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VOL. 128 | NO. 250 | Tuesday, December 24, 2013

Norris Expects Maintenance of Effort for Pensions

By Bill Dries

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Tennessee Senate Republican leader Mark Norris of Collierville says whatever fix Memphis leaders come up with for the city’s unfunded pension liability, the Tennessee General Assembly will probably still pass legislation dealing with the problem on a scale broader than Memphis.

NORRIS

And it will involve the use of a term most of those outside government associate with schools funding – “maintenance of effort.”

“There will be legislation requiring maintenance of effort by municipalities and other local governments. I will sponsor that legislation at the request of the treasurer,” Norris said on the WKNO-TV program “Behind The Headlines.” “What we need to do is instill discipline in all of these local governments. It’s not just about Memphis. But Memphis being one of our big cities with a big problem has got to take some big steps.”

The program, hosted by Eric Barnes, publisher of The Daily News, can be seen on The Daily News Video page, video.memphisdailynews.com.

The state’s maintenance of effort requirement for public education requires local governments to maintain a certain level of local funding for public school districts that can only be lowered if school enrollment declines. There is a specific criteria for determining if there has been a decline and, if so, how much of a decline.

The term became popular over the last five years since the Memphis City Council cut funding to Memphis City Schools in 2008. The system then sued over the education maintenance of effort law and won in Chancery Court as well as on appeal.

Norris commented the same week that Memphis Mayor A C Wharton Jr. took his preliminary plan for funding the city’s unfunded pension liability for the first discussions with the Memphis City Council.

Wharton’s administration puts the liability at more than $700 million. Leaders of the city’s municipal unions, led by the Memphis Fire Fighters Association, put the amount at less than half of Wharton’s estimate.

Wharton is expected to request the first in a series of council votes in February or March on changing pension benefits for the city’s new hires and unvested city employees on the job for less than 10 years.

The change, which would exempt already retired city employees and those vested in the existing plan with 10 or more years of service with the city, would be from a defined benefits plan to a defined contribution plan similar to a 401(k) plan.

“It’s the only thing to do. That’s the direction you have to move. The question is how far you go beyond that,” Norris said, pointing out that the state in 2013 changed its own pension plan for state employees to a hybrid plan blending parts of both and distinguishing between vested and unvested employees.

“You didn’t hear a great hue and cry about it. There was a lot of effort that went into it in terms of planning and working with different constituent groups,” Norris said of the state plan. “Some in the private sector here locally think that our government should go further – no hybrid plan about it – just go all the way to defined contributions.”

In the case of the state, Norris said, “for a variety of reasons, that’s probably not practical.”

“But we think, and the treasury department thinks, that moving in that direction without going all the way is sufficient to right the ship of state,” he added.

Wharton’s still-tentative plan also includes a five-year ramp-up from the current $20 million annual contribution the city currently makes toward that liability to $100 million in annual funding over three decades.

As Wharton rolls out the framework of a pension liability plan, he is pursuing a plan for the city to buy AutoZone Park that has been twice delayed by the City Council. The plan is due back before the council at its first meeting of 2014. Some on the council say the combination demonstrates the administration isn’t serious about setting budget and funding priorities.

“It’s going to be for them to decide how the debt service works. … I understand they are saying it basically pays for itself,” Norris said of the ballpark deal, which also involves the St. Louis Cardinals buying the Memphis Redbirds franchise.

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