watchdog

Thursday, May 28, 2009

    THE PUBLIC PENSION SITUATION IN MEMPHIS AND SHELBY COUNTY

I finally received the update of the city of Memphis pension report dated March 31, 2009. I have attached that report and the report from the end of the last fiscal year ending July 30, 2009. It shows that the market value of the fund dropped from $2.11 billion to $1.45 billion, almost by 1/3. Also I have attached a report on who is on the City of Memphis pension board. This is quite interesting and almost incestuous. Talk about foxes guarding the henhouse. The members of the pension board are

  • The Mayor or his designee
  • The comptroller
  • 5 employees with at least 10 years of service
  • 1 citizen member
  • 1 retiree of the plan
  • 1 member of the City Council, non voting
  • Director of personnel, ex officio member, non voting

The important points here are two facts.

  1. The pension promises are full faith and credit promises backed up by the taxing authority of your elected officials regardless of our ability to pay.
  2. This whole process needs to be opened up with more public members (read taxpayers) on the pension board as it is their taxes that guarantee these promised pensions. The employees do contribute but so do the taxpayers and the guarantee is from the taxpayers.

Unless we have a miraculous market recovery, we will see huge pension increases in contributions from the taxpayers. We need to reform this system so that future new employees have a defined contribution plan (like a 401k) rather than a defined benefit plan. This is what taxpayers in the "for profit" world have and this is what public employees should have.



Click here to see the June 30, 2008 pension valuation report


Click here to see the latest monthly pension valuation report to see what it has lost


Click here to see who is on the pension board watching over your money

Tuesday, May 19, 2009

THE MISSING PUBLIC SERVICES & NEIGHBORHOODS BUDGET SECTION

If you go to the City of Memphis website, the Finance Division, you will find that the 2009 Adopted Operating Budget has a section missing (http://www.cityofmemphis.org/framework.aspx?page=947). It was taken down after two rape victims were turned away recently from the Sexual Assault Center. Also you will see that the City Attorney's section is missing but you find it under the second listing for Grants and Agencies.

I have found the missing section and have attached it to this email. No wonder they are hiding it. There is over $500,000 difference between what the City received from the state and what they spent. Where is the money?

Concerning the 2010 proposed budget, the most ridiculous statement is in the Mayor's letter in the introduction to the budget. He says the following.

"We've gone through it line by line to identify areas where we can cut costs, modify services and make necessary personnel adjustments. One way we have realized cost savings is by modifying our service delivery model as it relates to our Parks and Public Services Divisions. For example, City golf courses will be open fewer hours, as will community centers and libraries. These measurers enable us to make sure that every full-time employees working for us today has the opportunity to work for us tomorrow. However, since personnel costs make up about 70 percent of our operating budget, we focused on other opportunities to cut expenses in this area. Therefore, rather than laying off a single full-time employee, we have eliminated funding for over 125 vacant positions across the organization. "

Why do they include vacant positions in the budget in the first place? The answer is padding so that they come in under budget.

How about laying off some cronies. Here is some information from a Commercial Appeal article in February 2008 about cronyism appointments for Deputy Directors in Memphis.

  • Janet Hooks left the City Council after the legal problems of her husband and was appointed as the Director of Multicultural and Religious Affairs (part of the Public Services and Neighborhood budget) at $75,000/year. Then she went to Community Enhancement at $100,000/year.
  • LaSonya Hall, executive division, $100,000
  • Tony Elison, public works/solid waste, $100,000
  • Michael Gray, library services, $100,000 and last but not least
  • Yalanda McFadgon, public services and neighborhoods, $100,000

Think about all of the above as you look at your checkbook as you pay your property taxes this year.


Click here to see the missing 2009 public services and neighborhoods budget

Sunday, May 17, 2009

IT IS TIME TO LET THE TAXPAYERS VOTE ON TAX INCREASES

Why do we continue to build schools when the enrollment continues to fall? Why do we continue to pay $3 to the City for every dollar we spend on a county school. There has to be a better answer. Our huge county debt is due mainly to school construction with the above payment formula. If the City of Memphis and Shelby County are looking for reasons for our financial crisis, they need to start with our two school systems. Our County school system is pretty good and their cost per student is lower than the Memphis City School system. Many people talk of combining the two systems or of giving taxing authority to the school boards. What a terrible idea. State law requires that when you combine two systems, you must bring the lower cost per student system up to the higher cost system. Stupid yes, but we are talking politicians here, not rocket scientists.

People ask me if I have an alternate answer to building new schools for a shifting population. I have several suggestions. Close and tear down the under populated schools to save on the maintenance costs. Then take the tax money spent on each student in the City or the County where the overcrowding occurs, an offer it as a voucher for a qualified private school education. Ask the parents if they want to participate in a drawing and then give the lucky winners a voucher to be used to pay for a private school education at a qualified and certified private school.

The most egregious problem and error is the ADA (Average Daily Attendance) split law between the City and the County. The law states that when the County builds a school in the County, they must give the City of Memphis School System the cost of the new school multiplied by the ADA split. The law, however, has a provision that allows the county to build the school with taxes collected outside the City of Memphis to avoid this disastrous payment to the Memphis City Schools (MCS). One school (Arlington High School) was built by this provision in the law and county taxpayers are paying 4 cents per year in property taxes for this school over and above their normal county property tax. Since, then the County Commission has refused to build further schools using this method in the law. The results are shown below. $539 million dollars in extra cost plus another $50 million starting last year.

CAPITAL IMPROVEMENT BUDGET SCHOOL FUNDING 

Funding bases on ADA (Average Daily Attendance) 

FY 

City 

County 

Total 

1999 

$57,300,000.00 

$27,150,000.00 

$84,450,000.00 

2000 

$95,296,146.00 

$48,838,828.00 

$144,134,974.00 

2001 

$57,300,000.00

$31,800,000.00 

$89,100,000.00 

2002 

$57,300,000.00 

$27,300,000.00 

$84,600,000.00 

2003 

$57,300,000.00 

$18,800,000.00 

$76,100,000.00 

2004 

$57,300,000.00 

$51,975,000.00 

$109,275,000.00 

2005 

$57,300,000.00 

$20,000,000.00 

$77,300,000.00 

2006 

$57,300,000.00

$20,000,000.00 

$77,300,000.00 

2007 

$43,000,000.00 

$17,000,000.00 

$60,000,000.00 

Totals 

$539,396,146.00 

$262,863,828.00 

$802,259,974.00 

    

TOTAL PAID TO CITY OF MEMPHIS OVER AND ABOVE COST OF COUNTY SCHOOL CONSTRUCTION COSTS 

$539,395,935.00

 
    


 

    

The reason for this financial crisis lies at the feet of the politicians and their refusal to make reasonable decisions that taxpayers have to make every day. It is time that taxpayers take back control of their government from the politicians by cutting off the tax faucet. I propose a voter referendum next year that would not allow an increase in the pot of property tax money in the County to state as shown below. It is time we allow the voters to decide if they want to pay more property tax money due to reappraisals.


 

Section XXX Amendments to the Shelby County Charter.


 

The total ad valorem revenue from the previous year being the ad valorem revenue based on the previous year's total assessed value of taxable property within Shelby County, may not be increased without the majority vote of those registered voters voting in a countywide election. If the county commission, by majority vote decides, that they want such an election and an election is not scheduled within 120 days of the majority vote, then a special election shall be called. Ad valorem tax revenue from new construction and improvements not included on the previous assessment roll may be included in the amount authorized to be spent without voter approval.

I have reviewed The City of Memphis 2010 proposed operating budget which is now on line. I would like to point out some facts

  • The FY 2010 projected budget is $577 million with a funded staffing level of 6215. Compare this to FY 2006 Actual budget of $479 million and a funded staffing level of 5162. Both of these are up 20%. And also consider that the City Council took $57 million out of the budget in 2009 (School Funding) and it is still up 20% from 2006.
  • In the budget summary there is this ridiculous statement. "The largest cost impact across divisions is the 3% salary increase for all employees over FY2009 budgeted at $11 million. To balance this increase, we have eliminated funding for over 130 vacant positions (without laying off any employees).
  • GASB 45 requires the City to value the cost of providing post employment health care benefits (OPEB). In FY 2008, we established an investment trust to pre-fund $3 million in future OPEB obligations. For FY 2010, $6 million has been budgeted for post employment benefits. GUESS WHAT THE UNFUNDED LIABILITY WAS IN 2007? $823 MILLION DOLLARS.

It is time to bite the bullet and reform and cut the budget.

My recommendations for the 2010 budget year is the following.


  1. A 10% personnel cut in the City of Memphis. The cuts should be actual jobs, not phony ghost jobs.The actual funded staffing level for 2007 was 5534. The adopted 2009 funded staffing level was 6309, an increase of 14%. A 10% cut is not unreasonable. It should be across the board from the top to the bottom. For instance, we do not need a deputy director in each department. This is a layer of bureaucracy that we can do without.
  2. We need a fundamental change in our personnel policy to bring it more in line with the "for profit" world where all the tax money originates. We now have at the top end of years in service (15 years or more) 5 weeks vacation, 6 weeks of sick days, 11 holidays, 4 bonus days and three days death in family leave. This amounts to over ¼ of the year. On top of this we have the federal FLMA (Family Leave Medical Act) which allows up to 12 weeks of unpaid leave for various reasons. Private for profit companies do not have anywhere near this level of days off. We could cut our work force by 15 to 20% by bringing days off down to private levels.
  3. We have over $800 million of unfunded liability in OPEB costs (other post employment benefits) that represent promises made by politicians for retiree health care costs but without the money set aside to pay for them. We are now promising to pay 70 to 75 percent of these costs. We need to reduce this promise by 5% a year for the next 14 years so that the retirees can prepare for this reduction and to not make this promise to future employees.
  4. We need to move to a defined contribution pension plan similar to a 401K used in the for profit world of companies for all new employees. The present plan for existing qualified employees would be maintained.
  5. We need to look at changing the retirement age of employees which currently is after 25 years of service regardless of age. The highest cost of retiree medical insurance is for retirees at ages before they become eligible for Medicare. I have recently gotten current financial reports for the MLGW and have asked for the same from the City and the County. It is not a pretty picture. The MLGW is increasing their contribution by $18 million dollars because of losses in the market.


The guiding principle of these recommendations is that public employees' salaries and benefits should be no greater than the salaries and benefits of the taxpayers (the people who work in "for profit" businesses). Fairness and equity demand this.

TOUGH ECONOMIC TIMES AND PUBLIC PENSIONS

I have reported on the unfunded liability for OPEB (Other Post Employment Benefits) to the tune of $3.5 billion dollars. Now I have been looking into the local pension funds. Generally, in the past, I have believed that they were in reasonably good shape compared to the reckless funds and excessive benefits seen in the past in places like San Diego and Houston. However with the severe downturn in the market I wanted to get a look at the current figures. Also there is a current investigation of possible pay to play actions by certain fund managers that has come to light.

I have requested and received annual reports from Memphis, Shelby County and MLGW. I have also received current monthly reports from MLGW and Shelby County. The City of Memphis has not sent the latest monthly report but hopefully they will in the next few days.

First, we all hope that the market will improve for our own investments and also for the pension funds. Regardless of your political persuasion, the last 25 years (excluding 2008) have been a good time for investments. However here are the facts from the annual MLGW report and from the current Shelby County monthly report.

  • MLGW. Total recommended plan contributions for 2009 are $40+ million (26.7% of payroll), compare to $22 million (15.18% of payroll) for 2008. This is an increase for 2009 of $17.69 million.
  • Shelby County's pension fund is down $325 million as of the end of March 2009 from the end of June 2008. This is a 32.3% drop. It is not know yet what the 2010 contribution requirement will be.

These are legal full faith and credit obligations for the rate payers and taxpayers of Memphis and Shelby County. No doubt the City figures will be the same or worse which is probably why they are dragging their feet in not letting me have the information. I have attached the MLGW and the Shelby County documents mentioned above.

Click here to read the December 31, 2008 MLGW annual pension report


Click here to read the March 2009 monthly Shelby County pension fund report

THE SHELBY COUNTY CLERK’S OFFICE

On Tuesday, April 28, I had an appointment at 10 AM in the office of Debbie Stamson, the Shelby County Clerk and her assistant, Susan Henning. This was a meeting that I requested pursuant to my open records request concerning automobile registration and other functions of the Clerk's office. In response to my initial request I got a very oblique answer from Mr. Craig Willis, the Assistant County Attorney. Not satisfied with this answer I asked to meet with Ms. Stamson and the meeting was graciously granted.

The next day, I heard on the news that eight employees from her office have been indicted and that Councilwoman Ware was also involved. What a shock.

My investigation had nothing to do with the criminal charges against the eight employees. All I was asking was "What are the duties of your office and are you sure you are collecting all the fees that are due to you?" They had no answer and basically depend on the honesty of the average citizen to do the right thing. Take a look at other cars as you drive around and see if everyone has a 09 or 10 little sticker on their license and is it a legitimate one or one cranked out on their computer.

What I found was a typical bureaucratic mess that is symbolic of practically all government, local and national. Their main job is selling more than 650,000 vehicle license plates per year. (the wheel tax is about $106.00 for city residents and $30.00 less for a county car).They have no way of checking to prove if everyone is paying their legal fees which is different in the City limits versus the county. Suppose someone who paid last year simply does not pay? How about the owner of a car from another state who moves here? The penalty for not paying is practically nonexistent. The person can claim that it was setup and not driven for the last year. There seems to be very little cross checking with other data bases. Moreover, they collect the hotel and motel tax (about $150 million per year), take 5% for the support of their office and turn over the rest to the County Trustee.

I will report more in the days to come as I check what other states do in this area. For now I am still trying to digest another local scandal and wondering why I am still living in Memphis and hoping for a better future.

Friday, May 01, 2009

Here is another fact from the previous City of Memphis reports that points out the fact that the Memphis City budget is all about jobs, not efficient government. With the improvements in computer management and government computer programs, they should have been able to reduce the number of employees from 1996 to 2008 with only an 8% increase in population. But their objective is not efficiency, it is about jobs.

YEAR

1996

2008

DIFFERENCE

POPULATION CITY OF MEMPHIS

614,289

664,215

UP 8%

FUNDED STAFFING LEVEL

4764 (actual)

6225

30%


One other point. I asked last week for a copy of the proposed budget. I was told that it was not on line and would not be available until after it was finally adopted. I complained and asked how the public could review the administration requested budget without a copy on line. I have been told that Council Chairman Myron Lowery will have it on line by the end of this week. I have posted below the budget committee meetings, dates and times. Let us show up and let them know that we want real reform and cuts in the budget.

Here is what needs to be done.

My recommendations for the 2010 budget year is the following.

  1. A 10% personnel cut in the City of Memphis. The actual funded staffing level for 2007 was 5534. The adopted 2009 funded staffing level was 6309, an increase of 14%. A 10% cut is not unreasonable. It should be across the board from the top to the bottom. For instance, we do not need a deputy director in each department. This is a layer of bureaucracy that we can do without. Also crony friends of the Mayor who have been given plum jobs should be laid off.
  2. We need a fundamental change in our personnel policy to bring it more in line with the "for profit" world where all the tax money originates. We now have at the top end of years in service (15 years or more) 5 weeks vacation, 5 weeks of sick days, 11 holidays, 4 bonus days and three days death in family leave. This amounts to over ¼ of the year. On top of this we have the federal FLMA (Family Leave Medical Act) which allows up to 12 weeks of unpaid leave for various reasons. Private for profit companies do not have anywhere near this level of days off. We could cut our work force by 15 to 20% by bringing days off down to private levels.
  3. We have over $3 billion of unfunded liability in OPEB costs (other post employment benefits) that represent promises made by politicians for retiree health care costs but without the money set aside to pay for them. We are now promising to pay 70 to 75 percent of these costs. We need to reduce this promise by 5% a year for the next 14 years so that the retirees can prepare for this reduction and to not make this promise to future employees.
  4. We need to move to a defined contribution pension plan similar to a 401K used in the for profit world of companies for all new employees. The present plan for existing qualified employees would be maintained.
  5. We need to look at changing the retirement age of employees which currently is after 25 years of service regardless of age. The highest cost of retiree medical insurance is for retirees at ages before they become eligible for Medicare. I have recently gotten current financial reports for the MLGW and have asked for the same from the City and the County. It is not a pretty picture. The MLGW is increasing their contribution by $18 million dollars because of losses in the market.

The guiding principle of these recommendations is that public employees' salaries and benefits should be no greater than the salaries and benefits of the taxpayers (the people who work in "for profit" businesses). Fairness and equity demand this.