VOL. 128 | NO. 108 | Tuesday, June 04, 2013
Budget Vote Faces Postponement
By Bill Dries
Memphis City Council members have final votes on their agenda Tuesday, June 6, on an operating budget for the fiscal year that begins July 1 in addition to setting a city property tax rate.
But before the council meets at 3:30 p.m. at City Hall, 125 N. Main St., the group’s budget committee will hear from Memphis Mayor A C Wharton Jr. and his administration one more time on possible changes to the budget and the tax rate.
The budget process went into uncharted territory last month when a report from the Tennessee Comptroller’s office was critical of city financial practices.
The council approved a series of resolutions outlined by the state and endorsed by Wharton to restore balances in some city budget accounts. The state recommendations also put an emphasis on paying down debt more aggressively following a 2010 restructuring and issuance of refunding bonds. And the council used $11 million of the city’s reserves in righting three of the accounts that had been depleted.
The result is decisions to come by the council and recommendations the council wants from Wharton and his administration on how much City Hall should put toward paying more of the debt as well as pension and employee benefit obligations.
Wharton presented several options with several tax rate options Thursday, May 30, to the council. But several council members were critical of Wharton for not making recommendations or outlining a plan he preferred.
Some council members wanted to see what the options looked like if the city kept the current city property tax rate of $3.11. Depending on whether the city pays all of the pension and benefit obligations in one fiscal year or across several fiscal years, keeping the current tax rate would mean laying off either 1,420 or 3,250 city employees.
The higher number reflects meeting all of the obligations in a single fiscal year as well as fully restoring a 4.6 percent pay cut all city employees took two years ago.
Wharton recommended in April a property tax rate increase of 28 cents for what he called a “continuation” budget that increased Memphis police spending and gave employees a 2.3 percent pay raise to start in January, halfway through the fiscal year.
That is the administration’s estimate of what it would take to produce the same amount of revenue for City Hall that now comes from the current tax rate of $3.11. The higher rate would account for the drop in property values with the 2013 property reappraisal in Shelby County.
The “recertified tax rate” approved by the state was later adjusted to $3.36 with a 25-cent tax rate hike.
Also on the budget committee’s agenda at 12:30 p.m. is the bond refunding issue that prompted the state comptroller’s office to express its concerns about the way city finances were being handled.
The $135 million in bonds is a refunding and restructuring practice known as “scoop and toss.” That’s also the name used in the comptroller’s report for pushing the city’s debt from prior restructurings further out into future fiscal years.
The city did it in 2010 and Wharton said the administration had little choice because the council rejected his call for a property tax increase to continue funding Memphis City Schools in the wake of the court fight over the council’s 2008 decision to cut schools funding.
Prior to the 2010 restructuring, “the city’s debt service would have declined smoothly over time, thereby making increasing amounts of revenues to be available for future capital projects or operations,” wrote Tennessee Comptroller Justin P. Wilson in his May 20 letter to the city. “The city could have chosen to adhere to this debt service schedule by raising revenues, reducing services or reducing expenditures to a sustainable level sufficient to cover the current debt service.”
Wilson doesn’t specifically say the city shouldn’t issue the second round of refunding bonds, although he wrote that delaying the payment of the principal with the bonds shifts the tax burden to future generations.
“After the issuance of the series 2013 refunding bonds, the city’s use of ‘scoop and toss’ refundings should be discontinued and a clear solution to the city’s excess expenditures exceeding available revenues should be implemented,” Wilson wrote.
The refunding bonds resolution could be added to the agenda for the full council’s 3:30 p.m. session, or if not, it would be voted on at the June 18 council session.