WEBVTT 00:00.000 --> 00:02.002  (female narrator)    Production funding for    Behind the Headlines 00:02.002 --> 00:03.937  is made possible in part by.. 00:03.937 --> 00:07.040  (male narrator)    DHG is a full service    accounting firm serving 00:07.040 --> 00:09.977  Memphis and the Mid-South region   for more than 60 years combining 00:09.977 --> 00:13.113  community involvement with   the technical resources of a 00:13.113 --> 00:14.114  national firm. 00:14.114 --> 00:17.117  For more information    visit DHGLLP.com. 00:26.059 --> 00:28.328 - A continued look at the history of the city's financial 00:28.328 --> 00:30.898 problems tonight on Behind the Headlines. 00:30.898 --> 00:47.447 [theme music] 00:47.447 --> 00:49.483 I'm Eric Barnes, publisher of the Memphis Daily News. 00:49.483 --> 00:50.684 Thanks for joining us. 00:50.684 --> 00:53.520 Today is the second of a two part show that follows the 00:53.520 --> 00:55.756 Financial Mess series that was in The Commercial Appeal. 00:55.756 --> 00:57.758 I'm glad to have Marc Perrusquia at the table. 00:57.758 --> 00:58.759 Thank you for being here. 00:58.759 --> 00:59.760 - Thank you very much. 00:59.760 --> 01:01.762  (Eric)    Projects reporter for The   Commercial Appeal and the lead 01:01.762 --> 01:02.763  reporter on the whole series. 01:02.763 --> 01:04.064  Thanks very much. 01:04.064 --> 01:07.134  We've also got Tom Jones, a   sometime consultant to Memphis 01:07.134 --> 01:09.903  and consultant to cities   all around the world 01:09.903 --> 01:10.904  and the country. 01:10.904 --> 01:12.339  Thank you for being here. 01:12.339 --> 01:14.675  Rick Masson is a former chief   administrative officer for the 01:14.675 --> 01:16.677  city during the   Herenton administration. 01:16.677 --> 01:18.011  Thank you for being here. 01:18.011 --> 01:20.447  And Marlon Mosby, a former   finance director for the city. 01:20.447 --> 01:21.448  Thanks for being here. 01:21.448 --> 01:23.450  Also, a consultant to   other administrations, 01:23.450 --> 01:24.451  I believe so. 01:24.451 --> 01:25.452  We'll get to that. 01:25.452 --> 01:27.454  And Bill Dries, senior reporter   with The Memphis Daily News. 01:27.454 --> 01:29.456 And so, the series -- and it's still 01:29.456 --> 01:31.458 on The Commercial Appeal website. 01:31.458 --> 01:33.460 And the previous show we did is on the KNO site. 01:33.460 --> 01:35.462 It's on The Memphis Daily News site if you want to track along. 01:35.462 --> 01:37.497 But it covers some broad areas. 01:37.497 --> 01:40.067 How it happened, how the city got in to the financial mess. 01:40.067 --> 01:42.002 Annexation and population loss. 01:42.002 --> 01:44.004 And then, the rise of debt and spending, 01:44.004 --> 01:45.072 to some degree track that. 01:45.072 --> 01:47.074 We went through that in last week's show. 01:47.074 --> 01:49.076 We'll focus this show on pension, 01:49.076 --> 01:51.511 the drop part of the pension, the rise of spending with the 01:51.511 --> 01:53.914 police department and a look at some of the pain ahead and the 01:53.914 --> 01:55.916 pain that's going on right now in budget season. 01:55.916 --> 01:58.752 But again, I'll ask you, Marc, to kind of frame why the series 01:58.752 --> 02:00.754 was important and what your thoughts, 02:00.754 --> 02:03.890 takeaways from this series are. 02:03.890 --> 02:06.627 - Well, I think, you know, one of the driving forces for the 02:06.627 --> 02:09.796 current financial crisis that the city went through was the 02:09.796 --> 02:12.332 whole pension issue is why we spent some time talking 02:12.332 --> 02:13.333 about that. 02:13.333 --> 02:16.937 You know, the state legislator had mandated that cities have to 02:16.937 --> 02:18.939 meet their annual required contribution. 02:18.939 --> 02:21.942 They had this unfunded liability sitting there. 02:21.942 --> 02:25.345 They hadn't made all our paid all the money that they owed 02:25.345 --> 02:26.346 the pension. 02:26.346 --> 02:28.348 But now you've got to meet it by 2020. 02:28.348 --> 02:30.350 And so, this is what the city is up against. 02:30.350 --> 02:33.687 And so, we really focused on how they got there with the pension 02:33.687 --> 02:36.990 system that they are now and some of the very generous 02:36.990 --> 02:39.393 benefits that they gave over the years. 02:39.393 --> 02:42.462 And how they stopped funding it really. 02:42.462 --> 02:45.532 I mean, before the financial crisis, 02:45.532 --> 02:47.267 the economy crashed in 2008. 02:47.267 --> 02:50.270 A couple of years before that, they were already severely short 02:50.270 --> 02:52.039 changing the pension system. 02:52.039 --> 02:54.675 So, we tried to drill down on some of those issues. 02:54.675 --> 02:56.676 - And all of that against the backdrop of, 02:56.676 --> 02:58.679 as we talked about on the last show. 02:58.679 --> 03:00.680 And Bill, you had the advantage of watching the show. 03:00.680 --> 03:02.682 As we joked, you can fact check us on how we did. 03:02.682 --> 03:04.684 Henry Evans, the former CAO was here. 03:04.684 --> 03:08.055 But all of that, that spending and the rise in pensions and 03:08.055 --> 03:09.222 there was a rise in staffing. 03:09.222 --> 03:11.491 All of that was against a backdrop of annexation, 03:11.491 --> 03:13.994 of population loss and again, that spending increase. 03:13.994 --> 03:15.996 Your thoughts when you watch the show? 03:15.996 --> 03:17.998 I mean, you reported on much of that. 03:17.998 --> 03:21.234 But what did we miss and what did it remind you of? 03:21.234 --> 03:23.770 - Oh, I'm not going to say anyone at this table for that 03:23.770 --> 03:25.872 show missed anything or now. 03:25.872 --> 03:27.874 It was a pretty lively discussion. 03:27.874 --> 03:32.646 Context, to me, is really king on this. 03:32.646 --> 03:36.750 And I think that you all talked about the priorities 03:36.750 --> 03:37.984 at the time. 03:37.984 --> 03:41.655 The city was a changing creature during those years. 03:41.655 --> 03:45.325 We're talking about a span from 1960 all the way up 03:45.325 --> 03:46.960 to the present. 03:46.960 --> 03:52.099 There are issues present today in running a city that folks in 03:52.099 --> 03:54.201 1960 never even dreamed of. 03:54.201 --> 03:57.838 There are things that cities do today that they didn't do in 03:57.838 --> 04:00.674 1960 and vice versa. 04:00.674 --> 04:06.413 And also, if you look at our city in particular, 04:06.413 --> 04:09.850 the city of Memphis, look at all the history 04:09.850 --> 04:10.984 that we've been through. 04:10.984 --> 04:15.755 Look at all the turmoil that have all played a part in 04:15.755 --> 04:18.291 determining what our priorities are. 04:18.291 --> 04:23.997 Mayors get elected based on several things that they want 04:23.997 --> 04:24.998 to do. 04:24.998 --> 04:27.434 Usually three or four big things I think even though some folks 04:27.434 --> 04:31.738 campaign on a much larger scale of things that they want to do. 04:31.738 --> 04:34.307 And people make choices on that. 04:34.307 --> 04:37.677 And they make changes based on that, as well. 04:37.677 --> 04:42.482 - Well, so against that backdrop of the history of 40 years, 04:42.482 --> 04:43.783 there's a pension program. 04:43.783 --> 04:46.052 There's a pension that is underfunded, 04:46.052 --> 04:48.655 as Marc said better than I will. 04:48.655 --> 04:50.657 It's a national phenomenon in some degree. 04:50.657 --> 04:51.658 It's a national debate. 04:51.658 --> 04:54.227 But there are a lot of people who say now and I'm sure watched 04:54.227 --> 04:57.330 last week's show and said, "Yeah but what about pensions?" 04:57.330 --> 04:58.398 That's the smoking gun. 04:58.398 --> 05:00.400 If you're going to talk about the financial problem in 05:00.400 --> 05:02.402 Memphis, it begins and ends with pensions. 05:02.402 --> 05:03.403 You were finance director. 05:03.403 --> 05:04.404 Do you see that? 05:04.404 --> 05:06.406 And you've consulted with other administrations. 05:06.406 --> 05:09.142 Do you see that pension somehow is the smoking gun 05:09.142 --> 05:10.911 of all our trouble? 05:10.911 --> 05:15.348 - No, I think it's much broader than that. 05:15.348 --> 05:19.419 I think it's more fundamental in the way our revenue base 05:19.419 --> 05:21.087 is built. 05:21.087 --> 05:26.793 But it is the point that when they stopped funding it at the 05:26.793 --> 05:28.795 level that they needed to fund it at, 05:28.795 --> 05:31.464 it is the hole that they dug themselves in to. 05:31.464 --> 05:36.436 Uh, and that is very difficult now to get out of. 05:36.436 --> 05:40.106 - We got a chart again from the series that shows over the, 05:40.106 --> 05:42.175  what? -- 40 year period here,   the number of people 05:42.175 --> 05:43.510  on the pension program. 05:43.510 --> 05:45.378  So, we'll put that up. 05:45.378 --> 05:48.748  Rick, you were faced   with tough choices as CAO. 05:48.748 --> 05:52.953  I mean, you all had a whole lot   of land that had been annexed, 05:52.953 --> 05:54.955  as you said, that you guys   really weren't part of that. 05:54.955 --> 05:56.156  But you received it. 05:56.156 --> 05:58.158  The city was massive. 05:58.158 --> 06:00.160 I mean, as we said in the last show, 06:00.160 --> 06:02.495 bigger than the whole of New York City, 06:02.495 --> 06:03.730 as least physically. 06:03.730 --> 06:05.732 So, there are a lot of service and a lot of people had to be 06:05.732 --> 06:07.734 hired, I suppose, from your point of view. 06:07.734 --> 06:09.736 But did you all look and say, "You know, 06:09.736 --> 06:12.105 "we're creating a potential pension liability that's going 06:12.105 --> 06:13.306 to get out of hand here." 06:13.306 --> 06:15.976 Or what sort of thinking went in to that? 06:15.976 --> 06:20.347 - Well, first sort of following up on what Bill said here, 06:20.347 --> 06:25.385 you know, to put this in context over this time frame. 06:25.385 --> 06:28.888 Originally public employees received higher pension or 06:28.888 --> 06:33.293 benefits if you will primarily because they were under the 06:33.293 --> 06:34.594 market in salaries. 06:34.594 --> 06:37.264 That was kind of an understanding. 06:37.264 --> 06:39.466 In order to recruit and retain, not with some, 06:39.466 --> 06:42.535 but recruit and retain employees, you.. 06:42.535 --> 06:44.871 For whatever reason, the salaries were lower. 06:44.871 --> 06:46.940 And pensions and benefits were higher. 06:46.940 --> 06:52.812 That probably began to shift with the coming of the public 06:52.812 --> 06:56.349 unions and as that occurred. 06:56.349 --> 06:58.718 We faced, you know, pension issues. 06:58.718 --> 07:01.321 But, I mean, in our situation, we fully funded, 07:01.321 --> 07:04.024 you know, the pension that was required, 07:04.024 --> 07:06.559 that the actuary said we should fund. 07:06.559 --> 07:08.028 And we funded that. 07:08.028 --> 07:09.829 As it relates to a.. 07:09.829 --> 07:14.167 In fact, for several years there even after all these changes in 07:14.167 --> 07:15.235 the pension plan.. 07:15.235 --> 07:16.670 Several years we overfunded. 07:16.670 --> 07:19.205 As it pointed out in the article, 07:19.205 --> 07:23.176 we overfunded the pension plan in order to protect it against 07:23.176 --> 07:25.178 future downturns in the economy. 07:25.178 --> 07:27.180 No one could have ever anticipated, 07:27.180 --> 07:28.248 I don't think. 07:28.248 --> 07:29.683 Our actuaries did not. 07:29.683 --> 07:32.953 That the economy would have such a tremendous downturn. 07:32.953 --> 07:36.956 But we were fully putting additional funds in to the plan 07:36.956 --> 07:40.927 to get it ready for eventual downturn in the economy. 07:40.927 --> 07:43.096 - And Tom, I mean, your take. 07:43.096 --> 07:47.500 Is pension the smoking gun that some people want to say it is? 07:47.500 --> 07:48.835 - I agree with Marlin. 07:48.835 --> 07:50.203 I think it's a problem. 07:50.203 --> 07:52.539 I don't think it's the smoking gun. 07:52.539 --> 07:55.809 I just think there's always a political benefit in beating up 07:55.809 --> 07:56.810 public employees. 07:56.810 --> 08:00.814 [laughter] 08:00.814 --> 08:02.749 - Some of it is, you know, you talk about. 08:02.749 --> 08:07.454 You, Rick, talked a little bit about the public employee unions 08:07.454 --> 08:09.222 getting involved. 08:09.222 --> 08:11.458 There got to be, what? -- I think a lot of people would 08:11.458 --> 08:14.461 see some excesses in some of the benefits, the 12 year program. 08:14.461 --> 08:17.030 Why don't you describe the 12 and out? 08:17.030 --> 08:18.031 Yeah. 08:18.031 --> 08:22.001 - It was a brief program that they had that lasted I think 08:22.001 --> 08:23.002 three years. 08:23.002 --> 08:24.471 It was done for the.. 08:24.471 --> 08:27.307 It had been 15 and out before that. 08:27.307 --> 08:34.314 And the council approved it in 2001 for elected 08:34.314 --> 08:35.315 and appointed officials. 08:35.315 --> 08:37.317 And basically, you could retire after 12 years of service. 08:37.317 --> 08:38.318 It was very unpopular. 08:38.318 --> 08:40.387 - Except for those people who got it. 08:40.387 --> 08:42.389 - Well, in the big picture, I mean, 08:42.389 --> 08:43.390 it really is a small. 08:43.390 --> 08:45.392 I mean, you're not talking huge amounts of money. 08:45.392 --> 08:47.394 I think there were about 300 people or so over the years that 08:47.394 --> 08:48.395 qualified for it. 08:48.395 --> 08:50.397 But, I mean, it was very unpopular. 08:50.397 --> 08:53.666 [cross-talk] 08:53.666 --> 08:58.405 Emblematic of the, you know, the overspending that people 08:58.405 --> 09:00.407 thought was going on in the city. 09:00.407 --> 09:01.608 - Is it also emblematic? 09:01.608 --> 09:02.742 I mean, you've got.. 09:02.742 --> 09:04.344 You start, I think, that story with 09:04.344 --> 09:05.678 or it's in the story certainly. 09:05.678 --> 09:07.647 There's a 40-something-year-old former police officer who 09:07.647 --> 09:08.782 retired after 25 years. 09:08.782 --> 09:10.183 Not 12 years, after 25 years. 09:10.183 --> 09:12.919 He gets a pension for the rest of his life in the $40,000 09:12.919 --> 09:14.821 range and he works in Florida as -- I think in banking. 09:14.821 --> 09:16.823  (Marc)    You can't   fault him for that. 09:16.823 --> 09:20.060 He took advantage of what the system allowed. 09:20.060 --> 09:23.563 I think one of the interesting things that we found in that is, 09:23.563 --> 09:26.232 you know, when we got a spread sheet of all the retirees, 09:26.232 --> 09:29.903 a third of them retired in their forties, 09:29.903 --> 09:31.905 which I thought was eye-opening. 09:31.905 --> 09:34.207 Because you think about in the general public and you've got to 09:34.207 --> 09:36.209 try to be fair about this, too, like Rick is saying. 09:36.209 --> 09:38.211 I mean, they don't get social security. 09:38.211 --> 09:40.547 Although, a lot of them have access to social security 09:40.547 --> 09:42.749 through second jobs or spouses. 09:42.749 --> 09:47.086 But, I mean, the typical person is not going to retire in their 09:47.086 --> 09:50.323 forties, you know, with a full pension payable immediately for 09:50.323 --> 09:51.324 their rest of their life. 09:51.324 --> 09:53.326 They're going to be working now until their sixties 09:53.326 --> 09:54.327 and seventies. 09:54.327 --> 09:56.329 And so, that was very eye opening. 09:56.329 --> 09:58.331 And it creates quite a drain on the pension system. 09:58.331 --> 09:59.332 - But that's been removed. 09:59.332 --> 10:01.334 That retirement age has been moved. 10:01.334 --> 10:02.335 Is that right? 10:02.335 --> 10:03.403 For new hires, it's at 52 now. 10:03.403 --> 10:05.371 So, politically, I'll go. 10:05.371 --> 10:06.372 I'm going to pick on Rick here. 10:06.372 --> 10:08.374 I mean, politically, you're in the administration. 10:08.374 --> 10:09.709 Things like that are going on. 10:09.709 --> 10:10.977 You guys put forward I think. 10:10.977 --> 10:11.978 I mean, it's quoted. 10:11.978 --> 10:13.980 Herenton's quote is saying we didn't vote for that 10:13.980 --> 10:15.248 12 and out thing. 10:15.248 --> 10:18.151 But you must from a political point of view must sort of see 10:18.151 --> 10:20.820 that there's this growing kind of hot button back in the '90s 10:20.820 --> 10:22.055 or is it not at that time? 10:22.055 --> 10:23.189 And in to the 2000s. 10:23.189 --> 10:24.190 Was it? 10:24.190 --> 10:25.191 - It wasn't hot button. 10:25.191 --> 10:30.530 I mean, there had been a 15 and out for 20 years before that. 10:30.530 --> 10:33.800 And, I mean, there's a three years difference. 10:33.800 --> 10:37.937 So, for 20 years prior to the 12 and out, 10:37.937 --> 10:40.540 there was a 15 and out. 10:40.540 --> 10:45.011 And Marc had seen some employees that had retired as early as 40 10:45.011 --> 10:46.012 under that plan. 10:46.012 --> 10:47.280 So, but it was the council. 10:47.280 --> 10:50.016 I'm not going to defend it. 10:50.016 --> 10:54.521 It was something that the council wanted to do. 10:54.521 --> 10:58.258 We were certainly content with the keeping the 15 and out that 10:58.258 --> 11:00.260 had been in place for 20 plus years. 11:00.260 --> 11:01.895 - Do you remember, Bill? 11:01.895 --> 11:03.897 I mean, we've done a lot of shows on.. 11:03.897 --> 11:05.899 And you've obviously written about a lot about all this 11:05.899 --> 11:08.468 debate in the last few years of trying to reign in the pension 11:08.468 --> 11:11.971 program, cut benefits as the unions and them at the table 11:11.971 --> 11:13.973 saying, uunfairly cutting the benefits, 11:13.973 --> 11:15.975 taking the -- breaking the -- trying to fix the budget on 11:15.975 --> 11:16.976 their backs and so on. 11:16.976 --> 11:20.079 But do you remember when these plans -- any other time when 11:20.079 --> 11:22.916 you've been following city hall that the debate about pensions 11:22.916 --> 11:24.584 was this lively? 11:24.584 --> 11:25.585 - No. 11:25.585 --> 11:32.258 No, it's not been considered a quote unquote sexy issue to get 11:32.258 --> 11:33.426 in to. 11:33.426 --> 11:39.999 But at some point, I think someone was going to drill down 11:39.999 --> 11:41.067 to the essence of it. 11:41.067 --> 11:44.971 I mean, school funding wasn't necessarily a sexy issue either 11:44.971 --> 11:50.076 until the city council decided to make a point about it. 11:50.076 --> 11:53.212 And it's figured prominently in to this. 11:53.212 --> 11:55.481 - And the gamer changer was when they changed the law. 11:55.481 --> 11:58.618 You've got to fund it at the full amount. 11:58.618 --> 11:59.919 That's what changed it all. 11:59.919 --> 12:02.322 They had to deal with it. 12:02.322 --> 12:03.323 - Other cities? 12:03.323 --> 12:05.325 I mean, you work with other cities. 12:05.325 --> 12:07.327 This is, again, by no means a Memphis problem. 12:07.327 --> 12:09.762 I mean, the state of Illinois for instance has just horrendous 12:09.762 --> 12:10.863 problems and other cities. 12:10.863 --> 12:15.268 - Yes, some cities are going bankrupt over this issue. 12:15.268 --> 12:17.737 I did some work on this in the beginning, 12:17.737 --> 12:21.641 not for the city of Memphis but for someone else. 12:21.641 --> 12:23.643 And, you know, it looked like Memphis sort of fell in the 12:23.643 --> 12:24.944 middle, you know. 12:24.944 --> 12:29.015 It wasn't quite a crisis but it was headed that way if nothing 12:29.015 --> 12:31.017 was done to deal with it. 12:31.017 --> 12:33.252 - And everyone's take on what -- the changes that have been made 12:33.252 --> 12:34.253 so far. 12:34.253 --> 12:36.055 Again, they haven't all stuck. 12:36.055 --> 12:38.057 I mean, some were passed last year. 12:38.057 --> 12:40.059 But the city council is kind of debating now. 12:40.059 --> 12:42.061 I mean, Marlin, are they going in the right direction, 12:42.061 --> 12:45.498 a necessary direction, in terms of how they're trying to reign 12:45.498 --> 12:49.569 in not just pensions but the health insurance spending and so 12:49.569 --> 12:51.137 on and so forth? 12:51.137 --> 12:53.139 - Uh, I think they're going in the direction they have 12:53.139 --> 12:54.140 to go in. 12:54.140 --> 12:59.879 Uh, they.. 12:59.879 --> 13:00.880 Is it the right one? 13:00.880 --> 13:02.882 I don't know the answer to that. 13:02.882 --> 13:07.387 Um, if you're talking about employees and what's right for 13:07.387 --> 13:09.422 employees, that's truly.. 13:09.422 --> 13:11.791 They appear to be coming out on the short end of this. 13:11.791 --> 13:14.861 If you're looking at it from a budgeting standpoint or a 13:14.861 --> 13:16.863 finance standpoint, how do you balance a budget, 13:16.863 --> 13:19.265 they've got to do it. 13:19.265 --> 13:20.266 - In part.. 13:20.266 --> 13:22.435 And we'll get to more specific about police spending later and 13:22.435 --> 13:23.436 the rise of police spending. 13:23.436 --> 13:24.437 But what is it now? 13:24.437 --> 13:27.040 Thirty-eight percent, give or take of spending within the city 13:27.040 --> 13:28.908 budget is police, fire. 13:28.908 --> 13:31.110  EMS takes up a whole   other section of that. 13:31.110 --> 13:33.112  Again, Rick, you've been there. 13:33.112 --> 13:36.249  Do people want quick response   from their fire department? 13:36.249 --> 13:38.451  They want the crime   problem addressed. 13:38.451 --> 13:40.920  All that costs money. 13:40.920 --> 13:43.489  How, you know, when you're   weighing those kinds of issues 13:43.489 --> 13:47.427  in an administration, you   know, you've got somebody who's 13:47.427 --> 13:49.429  putting in their life   on the line every day. 13:49.429 --> 13:52.899  Do they not deserve   a lifetime pension, 13:52.899 --> 13:54.300  a pretty generous pension? 13:54.300 --> 13:56.703  I mean, it's not like somebody   who is just a clerk at a, 13:56.703 --> 13:58.705  you know, typing   somewhere at a company. 13:58.705 --> 14:00.640  It's a different type of job. 14:00.640 --> 14:02.709  And that's sort of it the point   that the unions are screaming 14:02.709 --> 14:05.745  about right now that   these are not typical jobs. 14:05.745 --> 14:08.247 So, you can't look at the spending and these pensions 14:08.247 --> 14:09.482 through a typical lens. 14:09.482 --> 14:10.483 - Yeah. 14:10.483 --> 14:12.485 Traditionally, that's the way it's been approached. 14:12.485 --> 14:15.321 I mean, Memphis is not unusual in that they have a 25 and out 14:15.321 --> 14:16.322 for police and fire. 14:16.322 --> 14:17.824 I mean, that's standard across. 14:17.824 --> 14:21.127 I would venture to say there are very few cities that have -- 14:21.127 --> 14:24.263 vary significantly from that. 14:24.263 --> 14:29.669 You know, when I was CAO, we received calls continuously from 14:29.669 --> 14:33.773 the business community, the crime commission and so forth. 14:33.773 --> 14:36.442 We need more policemen, we need more policemen. 14:36.442 --> 14:39.445 I think they did a study that showed we needed like I want to 14:39.445 --> 14:41.714 say 2,000 or something. 14:41.714 --> 14:42.749 An outrageous number. 14:42.749 --> 14:44.117 Eight hundred, I'm sorry. 14:44.117 --> 14:46.119 Eight hundred new police officers. 14:46.119 --> 14:49.322 And so, there was a clamoring for new police officers. 14:49.322 --> 14:51.057 And that's what drove that. 14:51.057 --> 14:54.494 And yes, I mean, when you hire a police officer, 14:54.494 --> 14:59.332 not only do you pay them but you also accept this liability of a 14:59.332 --> 15:01.067 pension for their life. 15:01.067 --> 15:02.435 - Go ahead, Tom. 15:02.435 --> 15:06.239 - I was just going to say Rick mentioned something about how 15:06.239 --> 15:11.577 the pensions were historically used to counteract low salaries. 15:11.577 --> 15:16.616 And the five year that the city conducted with PFM showed that 15:16.616 --> 15:22.021 some of the jobs are -- pay more than the private sector. 15:22.021 --> 15:23.489 Many are still lower. 15:23.489 --> 15:26.726 It seems like somehow it would -- might in the midst of all of 15:26.726 --> 15:30.530 this someone would look at how do you stabilize or balance 15:30.530 --> 15:31.531 those jobs. 15:31.531 --> 15:33.533 If you're going to cut pension benefits, 15:33.533 --> 15:36.068 what salaries do we need to become more competitive? 15:36.068 --> 15:39.939 - Well, and the other one, and it's in the story and it's in 15:39.939 --> 15:42.008 headlines and it gets reported, I'm sure, 15:42.008 --> 15:43.509 some would say over reported. 15:43.509 --> 15:46.646 But the rise in the number of six figure jobs. 15:46.646 --> 15:48.648 The people who make 100,000 and above. 15:48.648 --> 15:51.417 And then the drop program, which was viewed as this really 15:51.417 --> 15:54.320 lucrative huge pay outs to former police director Larry 15:54.320 --> 15:56.622 Godwin, former head of the airport, 15:56.622 --> 15:57.723 Larry Cox. 15:57.723 --> 16:00.593 Talk about those and the perspective on those. 16:00.593 --> 16:03.262 - The drop program, it's the deferred option plan. 16:03.262 --> 16:05.231 And what it is is it.. 16:05.231 --> 16:08.568 A lot of people view it as a golden parachute. 16:08.568 --> 16:12.572 I mean, but someone who has 25 years of service can enter 16:12.572 --> 16:13.573 in to it. 16:13.573 --> 16:14.874 And there are regular.. 16:14.874 --> 16:17.543 They're essentially collecting a salary and a pension 16:17.543 --> 16:18.878 at the same time. 16:18.878 --> 16:22.515 They're paying pension in to an account that when the employee 16:22.515 --> 16:24.183 leaves, they take with them. 16:24.183 --> 16:25.518 But the city stops. 16:25.518 --> 16:30.189 This is kind of the interesting rub of it is that the city stops 16:30.189 --> 16:32.191 making pension contributions to it. 16:32.191 --> 16:35.494 And so, arguably, I don't know if anyone has taken a fine pen 16:35.494 --> 16:36.495 to it. 16:36.495 --> 16:37.496 It's cost neutral. 16:37.496 --> 16:39.498 I mean, it doesn't really cost the city more. 16:39.498 --> 16:43.769 But I think the big question in there is whether it meets its 16:43.769 --> 16:46.005 purpose which is secession planning. 16:46.005 --> 16:49.709 Being able to anticipate when somebody's going to leave and 16:49.709 --> 16:50.910 then replace them. 16:50.910 --> 16:53.946 And what's happened in a lot of these cases is like Alan Benson, 16:53.946 --> 16:54.947 the fire director. 16:54.947 --> 16:58.451 I mean, he signed up for three years and then left like half 16:58.451 --> 17:02.121 way through to a nice paying job with the county and took his 17:02.121 --> 17:03.522 pension and his drop payment. 17:03.522 --> 17:05.525 There's no penalty for leaving early. 17:05.525 --> 17:06.626 And so, you really.. 17:06.626 --> 17:08.628 It really doesn't meet its mandate. 17:08.628 --> 17:11.130 - But your quoted in the article saying people don't understand 17:11.130 --> 17:12.798 it does save the city money. 17:12.798 --> 17:13.799 It looks.. 17:13.799 --> 17:16.469 The political perception of it is terrible but it saves the 17:16.469 --> 17:17.470 city money. 17:17.470 --> 17:20.106 - Yeah because you don't get out of habit to contribute. 17:20.106 --> 17:21.807 You provide the same job. 17:21.807 --> 17:25.478 It's essentially hiring that employee back to do the job and 17:25.478 --> 17:27.880 you don't have to pay them any benefits. 17:27.880 --> 17:30.116 It's parts that were implemented incorrectly. 17:30.116 --> 17:32.151 These employees should be treated like new employees. 17:32.151 --> 17:36.522 Like if they were employees that were just brought in to finish 17:36.522 --> 17:37.890 out this job for three years. 17:37.890 --> 17:40.927 And I think in terms of secession planning, 17:40.927 --> 17:42.929 I think it's good in fire and police. 17:42.929 --> 17:47.767 The trouble is you know you're going to lose X number of police 17:47.767 --> 17:48.834 officers or firefighters. 17:48.834 --> 17:52.672 And you really do need the lead time to do that. 17:52.672 --> 17:55.841 What happens is budgetary considerations get in the way. 17:55.841 --> 17:57.577 So, you have this information. 17:57.577 --> 18:01.414 You know we're going to lose X number of police officers, 18:01.414 --> 18:03.182 X number of fire fighters. 18:03.182 --> 18:05.051 We have to have a training class because there's a lot of lead 18:05.051 --> 18:06.252 time in hiring these folks. 18:06.252 --> 18:07.753 But you can't do it because the budget won't let you. 18:07.753 --> 18:09.588 - Go ahead, Marlin. 18:09.588 --> 18:18.864 - Another thing that happened is we confused health benefits for 18:18.864 --> 18:20.766 retirees with pensions. 18:20.766 --> 18:22.702 Those are not the same thing. 18:22.702 --> 18:30.109 And the law changed between '08 and today on health benefits. 18:30.109 --> 18:35.247 Health benefits were always treated as if they were paid out 18:35.247 --> 18:36.782 of current budget money. 18:36.782 --> 18:43.089 It was not considered that you needed to budget for future 18:43.089 --> 18:45.992 health benefits. 18:45.992 --> 18:47.226 And that changed. 18:47.226 --> 18:48.928 I mean, it changed nationally. 18:48.928 --> 18:56.235 And now part of that liability is that they have to fund that 18:56.235 --> 19:00.406 future liability where before they were just simply funding 19:00.406 --> 19:02.274 the current amount each year. 19:02.274 --> 19:04.477 And the rules changed. 19:04.477 --> 19:05.644 The accounting rules changed. 19:05.644 --> 19:11.751 - And just to piggyback, there was an OPEB amount in 1980. 19:11.751 --> 19:13.185 Okay? 19:13.185 --> 19:14.186 It was there. 19:14.186 --> 19:15.187 It just wasn't recognized. 19:15.187 --> 19:18.624 But there was a liability that was existing for the city 19:18.624 --> 19:19.625 of Memphis. 19:19.625 --> 19:21.694 And it probably was a pretty big number in 1980. 19:21.694 --> 19:24.163 And here we are in 2015. 19:24.163 --> 19:25.264 The city hasn't gone bankrupt. 19:25.264 --> 19:29.001 But that was a large OPEB number that existed in 1980. 19:29.001 --> 19:31.570 And, you know, that's something. 19:31.570 --> 19:32.772 I'm glad you brought that up. 19:32.772 --> 19:33.773 - I'm sorry. 19:33.773 --> 19:34.774 Go ahead. 19:34.774 --> 19:39.745 - But to me, it raises a question about the accounting 19:39.745 --> 19:41.347 for both of these. 19:41.347 --> 19:44.283 I mean, currently the city is not under any state requirement 19:44.283 --> 19:45.584 on OPEB. 19:45.584 --> 19:48.921 It likely will be at some point. 19:48.921 --> 19:51.857 But you have to show this on the financials. 19:51.857 --> 19:56.495 And the argument that the unions have made is there's no way that 19:56.495 --> 19:58.497 all those employees are going to, 19:58.497 --> 20:02.068 in the case of the pension, retire all at one time. 20:02.068 --> 20:05.638 Is it legitimate that local governments have to show this 20:05.638 --> 20:09.508 and have to pay for it now? 20:09.508 --> 20:12.745 - I mean, I think it.. 20:12.745 --> 20:16.148 The way I thought it should have been implemented is whatever was 20:16.148 --> 20:19.185 on the books at that point in time should have been somewhat 20:19.185 --> 20:21.187 grandfathered in in some fashion. 20:21.187 --> 20:24.957 And then any additional benefit packages that were added to the 20:24.957 --> 20:28.728 retirees that that council, that administration was responsible 20:28.728 --> 20:30.730 for, they should have to fund that. 20:30.730 --> 20:33.933 But to just sort of have this catch up over 20-something, 20:33.933 --> 20:36.902 30-something years that had been building up 20:36.902 --> 20:38.170 and started way back. 20:38.170 --> 20:40.773 I mean, this is something that started in.. 20:40.773 --> 20:43.676 The council at one point I think in the '80s were talking about 20:43.676 --> 20:44.910 free insurance retirees. 20:44.910 --> 20:45.911 You remember. 20:45.911 --> 20:48.247 They passed that resolution to have free insurance 20:48.247 --> 20:49.248 for retirees. 20:49.248 --> 20:52.451 So, can you imagine what the OPEB would have been for that? 20:52.451 --> 20:56.155 So, I mean, I think there should have been some sort of grace 20:56.155 --> 20:58.724 period or some sort of recognition of this or 20:58.724 --> 21:01.594 grandfathering in this amount and then going forward to cause 21:01.594 --> 21:04.463 cities to make sure that when they approved a benefit, 21:04.463 --> 21:07.600 a long term benefit, they actually have to wait and come 21:07.600 --> 21:09.869 up with some way to fund it. 21:09.869 --> 21:12.738 - Well, we've heard a lot on the show about people. 21:12.738 --> 21:15.307 And we're going to have to switch to police. 21:15.307 --> 21:17.309 But people on the show are saying, 21:17.309 --> 21:20.179 "Look, I mean, the health benefits now that the city 21:20.179 --> 21:22.781 employees have is so much better than the private sector." 21:22.781 --> 21:24.884 I mean, so that argument we talked about before with the 21:24.884 --> 21:27.853 pensions and it was a retention thing because the pay was lower. 21:27.853 --> 21:29.855 Well, now it's really kind of shifted. 21:29.855 --> 21:30.856 I think most of us.. 21:30.856 --> 21:32.925 I mean, certainly those of us in the newspaper industry have seen 21:32.925 --> 21:34.293 our deductibles go sky high. 21:34.293 --> 21:36.295 And that's just a general trend. 21:36.295 --> 21:38.964 And so, I think it's interesting to see the frustration people 21:38.964 --> 21:39.965 have with that. 21:39.965 --> 21:42.301 But let's switch to one of the big drivers. 21:42.301 --> 21:43.435 We mentioned this before. 21:43.435 --> 21:46.772 And I think they put the chart up which was police department 21:46.772 --> 21:47.773 spending going from.. 21:47.773 --> 21:50.142 These are inflation adjusted dollars from about 100 million 21:50.142 --> 21:52.378 in 1970 to 230 million, 240 million now. 21:52.378 --> 21:56.048 And a lot of that took place in the -- it's on the chart -- 21:56.048 --> 21:58.851 during the Herenton administration. 21:58.851 --> 22:01.020 Because there was this huge rise in violent crime. 22:01.020 --> 22:03.822 I mean, there was a sense that that was driving people out of 22:03.822 --> 22:04.823 the city. 22:04.823 --> 22:06.825 We get back to the population loss and so on. 22:06.825 --> 22:10.162 You were all quoted considerations at that time. 22:10.162 --> 22:14.033 I mean, really painful anecdotes in the story about the shootings 22:14.033 --> 22:15.201 and the killings and so on. 22:15.201 --> 22:18.237 And the way to address that was to double the size of 22:18.237 --> 22:20.272 essentially the police department. 22:20.272 --> 22:21.273 - Yeah. 22:21.273 --> 22:23.409 I mean, we talk about responsive government. 22:23.409 --> 22:25.411 We were trying to be responsive. 22:25.411 --> 22:27.413 As I said earlier, I received a number of calls and the mayor 22:27.413 --> 22:29.448 received a number of calls from business leaders across the 22:29.448 --> 22:34.854 community demanding, expecting us to hire more police officers 22:34.854 --> 22:37.022 to address the rise in crime issue. 22:37.022 --> 22:40.659 And it declined there for some period of time. 22:40.659 --> 22:44.697 You know, I think it somewhat paid dividends because in the 22:44.697 --> 22:47.866 mid-2000, after all these police officers are on board and 22:47.866 --> 22:50.436 actually out there working, it did decline. 22:50.436 --> 22:54.874 I think there is something to say about crime prevention as 22:54.874 --> 22:58.644 initiatives that should be implemented along with that. 22:58.644 --> 23:00.179 We tried some of those things. 23:00.179 --> 23:03.282 You know, community policing and so forth. 23:03.282 --> 23:08.854 And I think, you know, trying to address crime in any city, 23:08.854 --> 23:12.558 major city across this country has always been and will always 23:12.558 --> 23:16.495 continue to be a challenge as we saw in the headlines today. 23:16.495 --> 23:19.231 So, it's something that we need to continue to fight. 23:19.231 --> 23:22.201 We felt like we needed to address it by hiring 23:22.201 --> 23:23.202 new police officers. 23:23.202 --> 23:24.203 I think it helped. 23:24.203 --> 23:27.206 But at the end of the day, I think we also have to have some 23:27.206 --> 23:28.207 preventative measures. 23:28.207 --> 23:30.409 - Again, cities, some perspectives around the country. 23:30.409 --> 23:32.845 I mean, the perception of crime and the reality of crime 23:32.845 --> 23:33.912 sometimes are different. 23:33.912 --> 23:35.914 But it's a huge issue in Memphis. 23:35.914 --> 23:37.916 But it's an issue in any kind of urban city. 23:37.916 --> 23:39.918 I mean, it killed New York in the '70s. 23:39.918 --> 23:43.555 - Yeah, Memphis's violent crime rate and high violent crime rate 23:43.555 --> 23:46.025 goes back a hundred years almost. 23:46.025 --> 23:48.093 Memphis has just always had that. 23:48.093 --> 23:50.863 It's just part of the culture for some reason. 23:50.863 --> 23:56.902 But the city's own five year financial plans said that 23:56.902 --> 24:01.140 compared to cities that size, Memphis is an outlier in the 24:01.140 --> 24:05.277 size of its police force compared to other cities. 24:05.277 --> 24:10.382 And so, even after the Herenton administration increased the 24:10.382 --> 24:13.786 police personnel and budget, it seemed 24:13.786 --> 24:15.721 like the arms race continued. 24:15.721 --> 24:20.693 And so, Memphis today is essentially public safety poor. 24:20.693 --> 24:23.629 If you take all the sales taxes that the city of Memphis 24:23.629 --> 24:26.665 collects, all the property taxes the city of Memphis collects, 24:26.665 --> 24:30.469 you're still $70 million short in funding police and fire. 24:30.469 --> 24:35.874 - It's pretty interesting, too, because Rick brings up the build 24:35.874 --> 24:37.476 up that we went through. 24:37.476 --> 24:39.478 In the 1980s during the Hackett administration, 24:39.478 --> 24:44.450 there were also calls from the business community including a 24:44.450 --> 24:49.555 study that was funded by Ira Lichman from Guardsmark that 24:49.555 --> 24:53.959 basically made the case that the city needed more police officers 24:53.959 --> 24:55.194 then in the 1980s. 24:55.194 --> 25:00.899 And the Hackett administration was pretty vocal in saying that 25:00.899 --> 25:03.302 he didn't think that was the right strategy. 25:03.302 --> 25:06.839 He didn't agree with that at all. 25:06.839 --> 25:09.975 - Marc, I don't mean to give you the last word. 25:09.975 --> 25:10.976 Where are now? 25:10.976 --> 25:12.177 They're trying to grow. 25:12.177 --> 25:15.347 Financial problems aside, they're trying to get back to a 25:15.347 --> 25:17.349 comparable environment of 2,600. 25:17.349 --> 25:19.351 - And they're having problems retaining people. 25:19.351 --> 25:21.920 We keep hearing that, you know, because of the reduced health 25:21.920 --> 25:23.922 care benefits, officers are leaving. 25:23.922 --> 25:25.924 They're being recruited by other cities. 25:25.924 --> 25:27.926 And so, it's a constant struggle. 25:27.926 --> 25:29.928 But, I mean, this is one of these things, 25:29.928 --> 25:30.929 you know. 25:30.929 --> 25:32.931 Is the glass half full or half empty? 25:32.931 --> 25:34.933 You have these budgetary constraints but, 25:34.933 --> 25:36.935 you know, public safety is priority number one. 25:36.935 --> 25:38.937 And if you don't have that, you don't have anything. 25:38.937 --> 25:39.938 So, um, you know. 25:39.938 --> 25:41.974 - The current budget increases the police budget $16 million. 25:41.974 --> 25:44.209 - Alright, we will leave it there. 25:44.209 --> 25:45.210 Tom Jones. 25:45.210 --> 25:47.212 Marc Perrusquia, it's a great series of stories. 25:47.212 --> 25:49.214 Thank you and to everyone at the CA. 25:49.214 --> 25:51.216 Marlin Mosby, Masson, Bill Dries. 25:51.216 --> 25:52.217 Thank you all. 25:52.217 --> 25:53.218 Thank you for joining us. 25:53.218 --> 25:54.319 Join us again next week. 25:54.319 --> 25:58.056 Goodnight. 25:58.056 --> 26:11.670 [theme music] 26:11.670 --> 26:14.373  (male narrator)   DHG is a full service   accounting firm serving 26:14.373 --> 26:17.309  Memphis and the Mid-South region   for more than 60 years combining 26:17.309 --> 26:20.145  community involvement with   the technical resources of a 26:20.145 --> 26:21.246  national firm. 26:21.246 --> 26:25.384  For more information    visit DHGLLP.com. 26:25.384 --> 26:29.384 CLOSED CAPTIONING PROVIDED BY WKNO, MEMPHIS.