VOL. 129 | NO. 43 | Tuesday, March 4, 2014
City Council to Dig Into Pension Liability
By Bill Dries
The road to a specific solution to the city’s unsustainable pension liability and employee benefits begins Tuesday, March 4, in detailed, technical and complex financial discussions at City Hall that will dominate the committee schedule of the Memphis City Council.
Starting at 9:30 a.m., actuaries for Memphis Mayor A C Wharton Jr.’s administration, the City Council and the city’s municipal unions will spend several hours with the council reviewing what are expected to be different views of the unfunded pension liability.
Then the council hears from Tennessee Comptroller Justin Wilson and Tennessee Treasurer David Lillard at its 1 p.m. executive session on what state leaders expect the outcome to be.
“It’s a big number, and we don’t have the money,” Wharton said last week of his administration’s estimate of a $709 million unfunded pension liability compared to an estimate of $300 million from municipal union leaders.
“We think our numbers are good but we’ll soon find out,” Wharton said. “Where do we get the money? That’s the challenge there.”
The council’s main voting session, at 3:30 p.m. at City Hall, 125 N. Main St., will not include any votes on the matter.
Follow the meeting @tdnpols, twitter.com/tdnpols.
“We’ve got about four months to make this decision,” council Chairman Jim Strickland said. “To me there are two big issues: What kind of plan, retirement system, do we want? … And then how do we pay for it?”
Under a new state law, the city has six fiscal years starting with the one that begins July 1 to move the city’s annual required contribution toward fully funding the liability from the current $20 million to a total of between $60 million and $100 million, depending on whose numbers are used in city government.
Wharton has recommended a five-year ramp-up, with $15 million in new revenue each of those fiscal years going to the annual required contribution – money that he has indicated will likely have to come from existing city budget priorities, since he does not favor a property tax hike to raise the money.
The police and fire unions have been the most vocal in questioning the city’s numbers because Wharton has been preparing the council to make decisions he thinks will impact police and fire benefits as well as services. The two divisions account for most of the city’s operating budget and employees.
“That’s where the money is, quite frankly,” Wharton said. “We’re trying to squeeze out of police and fire a total of $15 million. … When it gets to the point where public safety may be at risk, then you’ve got to shift to the revenue side.”
That means a property tax hike.
But Wharton is already hearing from some council members who believe there are other places in the city budget to find cuts beyond public safety to put toward the liability before any consideration of a tax hike.
Strickland divides the city’s dilemma into a multiyear plan to ramp up the city’s annual contribution to where it should be and long-term changes to the system of benefits that continue to add to the annual contribution.
The immediate pressure from state leaders is for City Hall to deal with the annual problem, and that is the problem addressed in the new state law.
“We are underfunded on our yearly contribution – the ARC – and the whole plan is underfunded,” Strickland said. “The bill only affects our yearly contribution. It does not address the underfundedness of the entire plan.”
Strickland favors a two-year ramp-up on the annual contribution instead of the five years outlined by Wharton earlier this year.
“The quicker the better,” Wharton said last week when asked about Strickland’s view. “That’s easy to say right there. But the question then becomes, how do you do that? That’s fine. It simply means that you’re going to have to find more money for more cuts in a more condensed period of time.”
“This is a very serious conversation, and sometimes the politics of it take it away from the true gravity of it. It’s how do you pay for this?” council member Shea Flinn said. “How do you do it where you don’t lose (police and fire) recruits? … It is a complicated thing. It is made of decades of choices that have been made, and how you fix it is going to be a very pivotal conversation for the community going forward. … All of that is outstripping how much. We’re going to continue to have to put more and more into it, which sucks away from more services, and how do you get to a balancing thing?”