Archive for the ‘Taxes’ Category
February 20, 2014
Health Care For Public Retirees
This is another huge cost area for which the taxpayers are paying. You are paying 70% of the health care cost for City of Memphis and Shelby County retirees and 75% of the cost for MLGW retirees. The bills come each year for medical care for retirees and their families and the current annual bills are paid by the City, County and the MLGW as they occur.
But like pension liability, there is a future cost liability that is supposed to be taken care of by the OPEB funds (Other Post Employment Benefits), mainly future health care costs and life insurance for retirees). This is where the problem lies, mainly with the City of Memphis, and to a lesser extent with the MLGW and Shelby County.
The unfunded OPEB liability for the City of Memphis is $1.29 billion dollars. For the MLGW it is $420 million and for Shelby (more…)
February 13, 2014
There are lots of things that need reform in the Memphis pension system and we have talked about the need for going to a defined contribution system rather than the current defined benefit system. Hopefully we will get there if the Mayor and the City Council do the right thing.
However I have often spoken about the need for line of duty disability reform. The Memphis pension board regularly approves applications for line of duty disability applications and has ten times more former employees on line of duty disability than Shelby County government or the MLGW. (These people on line of duty disability get 60% of their final average salary for their lifetime tax free).
Now I find out from Jeni Diprizio (a great reporter for Channel 24) that last month (January 30, 2014) Jason Webb applied for and (more…)
February 6, 2014
In reading through the Strategic Fiscal and Management Plan for the City of Memphis I keep finding things that amaze me as to the past fiscal mismanagement. It is quite clear that the City is supposed to pay 70% of the health care premiums and the employee is supposed to pay 30%. Look at the attached pages 46 through 49 of the plan. On page 46 the employees paid as low as 23.1% and as high as 26.9%. This cost you, the taxpayers, $9.2 million dollars over these three years. I presume the same was true for the OPEB retirees but I am checking. $9 million here, $5 million there and pretty soon you are talking about real money. On top of this mistake by the City, here is what the report says about the history and direction of health care cost, a huge part of the money problem.
On a fiscal year basis, from FY2008 to FY2012, the City’s General Fund contributions to the Basic and (more…)
A Hybrid Pension Plan Proposal
I have been following 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. I will be commenting on the plan over the next months as the debate rages in the City and the city council.
I have attached here part of the 182 page plan that concerns pension reform. They are recommending various pension plans for unvested (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 (more…)
January 28, 2014
For a number of years I have received the agenda for the monthly meeting of the City of Memphis Pension Board. I have attended a number of these meetings. Here are a few things that you need to know.
1) The board consists of the Mayor, the Comptroller and five employees with at least ten years of service, a retiree and only one citizen member. So it is obvious that this is rigged to approve whatever the employees want within the pension ordinance. Temporary Mayor Myron Lowery tried to appoint me to the board a few years ago and the Council voted it down.
Being familiar with meetings and agendas, I noted the agenda for the next meeting this Thursday, January 30. There were listed 30 DROP applications which will cost the City $1.62 million dollars per year in pension payments over the next three years while the DROP applicant is still working. Then I remembered that there were four periods during the year for DROP applications and January was one of the four. I went back to January, April, July and October 2013 and looked at those agendas and there were a total of 116 DROP applications amounting to $4.8 million dollars per year.
I need to explain the DROP (Deferred Retirement Option Plan) provision of the pension system. This provision allows an employee to continue working for one, two or three additional years (most if not all choose 3 years), and to receive salary and pension at the same time. The pension payment goes into a special account and at the end of the drop period the employee will receive a lump sum payment which can be rolled over into a retirement account. The pension is frozen at the level that the employee starts his final retirement years (1, 2 or 3). The employee’s and the City’s pension contribution cease as of the start date of the DROP program.
The County does not have a similar program.
January 23, 2014
More Info From the Memphis CAFR
Pick up the CA and you will get more articles than you can read over your morning coffee. They all point to the upcoming decisions of the Mayor and the City Council. The chickens are coming home to roost as they have been disturbed by the noise of the cans that have been kicked down the road.
As I sift through the current 2013 Comprehensive Annual Financial Report (CAFR) of the City of Memphis, I decided to compare several pages from the 2008 CAFR with the same pages from the 2013 CAFR.
January 13, 2014
In recent days, the City of Memphis finally published their Comprehensive Annual Financial Report (CAFR) on line. In between watching the NFL playoff games and Tiger basketball, I have been reading this important document. It will never outsell “Gone With The Wind” or the Bible in popularity but to me it makes fascinating reading. It is like reading a diary as the Administration tries to put the best face on things but the public auditors (Banks, Finley White and Co) have to publish the facts as presented to them by the administration while at the same time going over the books for verification of what they are told.
One of the most interesting and important statements is the following one found in the section entitled “Management’s Discussion and Analysis”. It reads as follows.
“Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the City is improving or deteriorating.”
January 9, 2014
Compare Memphis Pensions Versus Shelby County
I could and probably will write for weeks about needed reforms at the City of Memphis. But I like to keep it simple and understandable. Let us look at some comparisons between the City of Memphis and Shelby County governments.
How many active employees do they have?
Memphis 6020 Shelby County 5668
How many pensioners do they have?
Memphis 4782 Shelby County 3260
What is the average annual pension payment per pensioner?
Memphis $32,518 Shelby County $19,218
The problem is obvious. Memphis has 79 retirees for every 100 active employees. Shelby County has 57 retirees for every 100 active employees.
Memphis pension payout is 69% higher per retiree than Shelby County.
There are some obvious reasons.
1) The January 2001 pension resolution allowing elected and appointed people to retire after 12 years regardless of age.
2) The number of line of duty disability retirees is 10 times higher than the county costing Memphis $12 million dollars per year.
Rather than hire a third pension consultant, I recommend that we get some retired County pension experts and have them compare the County’s pension ordinance and practices with the obviously loosey goosey City system. I am open to other suggestions from the public. After all, you are paying for this expensive underfunded system.
January 6, 2014
I spent the month of December trying to get answers to the following questions.
1) How many tourist development zones (TDZs) have been approved by the state of Tennessee, the date of approval and a map or designation of the zones?
2) For those zones that are approved, how much is the base sales and use tax amount from which the incremental amount of taxes will be distributed?
3) How much incremental taxes have been received each year since the inception of the TDZ zones?
4) On what have the incremental taxes been spent?
I asked these questions of the City of Memphis and have again and again been promised answers. I know that during the Christmas season it is hard to get action. I also asked the first three questions of the Tennessee Department of Revenue and did get some answers from them. I have attached a schedule of distributions to municipalities for qualified tourism development zones by fiscal years earned. Also I received a similar schedule for sales tax allocation for sports authorities such as the NBA facility in Memphis and the minor league baseball facility in Memphis. This is interesting information and you will see that Memphis received $13.2 million in FY 2011-12 for the only TDZ zones we currently have approved (downtown) and $1.9 million for the Arena and zero for the baseball facility in 2012.
I received further clarification from the state concerning the rules on TIF distribution as shown below.
In an attempt to answer your question related to the 1.9 million. The 1.9 million dollars was paid to the city of Memphis / Shelby County as a separate payment each month as the sales tax dollars for the Grizzlies is collected. The information of zero that you have relative to the Redbirds is incorrect the amount paid to the Memphis Redbirds foundation was $586,282.41. These amounts are after we take the ½ percent for education off the top of the collections.
In calculating the TDZ we do back the amount of these sports authorities off of the collections for that year in determining the growth to apply.
So in the year we are looking at the overall collections for state sales tax was $ 750,776,304.38(this figure includes food) we reduce that amount by the amount of total state sales tax collections relative to the sports authority which was $2,722,845.30 (please remember the figures are different because this is before the ½ percent for education is calculated).
That net number $748,053,459.08 is compared to the same data as the previous year to determine the overall growth in the area.
This growth is then applied to the base to create the current base in the 2011-12 year the base was $34,215,152.17. The TCA reads the TDZ will benefit from the amount collected within the TDZ area that was above the base. The amount collected in the zone for state sales tax was 50,352,645.09 ( we adjust this number by the ½ percent for education) Giving a net collections of $46,156,608.12 then we add the food sales tax collections within the TDZ area which was $176,729.12. Those two figures combined total net state sales tax collections $ 46,333,337.24. This is the amount compared to the base and the TDZ receives the above and beyond in this case it was $12, 118,185.06. The local portion of the sales tax is calculated under the same basis.
Please let me know if you have any questions.
I still want to know how this money is applied to our debt which I expect the City of Memphis to answer.
Now it is my understanding that the City of Memphis is asking for a second TDZ zone for the Fairgrounds project. The question is this. IS THIS A SOUND WAY TO FINANCE BIG PROJECTS LIKE BASSPRO, FAIRGROUNDS, PINCH DISTRICT AND ON AN ON?
Look at some of the other cities like Chattanooga and Sevierville that went down this same path. In one report there was the following statement.
*Chattanooga received no state sales tax distribution in 2007 because taxable sales fell below their pre-TIF level. Several businesses left the designated area.
Also Sevierville has had problems with paying for their debt by this method. So the assertion that there is no risk for tax incremental financing is not true. At the very least the City of Memphis should provide a detailed analysis showing the expected amount of incremental sales tax expected from the TDZ needed to pay the debt and tell the public and the taxpayers the truth about their downside risk if the expected sales tax revenue does not materialize.
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.