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Pension and benefit reform, the
state of the Memphis airport

and more tonight on
"Behind the Headlines."

♪♪♪

I'm Eric Barnes, publisher
of the Memphis Daily News,

thanks for joining us.

We're joined tonight by a number
of people to speak about

the state of the airport.

Later we will be joined by
some folks talking about

pension reform and
local government.

But let me first
introduce Kemp Conrad,

Memphis City Council,
thank you for being here.

Thanks for having me.

Charlie Goforth from the Memphis
Chamber and the Aerotropolis

Initiative, thank
you for being here.

Good to be here.

Jack Sammons, Chairman
of the Airport Authority,

thank you for being here.

Glad to be here, Eric.

Thank you.

And Bill Dries, Senior Reporter
with the Memphis Daily News.

Let's start with there's lots
to talk about with the airport.

I'm going to put
you on the spot,

Jack, you're relatively
new into the Chairman job.

Right.

The big headline
has been for, what,

a year and a half now
the decreased air traffic.

Especially from Delta.

SAMMONS: Right.

Do you have any sense of how
much farther that's going to

fall before it bottoms out or is
it just going to keep falling?

Well, I don't
have a crystal ball.

I can't tell you who's going to
win the NCAA either but I think

we're approaching
sort of a leveling off.

I actually have a meeting
next week with the CEO

of Delta Airlines to
discuss Memphis' future,

just he and I
headed down to Atlanta.

But, umm, the domestic airline
business in America has been

contracting for some time.

That the legacy carriers are
focusing on the international

trade going across the ponds
in the Atlantic and Pacific.

The low-cost
carriers, on the other hand,

Southwest, Allegiant, Spirit and
those type of airlines that tend

to focus on fares have had
explosive growth in the last

decade, since 9/11.

As one door closes
another door opens.

We've been a primary hub for
Delta and Northwest before that,

Republic before
that for a generation.

The world is changing and
our airport is in the middle

of that dynamic.

So it's allowed us and
opportunity to attract

companies like Southwest
which is coming August 11.

BARNES: Right.

And we'll come
back to Southwest.

SAMMONS: Sure.

Because that's good news and
people have asked for that as

long as I've been in
Memphis some fifteen,

twenty years now.

SAMMONS: Sure.

But on the Delta
front there, you know,

people really have
visceral reactions to Delta,

you know.

SAMMONS: Sure.

Be it the businesses who are
paying $800 for flights

or a family who wants to go see
a loved one and they're paying

these, what they feel
like are ridiculous fees.

SAMMONS: Right.

And you hear people
Delta's out to get Memphis,

Delta doesn't like Memphis,
Delta moved Pinnacle

in that bankruptcy situation.

SAMMONS: Yeah.

The subsidiary regional
airline out of Memphis.

Is that your experience in terms
of dealing with executives

at Delta?

SAMMONS: No.

That they don't
care about Memphis?

SAMMONS: Yeah, no, not at all.

BARNES: Ok.

I mean, at the end
of the day, you know,

at my company we say we are
not a not-for-profit company

intentionally, you know.

And Delta is a for-profit public
company that's responsible to

their shareholders and when
the economy collapsed in '08

they had to, all the
airlines had to reflect

as they were bleeding
money left and right.

And they tend to run
back to their primary hubs.

FedEx does the same thing when
markets shrink they might reduce

Greensboro and Indianapolis
and other hubs that they have.

So there are a number of victims
along the line like St. Louis,

Pittsburgh, could be Phoenix
coming with the US Air-American

merger.

Cincinnati got hit
pretty hard I believe.

Cincinnati got clobbered.

Yeah.

They went from 600 flights a
day to less than what we have in

Memphis today.

Right.

Right.

And Nashville went
through, people will say,

Nashville went through it ten
years ago when American left

there.

Yeah, American left.

American used to have
daily flights to London.

BARNES: Yeah.

All that left overnight and
they had a brand new airport

that was empty.

BARNES: Ok.

But they've come back
with Southwest and others.

BARNES: Yeah.

And that's what we'll do.

You mentioned Southwest again.

Just, you know,
they've introduced- Sure.

For people who aren't familiar,
AirTran bought by Southwest.

SAMMONS: Right.

They're rebranding, I
think, in the fall.

SAMMONS: Right.

Bit by bit.

Sort of scene by scene.

SAMMONS: Well they're in
the middle of that now.

They're painting
airplanes as fast as they can.

BARNES: Right.

And they have leased their
717s, their smaller jets,

to Delta.

And Delta will
replace the CRJs,

which is the 50 seat
beer can I call it.

BARNES: Right.

You're sitting there like this.

BARNES: Right.

The regional jets.

You don't have enough seats to
spread that fuel cost over to

make those things efficient.

So they're going to be sent
to the desert of converted

to private jets.

Southwest, the beauty of their
model is they fly one airplane,

the Boeing 737 and there
are different models of it

that get larger.

But the 717s that AirTran has
typically flown will be out of

here probably in the next
six months and you'll see

that Southwest.

BARNES: Right.

The bad news is there's no
first class on Southwest,

there is on AirTran.

BARNES: Right.

Any sense of how
quickly or if at all

that Southwest will
ramp up service here?

I mean, again, there are a
lot of folks who are sort of

chomping at the bit that they
will come in with reasonable

fares and relatively
extensive service.

Yeah.

Do you have a sense of how
quickly it might ramp up?

I do.

Their CEO told me rather
abruptly one night at dinner he

said the more you take
the more you'll get.

And so it's all about whether or
not this community, one, enrolls

in their rapid rewards program,
which is their frequent flyer.

BARNES: Ok.

And their Chase Bank Visa card
which is an important revenue

producer for them.

Right.

Everybody in Memphis has got a
Delta AmEx and now we need-

Keep your AmEx but get you
a Visa card from Chase

with Southwest brand on them.

We've never mentioned so
many credit cards on the show.

This is a watershed moment.

[guests laughing]

Bill Dries.

Well let's talk about something
that is not strictly

the airport.

The aerotropolis conference.

Or concept, I should say.

Kemp, the city council got a
look at where that plan is going

in terms of formulation this
week and it got kind of a mixed

reception from the council.

So where do you think we are
on putting some specifics,

some meat on the bones, of
the aerotropolis concept?

Well I think it's
making a lot of progress.

I think there are a lot of
people working hard on it.

I mean, this, we talked a
lot about passenger service.

But, you know, the airport is
the economic engine not only of

this community but
really of the region.

You know, two
thirds of our, you know,

call it GCP, gross
community product,

all economic development,
come from our airport.

A lot of it driven by FedEx.

Two thirds of the jobs.

So we've got to get this right.

It's a competitive advantage
that our community has but it's

kinda been
underutilized, underappreciated,

and there's never really
been a strategy for it.

And so, I think a lot
of work's been done.

I think some of the frustration
from the council was there's

some council members where the
airport is in their district and

those folks
haven't been consulted.

You know, there was a
neighborhood meeting and I think

that the council members, such
as Councilman Collins who's very

integral to his
community, you know,

can help get the message
right and take that plan to the

neighbors.

The thing that frustrated me was
just there was no mention about

jobs in that plan and everything
we need to be focused on in this

community, especially
around the airport,

is about jobs.

I was talking to someone from
the chamber the other night and

they said we're not just getting
cut from corporate headquarters

we're not even in the hunt
because of the air service.

So I'm thankful of the
leadership of Mr. Sammons.

I can't imagine a better person
to lead this airport from where

we've been.

We've had a lot of air service.

We've been over served from a
community our size and how we go

through this transformation
and continue to get more air

service.

Charlie, let's bring you in.

I mean, Councilman
Conrad said that,

you know, he didn't hear jobs
mentioned with aerotropolis.

You're a planning
consultant with aerotropolis.

What about jobs?

Well I think that based on a lot
of what the council said they

did include jobs information
in the presentation that was

presented at White Haven
High School last night

in fact, talked about if
this plan was accomplished
based on what

they were talking about it would
generate about 900 additional

jobs per year over a
twenty year period.

So that starts to add up pretty
quickly to about 16000 over the

twenty year period and I
think that's a big part of the

process.

What we need to do, we've been
losing some industries to Desoto

County and a lot of it is
because they've gone through the

tax incentives here and are no
longer eligible for them so they

moved to where they can get
additional tax incentives.

Another part of it is available,
usable land and that's something

we're looking at too.

It's kind of a comprehensive
project to find places for

additional industrial land,
remove blight and get other

businesses interested in
moving back to the area.

So it's a comprehensive plan.

Jobs are a big part of it but
stabilizing neighborhoods like

the Whitehaven neighborhood and
Hickory Hill neighborhood are a

big part of it also.

Kemp, you wanted to comment?

No, no.

[Eric laughing]

That's great and I think
hat there was a lot

presented to the
council and I think,

you know, after the
comments I think the focus,

because that is the focus.

I think all, all the
things that's in the plan,

which is good, really builds
up to how do we create more

good-paying jobs
for our community.

BARNES: Right.

So, so, how much
have the readjustment,

the reconfiguration of
the airline industry,

how much has that affected
our aerotropolis planning?

You know, the airlines obviously
impact the area and what happens

at the airport.

I think the big part of what the
aerotropolis is looking at is

the business side of what
businesses are located in there.

Quite frankly, if we have more
businesses in the aerotropolis

area we will have more
people using the airport.

BARNES: Right.

And that's the key.

We have lost businesses.

We need to engage and bring new
businesses in that will then use

the airport.

One of the things that is a
really a growth industry and

can't move out of the Memphis
are the things that FedEx says

they need right at the end
of the runway and that's that

same-day source stuff like
the veterinarian facility that

brings samples in.

They're pulled off early in the
morning and sent back out on the

plane the same day.

Yeah, and I don't know if
it's a question for you.

No.

I'll put you on the
spot with this with FedEx.

Sure.

I mean, they, their quarterly
earnings came out recently,

way off.

But that's part of the
restructuring plan to some

extent.

And when the big plan with
cutbacks and so on came out,

what, six months ago, a lot of
what they talked about is how

they have growth area in ground
and they are declining in their

air business.

Does that concern you as
head of the Airport Authority?

Well, it... there are dynamics
in any business environment.

FedEx is a well-managed company.

I think any progressive company
today every five or six years or

so will prune the trees.

And I was in Washington this
week and they're talking about

the three percent
sequester and I'm like,

you can't find three percent to
cut in this place you've lost

your mind.

And corporate entities like
FedEx have to do the same thing.

It's important to note that
FedEx pays 80% of the landing

fees at the Memphis
International Airport which

makes it very conducive for
passenger flights to come in

here because of the low cost.

What they tell us is you
look at your demographics,

do you have enough people who
can sustain the high level of

flights that you had
when you were a Delta hub?

And, frankly, that's no.

But it's good news for Osceola
when they get a steel plant

because those folks are
going to fly out of Memphis.

What good for North Mississippi
will be good for Memphis.

Certainly we need to do what we
can and Kemp's worked hard on

this at the City Council to
try to create and economic

environment where companies
will want to come to Memphis and

grow.

And that's, it's a
chicken and the egg.

You're not going to have flights
until you have passengers and

you're not, the
other way around.

Yeah, one thing that in the
middle of these cutbacks with

Delta ground was broken on, I
may have my timing off slightly,

the ground
transportation center.

Right.

Certainly.

The big garage that people see.

Sure.

The rental cars
are going in there.

Right.

That has just
recently opened, I believe.

Right.

I haven't flown in lately so
I haven't seen it in person.

Right.

Yeah.

And there was some
concern or even criticism that,

hey, we've just built this big
multi-million dollar garage and

we're losing all this service.

Mhmm.

Is, is, do the economics
of that garage still work?

Right.

Well the number of people who
are flying out of Memphis has

not decreased.

And the people that we call
O&D, they originate in Memphis,

they still need to
park their car somewhere.

There are three primary areas of
revenue for an airport: landing

fees, terminal rent
and non-airline revenue,

which is parking
and concessions.

It's a three-legged stool.

That's a huge piece of the
profits that are made by,

or the revenue that's
made by and airport.

Six dollars a day you can
park in that parking garage,

the ground transportation
center as we call it.

We also moved all the rental car
companies from Democrat Road all

the way to the airport now
so you don't have to get on a

smelly bus and pollute the
air and ride over to Democrat.

What does that do?

It creates hundreds of acres of
potential expansion for FedEx

for the future.

Right now they're landlocked
by Democrat Road but sometime,

a generation from now perhaps,
that road can close and FedEx

can go all the way to the creek
which is a huge opportunity for

this community.

And FedEx, you
know, they're planning,

FedEx if planning for
generations away and we have to

do the same,
Charlie, in this community.

Alright.

Well we're going to leave
it there for this topic,

at least.

Yeah.

Jack Sammons, thank
you for being here.

Thank you.

We appreciate your time.

Charlie Goforth, also,
thank you for being here.

And when we come back, a
conversation about pension and

benefit reform and unfunded
liabilities at the city and

county level coming up next.

We're joined now by Joe Saino
from the watchdog group Memphis

Shelby Inform.

Thank you for joining us again.

Thank you inviting me.

And Kemp Conrad has stayed
around to talk about pensions

and benefits and compensation
and all those issues of local

government.

We'll talk about the
city, the county and MLGW.

Those are some hot
button issues for you Joe.

Let me as a real
simple question.

Are the pension obligations just
too much for the city to handle?

I think so at the present time.

I mean, we're talking OPEB at
$1.2 billion and then we've got

an unfunded liability on the
pension plan of six hundred

forty-something
million close to $2 billion.

And the county has like four
hundred million so five times

the county with the same,
basically the same number of

employees that the city has,
one fifth of the obligation of

the city.

Is that all pension money or
is that pension and healthcare

benefits rolled together?

Well that's, the
two billion is the..

Is together.

Yeah.

And that's OPEB.

OPEB stands for, OPEB is?

All the
post-employment benefits.

Basically
healthcare for retirees.

Ok.

And Kemp, how you've been on the
City Council for however many

years now, I mean, your
take on this problem?

Some people nationally have
talked about how pensions are a

ticking time bomb
for state, local,

county government.

The main feeling is frustration.

Because the facts
on this are so,

so clear what we're doing
now is not good for our city.

It's not good for
the tax payers and,

frankly, it's not good for our
employees and retirees who think

that this pension plan and the
healthcare plan is going to be

there for em in the future.

It's not, under
the present course.

And people that want to do the
responsible thing get attacked

for trying to set this up so
it makes it right by everybody.

To put this into context,
our annual budget's about

$600 million, ok?

So our unfunded liability
basically promises that have

been made by past politicians
and union bosses that can't be

kept is three times the size
of our total annual budget.

The last three years we have
underfunded the pension plan by

more than $50
million dollars, ok?

So almost ten percent
of our entire budget.

And, it borders on criminal.

And so, we tried to make these
reforms last year which would

have done a lot of this.

One of the things, a
minimum retirement age,

where you can't retire...

You can't go to work at twenty
and work for twenty-five years

and retire at forty-five.

Putting a minimum
retirement age.

The administration
caved, unfortunately,

under the
pressure of the unions.

So those changes were
only for new employees,

not employees ten years or less.

Listen, I don't like going to
employees that have been here

ten years and saying your
plan's going to change.

But I'm willing to do that if
it's going to make the plan

solvent in the future.

This is a huge problem,
the facts are clear and it's

unbelievable to me the absolute
lack of leadership that we can't

get this right.

And the chance of, let's go
back through some of the details

there.

The changes that were
made is employees are who,

new employees, they will
have to work till what age?

I believe it's
fifty, uhh, sixty for,

fifty-five for public service or
fifty-two and a half for public

service and maybe
fifty-five or sixty for,

you know, people
that have desk jobs.

BARNES: Ok.

It's something like that.

Where before there was none.

One thing we're working on right
now I'm going to introduce in

the next thirty days is a
eliminating double-dipping.

So you can't have someone
that retires from the City of

Memphis, gets a full pension,
then goes to work for Shelby

County or MLGW.

So you have the same pull of
tax payers paying a full pension

while someone's
making, you know,

one hundred
thousand plus a year.

I think that perverts the
spirit of the pension plan.

BARNES: And-

If could say
one other thing.

Yeah, please.

A long time ago, people in
government did make less.

Thus, healthcare and
pensions, the benefits,

kinda made up.

What happens now, if you look
at the average salary or what an

average city
employee makes it's well,

much higher than what
the average Memphis makes.

So now you've got, you know,
these rich benefit pools and

people making more money.

And we need to just really
restructure it and get it right

and then we can focus on
the other part of the city

government.

And what about, I guess I'll
turn to you and get you in here.

What about the
people who say, look,

you're talking about city
government as if they were

these, you know, sort of
bureaucrats in a dark room in a

basement somewhere
with a filing cabinet,

you know.

The sort of the evil bureaucrat.

Maybe they exist.

But what about the
police officers,

the firefighters,
EMTs, first responders?

I mean, you know, we weren't
able to get some other opposing

views here but let me
play that role for a second.

Those people put their life
on the line for the City of

Memphis, they save people,
they do this for a whole,

you know, life.

Don't they deserve, umm, a
if not rich but at least good

pension and retirement plan?

RAINO: Absolutely.

I mean, we need the
firemen and we need the police.

But what you're
seeing, of course,

over all in other
cities like Detroit,

Chicago and things the
pensions, over all pensions,

are eating into everything else.

Street maintenance, all kinds
of things that because of the

pensions and the exorbitant
pension in many cases,

I don't think
Memphis is that way but,

the exorbitant pensions in these
cities are eating the budget out

everywhere else.

And, of course, the last
thing they cut is the police and

firemen.

But even that, like in
Detroit they're cutting that.

Can I say, your
question is right on.

That's absolutely what I'm
so passionate about this.

Is we owe it, especially to
first responders and the police

and the firefighters who are
putting their lives on the line,

who have a very hard job.

We owe it to them to be honest
with them and make this right

them and their
families long-term.

The way we're doing
it now it's unsolvent.

We'd have to increase taxes
just to meet our pension,

annual required contribution,
we'd have to increase taxes

fifty cents to do that.

BARNES: Right.

If we did that we'd really
have flight out of here.

And that's not even, that
doesn't even cover the other

structural gab in city
government which is about twenty

to thirty million dollars where
current expenses outpace current

revenues.

BARNES: Right.

And the really frustrating thing
is we've been here now with this

mayor and this
council for years.

We own this and it's frustrating
that we cannot get it right.

Bill?

How much has the change in
accounting for those liabilities

and those liabilities being on
the books and having to have

some level of funding for it.

How much has it
intensified, do you think,

the question about
reforming pensions,

reforming OPEB, reforming
these benefit packages,

Kemp?

Well I think it has but I
think all it did was it made

government have to play by the
same rules as everybody else.

Saying that if you're gonna
accrue these liabilities you

have to account for it, be
honest and transparent about it

so people that are
buying your bonds,

that are investing in
your city so to speak,

understand, you know, what
kind of balance sheet you have.

Mhmm.

And so, and I think the
financial collapse of 2008 kinda

of laid all this to, you know,
it made it all very real and it

really exposed how
fragile this system is.

So Joe, how much of
this then, in your view,

is saying, well realistically
we think this many people will

retire, will need these benefits
as opposed to here's the hard

number we have to meet?

Because some people aren't
meeting what the obligations

are.

That they're
providing some of it.

Well, this, you
have to contrast,

I mean, they, I don't know
all the answers but the,

you have to contrast
the city and the county.

How did the city get five times
as expensive as the county?

That goes back a
number of years.

The January 2001 pension
resolution at the city that

allowed elected and appointed
officials to retire after twelve

years.

We're talking hundreds
of people that added to,

then you've got the line of duty
disability which is ten times as

high as the
county and the light,

gas and water.

That needs to be reformed.

So that's two obvious answers of
why you've got more expense at

the city than the county but
somebody needs to come in and I

don't know all the answers but
somebody like Jim Martin whose

retired from the county
he's an expert on pensions.

We need to get somebody
like that to come in and say,

why is the city five times as
expensive as the county and goes

back into history and
goes back into OPEB.

For instance, January 2007 the
county stopped letting retirees

who were receiving social
security to be on the healthcare

system.

So a lot of these
things, you know,

county made the right
decision the city didn't.

Here are some
numbers here I pulled,

that you pulled from
the city and county,

Joe, that are on your website.

But, you know, the number of
retired people as of summer of

last year in the
City of Memphis,

4900 for the city.

Shelby County, 3400.

SAINO: Right.

Just so people think well the
city's much bigger and they're

comparable number or retirees
but the benefits are just that

much richer or higher
or farther in funding.

Well they're comparable numbers.

BARNES: That's right.

Well, I mean, the comparable
number of active employees.

BARNES: Yeah.

But the retirees are
much less at the county.

BARNES: Right.

Less in number and also
less in average pensions.

BARNES: Right.

Go ahead Bill.

Kemp, when the City Council gets
into budget season here in less

than a month, how much of
the discussion is going to be

meeting the obligation you have
to meet and meeting what you

think you have to
meet of the obligation?

Or can realistically
or politically do?

I think it's going
to be a lot of it.

I mean, this is one
of the bigger issues.

I think the
challenge is, you know,

this issue really outlasts the
kinda average politician's

shelf life.

This is a generational issue.

It took a long time
to dig this hole

and, you know, most politicians
are focused on the short term.

They're focused on
the next project,

what they're going to
do for the district,

how they're going
to get re-elected.

And this is
something that, you know,

it's a tough issue.

It's about people's retirements
and but what we've got to get it

right because we're digging
a hole deeper and deeper.

So I think it'll be a big
part of it and the real issue is

there are some very
commonsense sensible reforms,

they're not draconian, they were
proposed last year and most of

them were stripped
out, it was watered down.

So guess what?

We're right back in this same
situation and we're going to

continue to be until we fix
the problem once and for all and

meet the obligations to our tax
payers and to the folks that are

relying on these in the future.

Can the City Council or should
the City Council try to restore

the 4.6% pay cut that
city employees took?

Absolutely.

I think we
absolutely have to do that.

I also think we have to for
once and for all restructure and

reform city government so those
employees can have some real

wage growth into the future.

But it's hard to do that when
we have all these legacy issues

that we fail to address.

One of them is trash collection.

We learned again Tuesday,
we got an update on this.

We can save from twelve to
twenty plus million dollars a

year recurring, our employees
can make more money than they do

now and they can ride in
automatic trucks and we're

still, you know,
nothing's happened on that.

That's the administrations'
job to work that out

and bring us a plan.

The council put a plan together
they didn't implement it.

So it's these kinds of
problems where the business

of city government is not
focused on enough by

the Wharton Administration.

They're focused on this
pie-in-the-sky all this plan.

The city, business of city
government is still broken.

It's easily fixable but we gotta
have some leadership to do it

and I think we could get a
supermajority of the council

to come together and then we
could move this city forward

over the next generation.

But if we don't we're
gonna end up like Detroit.

And if you look at what's
going on there it's not pretty.

They just appointed a receiver,

people are going to
lose their pensions.

Look at Stockton, California.

In Detroit they're basically
closing down blocks of the city

cause they can't
provide services.

That is where we're going to be
in a generation if we don't deal

with the issue right now.

And you've talked before
on the show about really,

and other City Council folks,
talk about wanting to lower the

tax rate in the City of Memphis.

That, to make it
more competitive,

so it's more competitive.

So, you've got
those two tensions.

Yeah.

Well, you do.

Hey, listen, if we could just
keep our tax rate flat and not

have a Ponzi scheme government,
I'd be fine with that.

I mean, I don't want an
artificially low tax rate when

we're robbing from
our pension plan.

Right.

Look at how we balanced
the budget last year,

if I could real quickly.

BARNES: Ten seconds.

We took $10 million that was
supposed to go to EDGE to fund

economic development.

We had put a massive twenty
million dollars against this

$1.2 billion liability.

Right.

Twenty million dollars.

We stole that to balance the
budget gap and then we didn't

pay the pension deal and I think
we took some money from the

reserves.

That's how we balanced the
budget last year and people

thought that was a good thing.

It's a joke.

Alright.
Thank you for being here.

Thank you for having me.

Thank you for joining us.
Join us again next week.

Good night.