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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.