The Memphis City Council approved Memphis Mayor's A C Wharton's plan to to re-structure a big chunk of the city’s debt this year after blessings from Tennessee State Comptroller Justin Wilson and from an independent firm hired by the Memphis City Council.
Wharton wants to refinance $134 million of city debt and then borrow $75 million more. The plan is stop sharp annual increases in annual debt payments. City finance officials said those payments could be increased by as much as $25 million each year, putting a strain on the city's budget.
Council members approved the plan with Jim Strickland, Shea Flinn, Kemp Conrad, and Harold Collins voting against it.
Strickland hoped to see several alternative plans from the administration, especially a plan that would even out the city's debt payments on an annual basis.
Council member Bill Boyd asked city finance director Brian Collins if the vote could wait, possibly until budget season begins next month. Collins said interest rates could jump any day now and that if that happened, "the value of the deal could evaporate."
The plan was a main topic of discussion during the council's executive session, which took place just before the full council meeting Tuesday evening.
Wilson opposed the mayor’s plan for the same type of “scoop and toss” refinancing plan in 2013. (The plan scoops up higher debt payments today and tosses them into the future.) Wilson said Tuesday he still doesn’t like scoop-and-toss refinancing deals “at all” but said “you have to play the hand you’re dealt.”
“You don’t have a good hand to play, to be frank with you, not the best I’ve ever seen,” Wilson said. “But it’s the belief of me and my office, that (Wharton’s) proposal is the best way to play a not-so-good hand.”
Wilson admitted the the city’s financial situation is better than it was in 2013. But he said the debt-service cliff was coming and that higher debt payments would not be helpful to the city’s financial integrity.
Under questioning from council member Shea Flinn, Wilson said “bad was too strong a word” to describe the city’s financial situation but said difficult choices were ahead. Flinn pushed him on what those choices could be and Wilson noted they could include possible tax increases and cuts in services.
The council hired Public Financial Management to review Wharton’s plan. Officials from the firm told council members Tuesday that any debt restructuring plan they would recommend, “would not be materially different than the solution presented here.”
But some council members said they felt the city borrows too much money each year and that the scoop and toss refinancing plan is not fair to future mayors, councils, and taxpayers.
“I don’t think many people in Memphis think we’ve been wise with the public purse,” said council member Kemp Conrad.
He called for a budget that focused on basic services to the taxpayers and not “air conditioners for malls and stuff like that,” a dig at a recent government grant headed for the owners of Southbrook Mall. Conrad called for a capital improvement budget of around $50 million, what he said was the annual average during the recession years of 2009 through 2013.
City finance director Brian Collins said borrowing less money coupled with the debt restructuring plan could yield higher payments for the city’s biggest debt - the financial gap in the employee pension system.
Still, council member Jim Strickland said more was at play in the matter than just mathematics. He said to be fair, the council and the mayor should split the responsibility of the coming debt cliff.
“To be fair, if we agree we caused this problem, we should agree to pay some of it than just toss it off,” Strickland said. “We, as a collective unit created it. Doesn’t it seem fair to not toss it off to future generations?”
Council member Flinn agreed and pointed to the same problem with the federal government, saying pushing debt down the road was a “flaw in our country’s character.”
“We’re spending our children broke,” Flinn said.
Council member Harold Collins recalled the debt refinancing deal done in 2010 (which did not yield the savings that were proposed). He linked that action to following budget years that saw layoffs, and cuts in employee salaries and benefits. To Collins, the new debt refinancing plan was just more of the same.
“I am waiting to hear what bold new step this administration will present for the city of Memphis this year,” Collins said. “We refinanced debt in 2010, cut the pension and benefits last year and we’re going to refinance this year.”