No easy fiscal fix for city’s debt woe

But Council compromises may be 1st step

Debt and reserves became a central issue in the final deliberations on this year’s Memphis city budget and while some say leaders didn’t go as far as they should on the issues, others say they took the first steps and that there’s still plenty of time.

Memphis City Council members got the first bitter taste of the city’s debt reality in an April budget hearing when finance director Brian Collins showed them debt payments would skyrocket in coming years. They could take out the steep inclines in the payments if they agreed to pay a flat rate of $31.5 million each year for nearly the next decade.

Then, council members got a letter from State Comptroller Justin Wilson saying that, among other things, he wanted to see them begin to rebuild their reserves. The savings had dwindled as the council had tapped them to pay for day-to-day operations such as funding for Memphis City Schools.

Municipal finance officials and bond rating agencies like to see a financial reserve of more than 10 percent of a city’s total operating budget. In Memphis, that means the city needs a protected savings north of $60 million. The fund balance for 2013 was projected at $57.8 million in Mayor A C Wharton’s originally proposed budget.

When all of the astronomical f igures boiled down to votes on the city’s final budget last Tuesday, the number to hit was $23 million in cuts and new revenue by 2015. It would adequately pad reserves and make higher debt payments, officials said.

The original plan to get there was with 100 layoffs, 300 positions reduced by attrition, a mix of other savings and a tax rate of $3.35, one penny below the $3.36 certified tax rate. But some council members would not vote for any plan that included layoffs. Council member Bill Boyd struck key compromises that eventually allowed a final deal that included only 50 layoffs and upping the tax rate to $3.40, a 4-cent addition to the certified rate.

The plan made way for more than $9 million this year for debt and reserves

and the changes are expected to yield even more savings for 2015.

The plan didn’t go as far as some council members wanted, but council member Harold Collins said it didn’t have to.

“We didn’t get into this problem overnight and it would be crazy for us to think we can solve it overnight,” he said. “What this plan does is it starts us down the path to fixing it, though.”

George Little, the city’s chief administrative officer, said some council members told him they were not concerned with next year’s budget and that no budget proposal “really went after” the debt problem.

“There were opportunities for more progress and it is reasonable to say we could have made more definitive progress,” Little said.

But the council did sock away enough in reserves this year, he said, to give the city breathing room for the unforeseen.

Councilman Myron Lowery said the council members did what they needed to do this year, according to the financial experts like finance director Collins, who Lowery said has the trust of Wharton.

“Obviously, we have more to do,” Lowery said. “This is not a one-budget cure-all long term. This is the best we can do right now and then everyone on the council realizes we have to make some tough choices.”