VOL. 130 | NO. 54 | Thursday, March 19, 2015
City Debt Restructure Isn’t the End of Finance Debate
By Bill Dries
The table was rectangular, not round. There was no green felt and nobody had a deck of cards. But when 10 Memphis City Council members, Mayor A C Wharton Jr. and Tennessee comptroller Justin Wilson gathered in the council’s committee room Tuesday, March 17, there were lots of comparisons to a poker game. And lots of money was at stake.
“You don’t have a good hand to play,” Wilson told the council as it considered Wharton’s proposal to restructure and refinance the city’s debt payments. “But it is my belief and the belief of our office that the proposal is a good way to play a not-so-good hand.”
Memphis Mayor A C Wharton Jr. won city council approval Tuesday, March 17, of his debt restructure proposal, but not without a lot of questions and a lot of debate, some of which Wharton said was motivated by this year’s race for mayor.
(Daily News File/Andrew J. Breig)
On an 8-4 vote later in the day at City Hall, the council approved the proposal after much debate.
And there was every indication that differences between Wharton and some council members over the handling of city finances will almost certainly continue once Wharton presents his budget proposal in May.
Wilson reviewed the restructuring deal and gave it his approval two years after he was critical of city government for a 2010 restructuring of city debt. That restructuring pushed balloon payments into future budget years instead of dealing with difficult financial decisions in the present.
Council chairman Myron Lowery asked Wilson if he was changing his position.
“I don’t like this at all. Don’t misunderstand me,” Wilson said. “The question is how do you work yourself out of a situation you don’t want.”
The balloon payment the city was facing without a restructuring would have come in the 2020 fiscal year, the same year the city must pay the full annual required contribution on its pension fund obligations as dictated by state law. The full payment is $74 million and the council’s ARC is now at $45 million in a five-year ramp-up.
Wilson said several times that should be the city’s most immediate priority with the certain knowledge that there is a downside to pushing the balloon payments further out..
“It’s not just the debt, it’s the pension obligations that are really the drivers,” he said.
Council member Kemp Conrad was among those on the council who thought the city should not restructure and should instead go to an “austerity” budget with rigid limits on annual capital spending which is funded with bond debt. He suggested a $50 million cap in a fiscal year; the administration proposed $85 million after an informal agreement to cap it at $65 million.
“We didn’t do the tougher decisions,” he said of the 2010 refinancing. “This is a bit more of the same. It is not responsible.”
City finance director Brian Collins said the restructuring gives the city some financial flexibility and still allows for the kind of austerity measures Conrad suggested.
The plan also relies on revenue increasing in what Collins terms the “natural momentum” of a recovering economy.
“We also have an eroding tax base,” council member Berlin Boyd said.
Council member Jim Strickland said the city could reach the full $74 million pension contribution in two fiscal years, including the current fiscal year, not in five as Wharton proposes.
“We were never given an alternative proposal,” Strickland complained, calling for a plan that “forces this council and this mayor to deal with Mayor Wharton’s 2010 refinancing and not push it off to the next generation of leaders.”
Wharton reacted sharply to Strickland’s criticism and attributed it to election-year politics as Strickland challenges Wharton in this year’s race for mayor.
“All of this stuff about two years – their own consultant walked in here and said, ‘You don’t have the money,’” Wharton said referring to advice from financial consulting firm PFM, which the council hired. “I guess they’re still not satisfied. It got a deafening silence. Everybody talks about some other way to do it. But up to this minute, not one person has stood up and said, ‘Here’s a better package.’ One of me, 13 council members. We’ve made our move.”
The council also approved Tuesday the mid-fiscal year budget adjustment that includes $13.5 million in city funding for the expense of keeping some city retirees and their spouses covered by the city’s health insurance for an additional year.
The carve outs were amendments to changes in city health care coverage made after the council approved the overall coverage changes.
Three times as many pre-age 65 retirees signed up to remain covered by the city’s plan than the administration estimated, prompting a city audit on the eligibility of the 1,000 enrollees.
The administration estimated at the outset that the changes would save the city $23 million.
With the carve outs and exceptions approved for just one year, there won’t be immediate savings, Collins acknowledged.
“The bulk of the savings is basically pushed back 12 months.”