Archive for the ‘Taxes’ Category
December 17, 2013
Mayor Wharton Says Spend! Spend! Spend!
In a very interesting article in the Daily News by Bill Dries, the Mayor is quoted from a TV interview in July on the WKNO-TV program “Behind The Headlines” as saying the following.
“ projects like the Mid-South Fairgrounds renovation and the Bass Pro Shops move into The Pyramid are necessary ingredients in an administration he has vowed will not be about austerity measures. It has failed in Europe … this idea that austerity will cure all ills. It has not worked globally. It will not work locally. … Who is focusing on growth? Everything is cut, cut, cut. Anybody can say that. Forrest Gump can say that.”
This sounds like a statement coming from the White House, not City Hall. He may be repeating talking points. However it sounds like someone who has run out of other people’s money and is fishing for more. I hate to sound old fashioned. As someone who has run a business and has had to meet a payroll, spend, spend, spend is not a good long term strategy unless you can show investors from past successes and a well thought out plan, that there will be future revenue, revenue, revenue to cover the debt, debt, debt. But I repeat myself.
Now as to the pension reform mentioned in the CA, I like the framework of the plan but it does not go far enough. Going to a defined contribution pension plan for future employees and non vested present employees is fair and puts them on the same risk level as the private sector taxpayers. The “for profit” private enterprise market generally has been good to investors for the last 25 years with the exception of 2008. Why should public sector employees be insulated from the risk that private sector taxpayers take?
However we also need to consider that it may be necessary to look at current vested employees and consider freezing their earned pension credits at their present levels and also put them on the same future defined contribution plan for their future years before retirement. However he retired pensioners should be protected short of city bankruptcy like Detroit. These considerations and plans are necessary to avoid another Detroit in the future.
December 12, 2013
A Backdoor Tax Increase
The City Council has passed another backdoor tax increase by unloading street lighting electric cost and maintenance on the MLGW. You already see a sewer fee, a solid waste fee, a storm water fee and a mosquito/rodent control fee on your utility bill.
The utility expects the fee to raise a total of $12.9 million per year, of which roughly half would go toward electricity for the streetlights and half would go toward maintaining them. This is an expense that is covered by the services paid for by property taxes. Now the City Council wants to take it out of their expense budget and bill it directly to the taxpayers through the MLGW billing process.
Here is what I investigated and found out. If you will look at the 2012 operating budget. The City shows an actual cost of $4.3 million for street lighting in 2010 but a 2012 adopted budget of $12.1 million. Then look at the 2014 operating budget and they show an actual (more…)
November 25, 2013
I Did Not Know I Was Paying For Free Phones Every Month
As I was looking at my phone bill yesterday (it was up from the month before) I noticed that the Federal Universal Service Charge was up from $3.07 to $3.61 cents per month. I decided to investigate and this is what I found.
The Lifeline program began in 1984, an attempt to ensure that America’s poorest had access to landline phone service to call 911, work, or family members. But in 2008, the FCC expanded the service to include mobile phones, and under the Obama administration, as welfare rolls swelled, more people became eligible for a subsidized phone — part of the reason they’re often known as “Obamaphones.” The following article is from National Review and reports on an effort by the state of Georgia to reign in abuse of this program.
By 2012, the cost of the national Lifeline program had risen to $2.189 billion a year, up from $822 million before cell phones were included. In Georgia, after Lifeline expanded from landlines to mobile phones, the number of users shot from 150,000 to almost 1.1 (more…)
November 14, 2013
Voting is proceeding on the ½ cent sales tax increase. There is a lot of money being spent to pass this initiative as evidenced by the two expensive direct mail pieces I received yesterday. This was paid for by the Memphis Pre-K initiative.
You know my position on this as I am against it until City Hall and the City Council reform their finances and get them on a sustainable basis. For more information on this question, there is a very good article in this week’s Memphis Flyer.
However look at the whole question of sales taxes. According to Robert Lipscomb there is an endless source of money for development in Tax Incremental Financing (TIF) developed by Tourist Development Zones (TDZ) in Memphis. According to Mr. Lipscomb all you have to do is build it and it will be paid for by the incremental amount of sales taxes spun off from the development. Don’t worry about whether the incremental amount of sales taxes will be there to cover the principal and interest. The full faith and (more…)
November 4, 2013
This is an issue that the City of Memphis is trying to sneak by the voters in a vote that will probably have a low turnout. These are the reasons to vote NO. Early voting starts today. As they say in Chicago, vote early and often.
- The Commercial Appeal writes that 63% ($30 million) goes to Pre-K and the rest (1$17 million) to property tax reduction. However look at the wording of the Ordinance which states that the money goes to a Pre-K Commission appointed by Mayor Wharton which will make the decisions. Do you trust such a commission?
- Our sales tax is already very high (9.25%) and this would take it to 9.75%, the highest in the state, a very regressive tax.
- There is no evidence that Pre-K works and has any long term benefits,.
- There should be no new taxes until the City of Memphis and the City Council reform pensions and health care costs and get on a path to reduce unfunded liability as pointed out by the State of Tennessee.
October 7, 2013
The Sears Crosstown Project
I am old enough to remember going to the Curb Market in crosstown with my mother and buying a bushel of snap beans for canning. I would have to spend the rest of the day cleaning and preparing them. On many occasions we then went to the Sears Crosstown store. It was huge and impressive. It was built for a certain time and market and whether it paid for itself over time I do not know. Looking at the Sears Company today, you have to wonder about their long term business knowledge. The Sears catalog was the amazon of its day and this store I believe was a catalog sales and warehouse center. Too bad they did not keep up with technology.
Now we have a choice. Tear down the old Sears building or spend at least $175 million to turn it into another Robert Lipscomb non tax producing renovation project. Where is the financial pro forma report on this project? If it is available I would like to see it.
Meanwhile let us look at how this is currently being financed according to a recent CA report.The Crosstown Development team says it has essentially assured $160 million in
funding — $25 million raised privately, $30 million in historic preservation tax credits,
$15 million in new market tax credits, $10 million in grants and other sources, and an
$80 million loan. Add the $15 million requested from the City of Memphis and you have the $175 million supposed front end cost.
- $30 million in historic preservation tax credits. The legislative incentive program to encourage the preservation of “historical buildings”. Congress instituted a two-tier Tax Credit incentive under the 1986 Tax Reform Act. A 20% credit is available for the rehabilitation of historical buildings and a 10% credit is available for non-historic buildings, which were first placed in service before 1936. Benefits are derived from tax credits in the year the property is placed in service, cash flow over 6 years and repurchase options in year six.
- $15 million in new market tax credits. The New Markets Tax Credit (NMTC) Program was established in 2000 as part of the Community Renewal Tax Relief Act of 2000. The goal of the program is to spur revitalization efforts of low-income and impoverished communities across the United States and Territories. The NMTC Program provides tax credit incentives to investors for equity investments in certified Community Development Entities, which invest in low-income communities. The credit equals 39% of the investment paid out (5% in each of the first three years, then 6% in the final four years, for a total of 39%) over seven years (more accurately, six years and one day of the seventh year) . A Community Development Entity must have a primary mission of investing in low-income communities and persons.
If it goes forward, will it throw off tax money to the City of Memphis? If there are new small businesses that rent space or locate in the general area because of new traffic and people who live in the renovated building, I suppose there could be new sales tax money and employment opportunities. However it sounds like most of the occupiers of the space will be non-profits and art enterprises. There will be people living in the building but many of these will be rent subsidized people under section 8 or other federal and state programs. Taxpayers will be funding the whole project funded through these various federal tax credits.
As far as the building is concerned, I think it is ugly and really not worth saving. Possibly the architects can make it beautiful but at what cost compared to tearing it down and doing something else? I would like to see a financial analysis of this proposed project and no decision should go forward without this being presented to the public for discussion.
September 26, 2013
As I read through this massive document I want to point out some of the good suggestions from the ridiculous ones. I have attached a section entitled “Implement Strategies to Lower Volatility of Pension ARC”
The Pension ARC is the annual required contribution necessary to fully fund the promised pensions. For the plan year ended June 30, 2012 this figure was $89 million dollars. WOW!! The City of Memphis put in 22.6% of this. The difference in the ARC and what the City actually contributed of course adds to the unfunded liability plus the interest on the difference.
The suggestions from the plan are as follows.
- Freeze cost of living (COLA) adjustments until the plan achieves 90% funded status.
- Contribute the full ARC each year. Where is the Money ($69 million) coming from?
- Close the current defined benefit pension plan and begin a defined contribution plan.
- Extend the City’s 2011 pension reforms to non-vested employees. Extending the 2011 reforms to all non-vested employees (47.7% of total employees) would reduce the ARC by $5 million in 2014 and by $28.2 million from 2014 through 2018.
Read through the report and let me know if you think any of this is really going to happen. The answers are there to make real reforms (more…)
September 19, 2013
For three days running there have been lead articles in the CA about our City of Memphis pension unfunded liability.
Finally yesterday, they mentioned the even greater OPEB unfunded liability (cost of health care for retirees).
I have attached the report from PWC consultants for your review. Read it at your leisure but here are some highlights.
- Despite better than average asset returns for 2010 and 2011, the plan’s funded status will continue to deteriorate, from $682 million to $740 million.
- Assuming no other changes, it is estimated that it would require an annual asset return of 13% over each of the next 10 years in order to fully fund the plan.
- Conclusion: Based upon the actuarial assumptions used to determine the plan’s liability and ARC, a projection of a workforce similar in size to the current one, and the current funding policy of 6.0% of compensation, the plan is not sustainable in the long-term.
September 16, 2013
I am reviewing another part of the Shelby County Efficiency Review, Legal costs. Ugh! I will be the first to admit that good legal advice is necessary in our litigious society. So let us look at the County versus the City.
I have attached some pages from the City budget and the County budget. The County budget for the County Attorney’s Office is $3.7 million for 35.5 people. This includes legal services for the County Commission. From this in the future, if the suggestions are adopted, they propose to cut $300,000.
Now look at the City of Memphis. Their actual expenses for FY2012 were $13.6 million with 58 people. Their proposal for 2014 is $9.5 (more…)
September 12, 2013
As I start reading through this massive document I have to start with the introduction and rationale of the plan. Here are the first 26 pages of the draft plan.
To be a successful urban area, Memphis has to do the following.
- Increase property values
- Decrease poverty
- Ensure government efficiency
- Improve neighborhoods
- Invest in human capital
- Grow the economy
Wow!! What great ideas. Why did I not think of those?