VOL. 130 | NO. 44 | Thursday, March 5, 2015
Financial Debate Looms at City Hall
By Bill Dries
With Memphis Mayor A C Wharton Jr. to present his budget proposal to the City Council in May, some on the council started to set the table this week for an election year challenge of Wharton’s methods for righting the city’s financial condition.
The council delayed a vote Tuesday, March 3, on a resolution that makes it a policy that the city will be fully funding its pension fund annual required contribution within five years.
The policy already is a state law.
But council member Jim Strickland pushed for the delay in approving the policy because he wants the city to get to the $74 million annual ARC payment by the end of the fiscal year that starts July 1, not in 2020.
The council votes on the policy May 19, the first council meeting after Memphis Mayor A C Wharton Jr. presents his budget proposal for the coming fiscal year.
The budget plan will include how Wharton would increase funding to the pension with the increase coming from cuts to other areas of the budget.
“I think we need to be more aggressive than what I expect the budget is going to show,” Strickland said.
City Finance Director Brian Collins argued the delay and a move to a shorter timeframe for fully funding its annual contribution limits the city’s flexibility.
“Quite frankly, I can think of no set of circumstances where this council would want to give up that flexibility for no particular reason,” Collins said.
“This administration has shown a propensity to want to kick this down the road,” Strickland replied. “We should pay our bills on time so they don’t continue to increase.”
Council member Shea Flinn agreed.
“I don’t know why we are taking this piecemeal approach,” he said.
Closer on the horizon is a council decision on Wharton’s proposal to restructure the city’s debt payments.
The council has hired municipal finance advisory firm Public Financial Management to review the administration’s plan to restructure city debt payments and report its recommendations to the council in two weeks.
The administration is proposing restructuring the debt payments to move a $30 million balloon payment due in fiscal year 2020 – the same year the city is supposed to reach full funding of its pension ARC by state law – to a later fiscal year.
Council chairman Myron Lowery said he will push for a council vote on the restructuring proposal in two weeks, citing changing financial conditions that scuttled a previous city effort to restructure its debt payments.
Wharton said he agrees with the council on the review by PFM but wants a vote up or down as soon as possible.
“You never know what the (interest) rates are going to do,” Wharton said, citing the market’s reaction to Federal Reserve chair Janet Yellen’s testimony before Congress last month. “Once she indicated there was no rush to let up, the markets settled in. Nobody fled the equity market. You just never know, but we know what the rates are now. But we don’t know what they will be a month from now.”
Last year, Wharton’s plan to refinance was approved by the council and was an immediate victim of a much more volatile market.
“In the current budget, we were going to do a refinancing and hoped to net between $9 million and $10 million,” he said. “And on the very day the council took the vote, it took a wild swing. I think it got down to a point where we were going to net out only $4 million. It just goes to show you timing is critical.”
The council will likely spend several hours reviewing the PFM recommendations in committee March 17. Tennessee Comptroller Justin Wilson is also expected to be at City Hall that day to talk with council members before the vote at the afternoon session.
Wilson endorsed the administration’s restructuring proposal last month, two years after expressing concern about the city’s 2010 debt restructuring.
In other financial action Tuesday, council members approved a $4.5 million advance for the Memphis Area Transit Authority to get past a cash flow problem.
But the council delayed for two more weeks a vote on a larger mid-fiscal year budget adjustment for city government in general.
Meanwhile, city Human Resources division director Quintin Robinson told the council in Tuesday committee sessions that the second stage of city health insurance plan changes on the way from the Wharton administration will involve a “high deductible plan design” for employees and retirees, with lower premiums and health savings accounts with a city match. The plan, if approved, would most likely take effect in 2017.
Robinson said the administration will also likely propose coverage of telemedicine calls to physicians for minor ailments. The calls could cost $38 per contact, not counting prescriptions, versus $112 for an office visit and $760 for a visit to the emergency department, Robinson said.
“That’s called consumerism,” Robinson said. “This plan design is a radical departure from what we have now.”