City looks ahead on pension fund

Cuts planned to free up $7M, but changes hinge on municipal election

With a $658 million 201516 budget approved last week, Memphis officials are planning new cuts and changes aimed at keeping taxes level while freeing at least $7 million to help shore up the city’s pension fund.

But whether that plan goes into effect will largely depend on the Oct. 8 municipal election. Mayor A C Wharton faces several challengers, and five of 13 City Council members are not seeking re-election.

The council’s approval of the budget June 23 concluded a budget season dominated by carryover from last year’s pension and health care changes that left many employees and their families with reduced benefits. In the two most significant decisions, the council voted for employee pay increases and against reducing and extending a health insurance subsidy past Dec. 31 for pre-65 retirees.

At the urging of council member and mayoral candidate Jim Strickland, the council also upped the pension fund contribution to $46.5 million from $44 million in the current fiscal year.

Next year, the big question facing elected officials will be how to fund a $7 million increase in the city’s annual contribution to its $2.2 billion pension fund. Because of a new state law, the city has through 2020 to bring its annual contribution up to $74 million to generate the interest and returns needed to cover payments to pensioners in future years.

To reach that threshold, the city will have to contribute $7 million each year on top of the previous year’s contribution and the $20 million contribution it had regularly made in recent years, said Finance Director Brian Collins. Even more, Collins said, the city should take a conservative approach and contribute $9 million per year.

“Every year is going to be a very practical, hard-nosed look at how to do that,” he said. “It’s not a question of ‘want to’ — it’s a question of ‘need to.’”

Collins said he hopes the city

will address the need by streamlining government to avoid raising taxes. Next year, the administration plans to propose moving employees to high-deductible health insurance plans, and use a $500,000 IBM Smarter Cities grant to make datadriven reforms that will reduce costly, nonemergency demand for the Memphis Fire Department’s emergency medical services.

Collins said raising property taxes would “put at risk our economic growth,” and would only be necessary if reforms aren’t made.

“We can’t talk about tax increases while we still have more to do here,” he said.

Council chairman Myron Lowery, who is not seeking re-election, said the steadily rising pension contribution makes a tax increase likely to come at some point.

“That would be wonderful,” he said of not raising taxes. “But if we’re talking about doing it at the expense of hurting city employees, I don’t know that we want to do that again.”

Harold Collins, a council member who is one of several candidates running for mayor, said he would push to implement recommendations made recently by human resources and benefits consultant The Segal Group, including adding a high-deductible plan, that would save the city millions of dollars.

But Collins also has several expenses lined up, including bringing back pre-65 retiree health insurance subsidies. He said he would have to see how all the changes wash out before considering a tax increase, but that it may be needed for the pension contribution.

“It has to be a shared responsibility,” he said of the contribution.

Tennessee Comptroller Justin Wilson said Memphis made strides in addressing its financial issues and is in a better position than many smaller cities across the state — if it stays the course.

“That will put them on the way to have financial solvency,” he said. “And right now, they’re not there yet.”

Although state law doesn’t enforce the full annual contribution until 2020, Wilson said the city should move to immediately address the issues keeping it from paying the full required pension contribution.

If the city doesn’t meet the deadline, the state will withhold taxes that otherwise would have returned to the city — budgeted at $61 million for next fiscal year.

“That would be a true tragedy,” he said.

Strickland and others have called for the pension to be addressed sooner than five years, creating long-term savings for the city.

The city landed in its current predicament when the economy collapsed in 2008, causing the investment portfolio that feeds the pensions to lose nearly 29 percent of its market value — a $662 million loss.

And when the city didn’t increase contributions, the resulting unfunded liability worsened.