about by the actions of Mr. John Lunt, a Germantown resident but a great Memphis businessman. He was incensed by the foolish January 2001 pension resolution allowing elected and appointed people to receive a pension after twelve years regardless of age. This has cost the City of Memphis millions. Mr. Lunt instituted a charter commission election with the help of thousands of voters which the politicians fought tooth and nail. The citizens got behind the proposal and it passed.
The one good result of that effort was term limits for the Mayor and City Council. Myron Lowery was the sometimes chairman of that Commission and thank you Myron for your support of the citizens. Shelby County already had term limits in their charter which certain members of the County Commission fought in court but lost.
Public spirited citizens should come forward and offer their services in elected positions but after four or eight years, they should go back to the private sector and earn their living.
As a retiree I ran for City Council in 2007 and I thank the over 16,000 voters who voted for me. My wife and children thank the voters who gave Shea Flinn and Kemp Conrad more votes. They both have done good work for the City of Memphis. I encourage young new people to come forward and put their ideas for good government before the voters. I encourage retirees to get involved in the issues and lend their experience in letters, calls, blogs and unpaid public service positions. Good government needs input from the citizens and tax payers. Do your part and get involved.
January 6, 2015
The Cargill Pilot
Recently a reader of my blog asked me the following question.
“When a company pulls out before the end of their PILOT agreement, do they pay a penalty for not having delivered as promised? I am thinking of Cargill.”
I responded “Good Question. I will check. I emailed EDGE (Economic Development Growth Engine) and asked for a copy of the Cargill Pilot agreement. They promptly responded as follows.
email@example.com “The Cargill Lease, along with most documents, are online. See http://growth-engine.org/archive/?g=/Data%20By%20Company/Cargill
I went there online and found a number of documents about Cargill but the one that was most interesting was the following one entitled “Application Of Cargill Incorporated For Payment In Lieu Of Taxes” dated in 2010. Look at page 48 which is a letter signed by Mayor Wharton with promises of tax reductions close to $12 million and a $3 million dollar funding to assist in rail enhancements.
Then look at page 42 where Cargill would possibly provide a $500,000 funding for a school bus project in order to delay installation of equipment at Cargill to reduce their air pollution. I am not sure if they ever provided this $500,000. Does anyone out there know? Here is an article about the proposal.
Cargill is a big company and they do what is best for Cargill. They are a big employer and any city would be proud to have them as a local employer. It is best that all citizens know what is going on in the tax deals and EDGE is to be complimented for posting this information on line. However they still have not provided the critical information about properties that finish their Pilot contracts and the important information about whether they are paying the full tax amount that they were abated during the Pilot or whether they somehow left town, got an extension of the Pilot or are somehow paying less than their full share. Post that information on line PLEASE!
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.
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.
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.
November 17, 2014
Transparency In The Private Sector
We have been treated to a lesson in arrogance in government with the revelations about MIT economics Professor Gruber concerning getting the Affordable Care Act (aka Obamacare) approved. Professor Gruber said that it was necessary to lie about the provisions of the act because the public was too stupid to understand what was good for them. This is the reason that full disclosure, transparency and open records are so vitally important.
But is transparency only important in the public sector where your tax dollars are being spent? What about the private sector?
My brother has a home in a development around a golf course in Ft. Collins, Colorado. He was aware of my interest in open records and the laws concerning access and he called me to ask about his situation. It seems that the government board of his housing association has consistently refused to give him access to financial information. I told him that he would need to research Colorado open records laws and he has hired a lawyer to assist in that effort. The board charges each homeowner for maintenance, repairs and upkeep but has failed to give details about contracts and details of expenditures. In other words, pay up and shut up.
Locally I have a friend who is an engineer and who plays in my duplicate bridge club. (By the way he is very bright and one of the best players). His name is Asan G. Tejwani. He has lived in Fountain Square Condominium, 1850 Poplar Woods Cir W, Germantown, TN 38138 since 1991. His email address is firstname.lastname@example.org.
He discussed with me his complaint about the lack of transparency of the Faith Management Company and the Board of Directors of the non profit condo association. I did some research about the Tennessee open records laws by contacting the State of Tennessee and was referred to the Tennessee Condo Act of 2008. One part of that lengthy document states as follows.
- 66-27-417. Association Records. The association shall keep financial
records sufficiently detailed to enable the association to comply with §§ 66-27-
502 and 66-27-503. All financial and other records shall be made reasonably
available for examination by any unit owner, the holder of any mortgage or deed
of trust encumbering a unit, and their respective authorized agents.
This seems to be the heart of Mr. Tejwani’s complaint and he puts his principles of human dealings in a most legitimate manner. They are as follows.
- Fiduciary responsibility.
- Due Diligence
I can’t disagree with those five principles. I am aware that there are two sides to every story. I would like to hear from other local condo and home owner associations as to their experience with boards and management concerning expenses and transparency and open records accountability. This is no nickel and dime operation as Mr. Tejwani is talking about an annual billing of $850,000 for his condo residents.