Behind the Headlines – April 19, 2019

Behind the Headlines – April 19, 2019


– (female announcer)
Production funding for Behind the Headlines is made possible in part by: the WKNO Production Fund, the WKNO Endowment Fund, and by viewers like you,
thank you. – A deeper look at the
city’s budget proposal tonight on Behind the Headlines. [dramatic orchestral music] I’m Eric Barnes, president
and executive editor of The Daily Memphian,
thanks for joining us. I’m joined tonight
by Martavius Jones, head of the Budget Committee
for the Memphis City Council. Thanks for being here again. – Thank you for having me. – Kemp Conrad is chairman of the Memphis City Council. Thank you for being here again. – Thanks for having me
again, Eric, I appreciate it. – Shirley Ford is
chief financial officer for the city, thanks
for being here. – Thank you for inviting me. – And Bill Dries, reporter
with The Daily Memphian. I’m gonna start, and I’ll
start with you, Shirley, and for each of you,
the same question, but I’ll start with Shirley. We’ll go through the big
picture of the budget that was proposed and
a lot of the details and a lot of what’s in there,
but as with any budget, certain things didn’t make it. So for each of you, what is
the thing or type of thing that you wish were in there
that you know won’t be, it’s just not possible for
whatever reason right now. What’s that thing? – Well, I think an
easy question for that is on our Capital
Improvement Program. We try to limit the
projects that we are going to fund through bonding
in any given fiscal year to those that fall
below the amount of debt service
that we’re repaying. So that automatically
puts a cap on us. This year it’s $87 million,
and to look at all the maintenance,
deferred maintenance, projects that we’d like
to do in any given year, it is very difficult to hew
that down to $87 million. – And that’s in comparison
to the $700 million, again, we’ll go through this, but the $700 million is
the operating budget. – Exactly.
– That’s salaries, that’s other things,
but that capital, give an example of
a capital project just so people understand,
that is in the budget. – That is in the budget,
the new Frayser Library. – Okay.
– The Whitehaven Fire Station. – Okay, okay.
– And then of course paving is a big part of that as well.
– That’s actually capital. So I mean, off the cuff,
you wish that it were double $87 million,
I mean what is, I mean, what do you need
even just to kinda keep up? – Well, I think just
the very core services that we look at through our
Capital Improvement Program is between 60 and 65 a
year, so that doesn’t leave a lot of room to bring
on special projects. – Yeah, Kemp, same
question to you. What’s not in the budget, what’s
not gonna be in the budget that you wish were
there and why? – Well, I haven’t gone through
the budget yet, really, so I don’t really kinda have
an answer to that question. I think what I would
like to do is maybe provide a bit of context
about what we do. This is a $700 million business. We employ 9,000 full-
and part-time employees. This team manages
the City of Memphis which has a footprint
of 340 square miles. We have 6,800 miles of
road we have to manage, that’s L.A. and
back three times, 3,300 miles of storm
and sanitary sewer. You know, we’re protected
by 2,000 police officers, 1,500 professional
firefighters and EMTs, 40 community centers,
18 libraries, 17 pools. It is a big, big operation,
and it’s hard to do all that with a $700 million budget
that only grows naturally by only $10 million per year. So because of that, we’re
not gonna be able to do everything that
we’re gonna wanna do, but this team over
the last 10 years has done all this and managed
this with no tax increase. We’ve doubled our rainy
day fund, our reserves, over the last four years. We’ve had two credit increases, which decreases our
cost of borrowing. That’s about a third
of our operating budget is debt service, over
$200 million per year. And we’ve cleaned
about a billion dollars off our balance sheet. And so we have been
very disciplined. We have leaned up city
government as much as we could. We’ve continued to
invest in our employees. And I think the one
thing I would say I wish we could do more of,
especially for police and fire, especially police have
a really difficult job and do a great job every day, you really can’t pay
those folks enough, and wish we could–
– And this year there’s, what, 3% increases
in your proposal? – That’s right, and
if you look at it, and I think since 2016,
they’re in probably about the double
digits on average. It’s different if you’re
11 years of service or less, 12 and more.
– Right, 9% to 10% over the next year.
– So we’re doing all that we can without raising
taxes, you know, I’m– – But do you wish
that, do you wish in that budget were
a tax decrease? – I–
– I mean, so many people talk about the tax
burden being a limiting, limiting economic
growth between the city and the county
tax being so high. – Sure, but I just
don’t think that’s– – That’s not doable. – It’s absolutely not doable. I mean, I’ve been down
there now 10 years. We have made the
hardest of decisions. We’ve leaned it up
as much as we can. – Yeah.
– And it’s just not practical, but
what other cities have not had a tax
increase in a decade? – Yeah.
– But have continued to invest in people
and have the metrics and the things that
we’ve got going on in a very positive way.
– Yeah, what was the peak tax rate for the city, does
anyone remember, off the cuff? While we [laughs], the
CFO’s gonna look that up. – She has it.
– And I’m gonna turn to Martavius and ask
you that same question. What’s not in the budget,
what’s not gonna be in the budget that you’d
like to see in there? And you’ve been doing this
for a few years now, so. – What’s missing from it is
a growing revenue stream, so that’s the only thing
that I wish we had in there. I would like to see
a greater investment in youth and in children. When the city got out of
the education business, I say we got out of the
education-funding business, but we didn’t get out of
the children business. So every child that
attends a Shelby County, well, most children that
attend a Shelby County school is a Memphian.
– Yeah. – So I’d like to see,
and maybe doing some of the discussions we
may be able to find some savings there,
some programmatic things that I’d like to see during
the summertime in particular– – Like youth job and camps
and that kind of thing? – Well, yes, well, there’s a
school in Newark, New Jersey, just on Friday
nights, they ramp up, and they have a program
until 11 o’clock. And so if we perhaps
could do that, and hopefully we can
find some savings or revenue sources where
if we can just do that, every Friday night that school is out in our community centers, I think that could make
up a great difference. – And you–
– And well, I’m gonna catch a point, too, and I agree totally
with Councilman Jones, but one way the city has led,
and we started this in 2017, it’s gonna be in this budget,
well, actually in the budget right now, is universal,
needs-based pre-K. When we got out of the
education-funding business is because we funded it,
we had no oversight of it. This is a way now we’re
leveraging our money with the county, private
sources, and the school system to have universal
needs-based pre-K and a lot of wraparound things that are coming with it.
– Right. – So that’s a huge commitment,
and those early dollars, the investment at that
age and even earlier, that’s the best money
that we can spend. And I’m proud that this
council and this mayor have joined together
to make that a reality for Memphis and Shelby County.
– Okay, and before I go, did you, the high tax rate for city of Memphis was–
– Okay, the high tax rate, this is going back
to 1982, was $3.43, and that was for the
period 2005 through 2007. – Okay.
– So we’re currently sitting at 3.195, so
that’s a huge decrease over the time period.
– Right. Always go to the
CPA for the actual– – There we go.
– For the real numbers. Let me get Bill involved. – You talked about debt service. The city’s debt service
picture is improving to the extent that two
cents in the tax rate allocated for debt service has
been shifted, is that right? – That is correct, and one
of the, if you remember back in 2015, there
was a lot of discussion about restructuring of the debt. And basically what that
did was took the existing debt structure for the city,
extended it by one year, but leveled out the
debt servicing payments that were coming from the city. So through very
prodigious funding, budgeting, and gathering
those resources and monitoring those resources, we actually
improved our debt service allocations to the point
that we felt very comfortable pulling these two cents off
to fund some new initiatives. – And at the council retreat,
I guess a month ago now, you gave the council
some projections that showed that by,
starting in 2026, the city will have about
$40 million in revenue now going toward debt service that will no longer
be needed for that. – And it is actually
our 2027 fiscal year. – Right.
– But yes, sir, and you see a huge decrease,
almost $40 million drop, and so all of this hard
work that we’ve done through the past five years
is really going to pay off, and you will be
able to see, I mean, we’ll be able to fund
through our own capital PAYGO as opposed to issuing debt. I mean, that’s $40 million
that we were issuing or paying off in
debt that we can now use capital
PAYGO for projects. – Okay, to the two council
members at the table, when this started to happen
in Shelby County government, a good development, I
think, everyone would agree, but it touched off a
pretty vocal debate among the commissioners
about what to do with that money in 2026. So this is beyond
your terms of office, we should also point out here, but are we gonna
see some tension around that extra money that
comes off of debt service? – 2026, the only thing
we can do is speculate. You know, I think that the
city should be strategic in its investments and
what we do with that, whether it’s, and I
still go back to youth, what will we be
doing for children, what will we be doing
for police and fire and other city employees? So I can see it
being contentious. I think that there
were some ambitious ask from the bargaining units
as far as pay raises, so I know that if
we see a $40 million extra amount of revenue,
there could be asks for 10-15% raises asked, but
I don’t think that’s possible. – Mr. Chairman, what
do you foresee on this, and also in the present
day, is there a temptation to try to take that
amount of debt service, money coming off
of debt service, and start to use it
sooner than 2026? – Gosh, I sure hope not. I don’t think that’s
been our practice. I think, again, I think we’ve
been very, very disciplined. We take all this
very, very seriously. That would be a very
unserious thing to do. And so it’s way out
into the future, and we have so many
opportunities in front of us but also challenges, so we’re,
at least myself, we’re using all of our brainpower,
intellectual capital, really, to focus on what’s
in front of us right now, the next year, the
next four years of some of my colleagues’
terms hopefully, and that’s kinda
way down the road. It’s good to start
thinking about and planning but not spending a lot of
time thinking about that. Two points, one of
the bargaining units proposed a 25%, I
think, increase. – Bargaining units
being one of the– – Correct, in this case–
– The employees. – I think it was police.
– Yeah. – You know, again, that’s– – Because part of their–
– Three– – point is that they went,
what, six years without a raise through the recession,
right, and they saw cuts in benefits, I mean,
it goes way back. And you were on
the council then. – That’s right.
– I mean, really hard cuts. We had shows that were
tense to say the least with you and other
people from the union and other council
members because of, and people from the
Wharton administration because there were just
big cuts being done that were painful,
right, and no one liked, I don’t remember anybody
sitting on the show saying, oh, we’re really
happy to be doing these cuts to police and fire and so on.
– No, that’s right. And what we’ve
been working, yeah. – So I think their
frustration is, well, yeah, we’ve had a 3% increase
roughly three years in row now, but that’s after what, six years without any sort of increase. – I’m not sure if it was six
years without any increase, but you’re right, and so
but we’re working to get that back up without
cutting other things in city government and
without raising taxes, which if we did, I don’t
think we could lower taxes, we couldn’t operate
the city that way, but if we raised ’em, we’re
already at a very high rate compared to who we compete with. One other thing we did
this year with this budget is we fully fund the pension–
– That’s where I was gonna go. – ARC, which is
something that has been many years in the making
and is a very big deal. – Let’s–
– It’s something that should’ve been
done a long time ago– – Let me get the CFO involved, and your predecessor,
Brian Collins, who was finance director,
CFO under Wharton and then carried over into
the Strickland administration, and you took over
for him, right, after he retired.
– Correct, yes. – He was on the show, and it
is not, it’s pretty wonky, but it was a big part of those
cuts we were talking about– – That’s right.
– And a big part of the problem that
the city was facing was that the pension– – Yes.
– So the retirement plan for city employees and OPEB– – And OPEB.
– Which is other post employment benefits–
– That’s right. – But that’s insurance,
health insurance and other forms of–
– Retirement benefits. – Retirement benefits
was wildly underfunded. If people remember,
the state stepped in and said not just
Memphis but other places needed to get it together–
– Correct. – Over a five-year period, so
it’s no small thing, right? I mean, what is it, a $54
million contribution– – Right.
– That the city made to these benefits,
the pension and so on, but they weren’t making
those through the recession. They weren’t making
enough or any kind of contributions to that, right? – There were years, actually,
where, and I’m talking in ’13, ’12, ’13, that the city was only making a
21% contribution to their actuarially
determined contribution. And so after the
conversations with the state and the establishment of
the progressive funding which started, ’15
was our base year, it started in ’16 and we had
to be fully funded by FY20, and we are, the fortunate
thing that happened for FY20 is because of the
increase in the economy and great returns, our
ADC actually went down. And that’s part of the
reduction in expenditures that the mayor is talking
about that we’re now going to put back
into our employees. But I would like to
come back a little bit to the capital
that you mentioned. One of the things
that we are doing is the budget that
we present is, the funding is for
the current year, but we produce a
five-year budget. Internally, one of the
changes that I’m making is that we are going
to produce internally a 10-year budget so that we
have the strategic analysis behind when we finish
this community center and we build this
library, what’s next, where are we hitting
next and to align that with the 3.0 plan but also
to give it sustainability when those of us who
after the administration, you see a strategic plan in
place for what we had hoped this would look like
into the future years. – And the 3.0 plan
is the Memphis 3.0– – Correct.
– Strategic plan. We’ve done a lotta shows,
a lot of articles on that. – Right.
– And we may get to that, where it stands with
council right now. But Bill, we go to Bill. – Okay, Martavius,
let me talk to you about some political
realities here. As Budget Committee
chairman, how much play to you think there is
in the budget proposal? At what point do you say
there may be some items we can change around, some
priorities to change around and talk to the
administration about? – You know, I would
have to look at it. We haven’t been
presented with the actual budget books just as of yet. Maybe when we leave here,
they very well could be in the offices yet, so I
would have to look at it, and I would have to
look at it in comparison to previous years as well. We can’t look at things
just in a vacuum. Let’s look at it
compared to last year, let’s look at it compared
to two years ago. And so one of the things
I always ask is how, with this incremental revenue, I know that largely
it will cover the increases for
fire and police pay, but what are some
other things in there? When we don’t have a
growing revenue stream, it’s hard for us to say,
well, could take from here, take from there because
these priorities have already been established. But one thing that I
think will be helpful for me individually,
hopefully I’m fortunate enough to be elected for
four more years, is to have a 10-year
outlook of how we can prioritize things and
make sure we’re being strategic in some of the
decisions that we make today. – Give me an example of
a growing revenue stream when you talk about that. – Well, one of the other things, Chairman Conrad mentioned
the fact that we have the highest tax
rate in the state, we’re always being
compared to Nashville, but we can’t make that statement without looking at the
fact that Nashville’s assessed property values are
twice as much as Memphis’s. So they can afford to
have a property tax rate half of ours because
that same rate will generate the
same amount of revenue that they have to
function or carry out city government in
Nashville in Memphis. So that, when we just make
that blanket statement about that, yes, it’s true,
but we also have to make it relative when we
talk about the actual property values
which are higher. Nashville’s assessments
are going up at a rapid rate because
you have higher-paying jobs coming in and driving
up the prices for those, for that existing property
values in Nashville. And so we just don’t have that. – Kemp, what do you
think about this thing of a revenue stream
that he talks about, beyond the property tax? – Let me say, nine minutes left. – It would just depend on what
kind of revenue stream it is. So I think what we’re working
really hard on right now is we’re somewhat limited
in revenue streams by state government,
so what we are working really hard on is
growing the tax base, infill development,
returning back to the core, all the infrastructure’s built, we’ve de-annexed some
areas where it’s cost us money over the long term, and
running a tight government with a great
business environment and great neighborhoods where
people wanna come and live. And as more businesses come
and more people live here, our revenues will go up. And on the question
about the budget, 72% of our operating
budget is personnel cost, and so there’s not a lot. You’ve got that and you’ve
got the debt service, there’s not a lot more
in the operating budget. In the capital budget, we
do do a pretty good job with our five-year plan, and
everybody kinda has a sense, we’ve all been working
together now for, you know, this is
the fourth year, and so we know what’s
kinda in the pipeline. And Shirley and the
mayor and the team have done a great job
communicating with the council, we communicate with them,
so when that budget address is delivered, a lot
of the priorities that the council members
want, they’re already baked in because we’ve been
communicating the whole time, and that’s what’s led to a
pretty professional process the last several years and
I think we’ll have this year under the leadership
of our budget chairman, Councilman Jones, and
our CFO, Ms. Ford. – Right, roughly speaking,
or you may know exactly, it’s a good point
that Kemp has made of 72% of that operating
budget is people. Of that, the vast majority
is police, fire, and EMS, and then probably
public works after that? – Yes, and solid waste. – Right, all the kinds
of things that people probably beat up
the mayor with– – Of course, right.
– I don’t speak for the mayor, but when he is on–
– Right. – He talks about if he goes
to a county, you know– – Correct.
– Any sort of town hall, and sort of meeting,
people want, you know, they want less
crime, so that’s police. They certainly want fire
services to be where they are. They want more roads
and paving and upkeep. I mean, it’s a tough one in
terms of it’s not a bunch of bureaucrats in the
basement, you know, who, the kind of stereotypical
ugly-look at government is filled with people
not doing anything. It’s mostly that, right? – And that is correct,
and one of the things the mayor said is yes,
we wish we could do more, and we always do, but
we’re also very strategic about looking at
comp comparisons. We do a comp study
every year that we share with the council members,
but when you start talking about a raise, you start
talking about a lot of money. – Yeah.
– I mean, a 3% increase for police and fire
was almost $9 million. That’s a huge percent. – Basically a big,
that’s the growth– – All of our growth.
– It’s 90% of our growth. – Yeah, that’s all the growth. And so then to, and
you know, you don’t want to continually give
raises to some employees and segregate the
other employees, and so a 1% to the
general employees was almost another
million and a half. So basically, we spent
the whole $10 million that we’ve been,
worked very hard on reinvesting back
into our employees. – With five minutes left
here, let me ask you, there’s a whole lot of
development going on in Memphis, private development,
public development, quite a bit of really big
sort of private-public, however you wanna
define that, projects. So of this operating budget
and this capital budget, how much of it is
going towards, say, the riverfront Tom Lee Park
redevelopment proposal? – Not much. [laughs] – I mean, what is not much?
– I mean it’s, I mean– – I know I’m putting
you on the spot, and I– – Right, and I don’t
remember the exact amount of the grant that is built
into that, but it’s not much. The majority of the
capital projects are on the new libraries,
on the new fire station, and on those type of projects.
– So that, and again, part of what I’m asking
is that the funding of, the public government funding of the $70, $60-$70
million riverfront project is separate, a separate
revenue stream, back to what–
– Yes, yes. – Yeah.
– But one of the things we are looking at is
expanding the areas and looking at opportunities
where we can partner with businesses and philanthropy to help fund those
projects that do not fit within kind of the mold of city
government-funded projects. – Right, and then for big
sort of development projects like say the Union
Row development, which is a big
private development, but it’s got tax incentives
associated with it or other some of the, you know,
FedEx moving one of its Logistics headquarters
downtown which gets PILOT. From your point of view, is
that the city paying out money? – Actually, I think
the tax incentives, we could do another whole
show on this. [laughs] – We’ve done a
couple, just a couple. – It’s just that when we
compare a negative revenue to a positive revenue, it
makes a huge difference in how you view what
those, what the PILOTs are, what a TIF may be. – Let me go to you on
that, on the PILOTs. I mean, is that a place
where you think the city, I mean, some people
will listen to this show and listen to this
debate and say, well, the city wouldn’t
have all this trouble if they didn’t give away
all these tax abatements, these lower taxes, in
PILOT projects that bring, you know, be it FedEx
Logistics or Union Row, or we could go on and on
and on, your take on that. – I think that they are a
necessary evil, if you would. However, I think that we
should be a little bit more selective in the industries that we decide to incentivize. I served as the
council’s liaison to the EDGE board for two years, and what I found is that
we were not intentional. It seemed like if you
checked all the boxes, which most corporations do, you get the same
amount of PILOT. So if we talking
about the $80,000 jobs that are associated
with FedEx Logistics, well, another company
coming in that, where the majority of the
staff is making $13 an hour, they get the same
type of incentive. – I got ya.
– So I think that we need to be a little bit more
deliberate in how we do it. – Three minutes, Bill. – Kemp, what do you think about
where we are on incentives? Is there room for change
there, keeping in mind that we just had
a big discussion about our economic
development approach? – I mean, I think
we’re always gonna be turning the dials on this. There’s been a big
community debate about it for the last year, and
I think we’ll continue to focus on it and making
sure that our economic development strategies line
up with our growth plan for the community and that
we’re bringing as many jobs and capital here to lift
the boats of all people. That’s the goal, and we
wanna keep every dollar of tax revenue that we
can, but the reality is that it’s not just Memphis,
this happens everywhere. I wish that no cities and
no states had incentives and you just competed
on your community, but you can’t just have a unilateral
putting down your arms, putting down your weapons,
and these are a reality to make some of
these projects go, in Memphis and in every
city, even in anywhere. And so but we, our
goal is to get as much economic development,
’cause that’s jobs, that’s opportunity, but
in growing our economy and keeping as much
tax revenue as we can. – We talked just a bit
ago about a comparison between Memphis and Nashville. Should we try to be
like Nashville is? Should we have the
kind of rapid growth that Nashville has
had in their economy with the government kinda
trailing behind it at times? – I don’t think so. You know, I don’t wanna be
Nashville, I wanna be Memphis. Memphis is an authentic city. It’s one of our core
competitive advantages, and I’d like to grow faster. I think over the next
decade you’re gonna see the best decade
that we’ve ever had in Memphis over the last 10
years, I truly believe that. So I wanna grow faster,
and I think we can, but Nashville’s like
unrecognizable now. I mean, I saw the
other day they’ve got like this rolling aquarium,
like a party aquarium. They’ve got tractors
rolling down Broadway. You know, they’re
cutting down their trees to have a one-time event. And I don’t wanna be Nashville,
but I wanna be Memphis. That is our secret sauce,
and you’re gonna see better growth and a great
decade, I think, for our city. – Only ’cause we talked
to you, we had you on about a month ago and
talked to you about 3.0, with just 30 seconds, where
do you stand on Memphis 3.0? It’s at council, it’s hit
some, the last conversation with three council
members that we had, it seemed like it was green
lights and on its way. Where do you stand
on Memphis 3.0? – I think it is, I just
provided a commitment to the constituents,
the people that I serve, that it’ll be a
comprehensive review before I vote on it, and
I’ve been doing that. – And for you, you mentioned
it isn’t just a plan on the shelf in
the sense, for you, you talked about tying,
it’s the first time I’ve heard anybody talking
about spending priorities tied to that so formally.
– That’s correct. And I was fortunate enough
when I came on as CFO to become of the advisory
committee for 3.0, so I came in on
the tail end of it. But it all makes sense–
– Okay. – That it’s
comprehensive together. – All right, I didn’t give
you enough time on that. Sorry about that, but thank you. You’ll come back,
and we’ll talk about all these things some more. And thank you all
for joining us. Join us again next week. [dramatic orchestral music] [acoustic guitar chords]

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