Archive for the ‘Property’ Category
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 email@example.com.
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.
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…)
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.
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.
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.
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.
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…)
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