Bitter medicine proposed to cure the city’s debt

Mike Lee, president of the Association of City Retired Employees, made a moving presentation to Memphis City Council members Tuesday in an effort to convince them not to support a proposal by Mayor A C Wharton to cut health care benefits for city government retirees.

That proposal and a proposal to change the city’s retirement plan from a defined-benefit to a definedcontribution system were part of the mayor’s proposed $596.8 million 2014-2015 city budget, which is 3 percent less than last year’s spending plan. The council must give final approval to the budget by July 1, the start of the fiscal year.

Before Wharton presented his budget to the council, Lee used a slide presentation to show the faces of retired city employees he said would be hurt by the health care proposal. Lee said all of them could see their health care premiums rise steeply without the city subsidizing the cost.

Wharton did not dance around the fact that the change would be painful but, as he has said repeatedly over the past several months, the changes in health care and the pension plan are necessary to place the city’s finances on a strong, sustainable foundation.

We think he is right. For years, the city has borrowed too much money and has not adequately funded its pension system. The debt can has been kicked down the road for too many years. The state comptroller has warned the city that it cannot continue doing that.

The mayor wants the city to largely stop paying for retiree health care. The city currently pays 70 percent of retirees’ monthly premiums. If the City Council approves the proposed changes, most city retirees would have to find other coverage or pay 100 percent of the premiums for their health insurance. The city would continue to subsidize a group of retirees who cannot qualify for Medicare coverage.

Wharton said the change in health care would save $27 million that would be used to help shore up the pension system, which has a $700 million indebtedness. The proposed changes in the pension plan would only impact new employees or employees who have been on the job less than 10 years.

Both proposals are going to be tough to sell to council members, some of whom have said the cut in the health care subsidy is a nonstarter.

These are tough choices, impacting real people, especially retirees who gave years of service to the city. But with the city wallowing in debt, limited revenue streams to maintain city services while paying off the debt, and a citizenry and council with no appetite for a property tax increase, the options are limited.

Councilman Edmund Ford Jr. wants the pension and health care proposals considered separately. He has been researching the possibility of allowing the insurance subsidy to remain by possibly reducing the plan’s administrative costs and finding other savings within the plan. That would help retirees and allow the council to focus on the pension.

It is a sad situation the city has gotten itself into, and both the council and administration share in the blame. They kicked the debt issue down the road for too many years, and now the state comptroller is telling the city’s elected leaders that they have to remedy the situation sooner rather than later.

The medicine to cure the problem will be bitter, but necessary.