VOL. 129 | NO. 6 | Thursday, January 9, 2014
Little Outlines Options for City’s Pension Liability
By Bill Dries
Changing retirement and health care benefits for city of Memphis employees going forward is a given, said city Chief Administrative Officer George Little this week.
But that alone will not get City Hall where it should be overall financially and in terms of efficiency, he added after offering the first look at some of the long-term financial decisions that are on the table over the next five fiscal years.
“No matter how you slice it, no matter how you dice it, we’ve got to get leaner and we’ve got to get meaner,” Little said Tuesday, Jan. 7.
The administration of Memphis Mayor A C Wharton Jr. is not recommending any of the options yet to the Memphis City Council. But the coming budget season will be the year the council and administration will be forced to make serious efforts at the city’s unfunded pension liability, estimated by the city Tuesday at $709 million.
That liability is what is driving the process that council member Harold Collins said others have described as “painful, dreadful, heart breaking, gut wrenching.”
Options include the city phasing out medical care coverage for city employees eligible for Medicare, an 85-cent property tax increase or “efficiencies” from a long list of possibilities the city has had from its financial adviser, Public Financial Management.
The PFM list includes such options as a staff reduction for the Memphis Fire Department, a “strategic” reduction in city government’s workforce and “civilianization” in the Memphis Police Department.
The strategic workforce reduction is the largest single item dollar figure at an estimated $40.6 million over five years. Although Little cautioned that the dollar figures at this point are “rough” estimates.
“I would expect that the vast majority of how we would fund this over the life of the five years will come from the expenditure side,” Little said ruling out tax hikes. “We’ve got to deal with health care anyway. Even with the advent of the Affordable Care Act, there’s still an increase in health care costs. We have this huge unfunded liability. … We’ve got to address that anyway.
The PFM list also includes an estimated $36.8 million in new revenue over the five years from centralizing city revenue collections, upping some city fines and fees and pursuing state legislation that would allow the city to “develop local revenue.”
The group of four options also includes “voluntary nonprofit PILOTs.” Those would be payments-in-lieu-of-taxes that nonprofits who don’t pay property taxes would agree to make to the city.
The city’s annual contribution toward its unfunded liability is at $20 million in the current fiscal year that ends June 30.
Wharton has proposed that the city increase that annual payment by about $15 million each fiscal year starting with the one that begins July 1 to bring the annual contribution up to $100 million and maintain that for several decades.
He and Little have also raised the very real possibility that if the city doesn’t act in a meaningful way on the liability, state leaders in Nashville could mandate even more drastic financial measures.
Little believes the five-year buildup to $100 million should satisfy state leaders. He bases that on similar ramp-up plans used by other local governments and state governments with the same problem.
“The phase-in period has been over five to seven years,” Little added. “It’s just a huge bite to take at one time. What we would hope to have is an approach that would allow us to absorb personnel changes, to change expectations relative to delivery of services.”
Little said the administration is still on target to ask the council in February to approve a change in retirement benefits for retired city employees and current city employees who have worked for the city less than 10 years and are considered unvested.
They would be switched to a defined contribution plan similar to a 401(k) retirement plan instead of the current defined benefits plan. City employees with 10 or more years of service who are vested in the current plan would remain in the plan.
Meanwhile, Collins is moving ahead with his resolution for the council to hire its own actuary or financial consultant to offer the council a view independent of the city’s actuary, Pricewaterhouse Coopers.
Collins cited the city’s estimate of the liability at $709 million while the Memphis Fire Fighters Association, which hired its own actuary, puts the figure at $300 million – what Collins terms “a huge discrepancy.”
“It’s one thing to have them available,” Collins added. “But it’s another to ask the right questions.”
Most on the council agreed including council member Shea Flinn.
“Every year at budget time, we realize we are bringing a knife to a gun fight,” he said of the need for help with the financial numbers and projections.
Memphis Firefighter Association president Thomas Malone said the union paid approximately $24,000 to hire its own actuary.