Archive for the ‘Taxes’ Category
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
July 21, 2014
$568 Million New Tax Revenue
Pilots (Payments In Lieu Of Taxes) are front and center in the current controversy about bringing our City finances under control. I went to the EDGE website (Economic Development Growth Engine). It is beautiful. On the lead page is the following information.
$568 Million in new tax revenue
Well the problem is solved. With $568 million in new tax revenue why are we cutting health care benefits for City retirees and raising health care costs for active employees? Why are we discussing changing the pension plan at the City of Memphis?
The reason is that it is all smoke and mirrors. If you go to the City of Memphis CAFRs (Comprehensive Annual Financial Reports) and the same for the County you will see that sales tax receipts have been level at best and decreasing over the last few years.
The Pilot program is a crutch used by local developers and real estate interests to give us something to attract new companies to Memphis and to keep local companies from leaving. Memphis has many assets to recommend it. Location, water, transportation and utilities. However it has two deficits. A high tax rate and poor education of the local work force.
The real report that EDGE should produce is a report that shows all companies that have come off the PILOT program at the end of their tax abatement. The report should show the amount of taxes abated over the length of the pilot program, the ending date and the amount of taxes paid after the end of the abatement period. This they have refused to do. Until they do that and show us where the $568 million is, I will continue asking the question WHERE IS THE BEEF?
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…)