Thursday, April 22, 2010

Worst Foot Forward

At MCS budget time, it pays to make Memphis look poor.

Posted By on Thu, Apr 22, 2010 at 8:28 AM

Memphis is a city with no middle-class families, no economic progress, and no upward mobility. If you are non-white, you are probably poor. If you start poor, you probably stay poor. You're screwed, kids, but you'll never have to buy a school lunch.

Memphis doesn't have pockets of poverty. The whole city, except for a couple of pockets of East Memphis, is poor. That goes for Midtown, Whitehaven, Scenic Hills, Hickory Hill, and Raleigh. Shelby County, on the other hand, is not poor. That's where you should go. Memphis is not a place where you would want to live or start a career or send your children to public school.

These racist and inaccurate generalizations are not the work of some anonymous commenter on the Internet, extremist political candidate, or Forbes magazine. This is the Memphis City Schools profile on the Tennessee Report Card. Nobody poor-mouths the city of Memphis and MCS more than MCS and the Tennessee Department of Education. Misery Is Us.

Public school students are about to take "the Gateway," those make-or-break standardized tests that purport to measure their academic progress and fitness for advancement. The Memphis City Council should give its own exam to Superintendent Kriner Cash, who is asking the council to give MCS an additional $120 to $130 million or so over the next two years, plus $50 million to cover the "shortage" from last year.

All of that will likely mean a property tax increase for Memphis residents who already pay by far the highest property tax rate in Tennessee.

Memphis is already losing population and becoming increasingly isolated from the rest of Shelby County and Tennessee. A tax increase of a few hundred dollars a year isn't going to break many people, but it will send a message about how the city and the school system respond to a real budget crisis.

MCS has a billion-dollar-a-year budget. But before approving the schools budget in the coming weeks, City Council members should ask Cash some questions:

• What is the MCS enrollment, and how do you know? In public education, more students means more dollars. The Tennessee Report Card and the MCS website say it is approximately 105,000. Why, then, did the state Court of Appeals use an MCS enrollment number that was too high by 7,000 in its 2009 decision on school funding? And why did you say last week that the enrollment is 111,000 in a column you wrote for The Commercial Appeal?

• If MCS, as appears to be the case, has overstated enrollment for several years by several thousand students, why doesn't it owe the state and city a refund on the order of half a billion dollars?

• On the report card, enrollment is 104,829 in 2009 and 110,753 in 2007 and 116,528 in 2006. But there are more administrators (439 to 359), schools (199 to 194), teachers (7,259 to 6,438), and per-pupil spending ($10,394 to $9,254) now than there were three years ago. Why is that?

• The report card classifies 100,617 of the 104,829 students in MCS as "Title 1," which is federal government-speak for "high-poverty schools." Are you telling us that there is no middle class and no upward mobility in Memphis, a city that takes great pride in its entrepreneurship, flagship companies, and aspirations to become a "city of choice"?

No middle class? Members of AFSCME, the public employees union with deep Memphis roots, receive an average salary of $45,000 a year, according to union president Gerald McEntee. Many of those 7,259 MCS teachers and 6,700 city employees make more than that.

No upward mobility in a city where the mayors and most city and county division directors are black?

No way to get ahead in the home of the University of Memphis and the Superhub? FedEx doesn't hire all those college students and part-timers to screw up the package sort. They hire them because they can do a demanding job. None of them went to MCS?

• While 90 percent of the public schools in Memphis are classified as "high poverty schools," only 10 percent of the schools in Shelby County are high poverty. More than two-thirds of the students at Central and Ridgeway, both college-prep high schools in MCS, are considered "poor."

But at Germantown High School in the Shelby County system, only 25 percent are so classified. Is MCS poor-mouthing itself in order to maximize federal funding? Has a city school ever gotten off the poverty list, the way schools go on and off the "low-performing" list?

• Approximately 86 percent of MCS students are classified as "economically disadvantaged" and eligible for free and reduced price lunches. Have you ever audited this number, and how and when does MCS ask kids or their parents to document their family income?

A full-price lunch in a school cafeteria costs $2 and includes an entrée, two vegetables, bread, and a beverage. That's $10 a week, or less if you brown-bag it. If everyone is that poor, then why do you need a cell phone policy?

Imagine walking into a restaurant where the hostess greets you and says, "Hello, folks, I see you are non-white. Would you care to have a seat over here in our 'Free' section? Sit anywhere you want, but just make sure you all sit together." Would you put up with that?

• How many schools are less than two-thirds full? How many are less than half-full? Are any of them almost new?

Parents and students are mobile, and MCS has an open-enrollment policy, so some schools are winners and some are losers in the choice game.

The three biggest high schools — White Station (2,142), Whitehaven (2,124), and Cordova (2,057) each has more students than the four smallest high schools combined — Douglass (366), Westwood (500), Treadwell (498), and Oakhaven (513). What are you doing about this?

• How many students graduated from MCS high schools last year? Why isn't this number, which is the simplest indicator of student progress, readily available? Please spare us the complexities of the various ways of measuring the graduation rate and just provide the raw number of graduates for the last five years.

• MCS is scheduled to take over three-year-old Southwind High School, which is now a Shelby County school in an annexation area. Southwind is nearly all-black in a county system that is 37 percent black. Any idea what's going on here?

• How will the upcoming vote on reinventing county government affect MCS funding?

• Tennessee was one of two states to win federal "Race to the Top" funds this year. The state's share is roughly $500 million. How will the share of that coming to MCS be coordinated with the additional funding you are seeking from the City Council?

• Do you have bodyguards? If so, how many and why?

• You say you believe in openness, but your media staff requires reporters to submit Freedom of Information requests for the most basic information. And your idea of open seems to be public access cable TV, where you can talk about whatever you want for as long as you want. Why?

Asking questions about money for MCS inevitably provokes either legal challenges or passionate cries at City Hall and the school board to do right "for the sake of the children." Fair enough, but how about giving students and the rest of us a fair shake first?

Making Memphis City Schools appear bigger and poorer than it is may help the system get more local, state, and federal money, but it's killing the city and it's unfair to the students.

Thursday, April 15, 2010

Not Too Big To Fail

Federal regulators and 13 states move against Morgan Keegan.

Posted By on Thu, Apr 15, 2010 at 4:00 AM

It isn't easy to get 13 people to agree about anything important. The Memphis City Council and the Shelby County Commission each have 13 members. They often split 7-6 when there is power or money at stake. Juries have 12 members, because it's serious business to convict someone. Last week, a committee of seven people studying the future of the former Mid-South Fairgrounds couldn't even agree on a new name for a small piece of it, let alone what to do with the whole thing.

But after a year-long investigation, a task force of financial watchdogs in 13 states including Tennessee agreed that Morgan Keegan should be put out of business.

"We are taking an unprecedented step against a major regional brokerage firm," said Shonita Bossier, a financial industry regulator in Kentucky.

The states were joined by the Securities and Exchange Commission and the Financial Industry Regulatory Authority. Their recommendations include "full restitution" to investors who lost $2 billion in mutual funds — now there's a stimulus plan — and revocation of Morgan Keegan's registration in 13 states. Morgan Keegan, in their eyes, is not too big to fail.

The impact of the recommended punishment has not sunk in yet for a lot of reasons. It was a one-day story in The Commercial Appeal and on local television. It's not like some basketball player bolting from the University of Memphis for the NBA or cheating on an SAT test. This is about billions, not banners, jobs, not jocks, and the survival of a company, not a coach. A letter from the mayor to Forbes magazine won't do much good.

The charges were blunted somewhat, because they were made at a press conference in Jackson, Mississippi. The top cop is Joseph Borg, director of the Securities Commission in Alabama, home of Morgan Keegan's parent company, Regions Financial. The alleged bad guy, mutual fund manager James Kelsoe Jr., is so low-profile that there wasn't even a picture of him in local stories.

A fraud based on "tranches of structured collateralized debt instruments" is a tough sell for the news media, which is the way the bond business likes it. As Michael Lewis writes in The Big Short, his new book about subprime mortgages like the ones in the Kelsoe funds: "Bond market terminology was designed less to convey meaning than to bewilder outsiders."

Morgan Keegan was founded in 1969 by Memphians Allen Morgan Jr. and James Keegan, making its mark in a city famous at that time as the home of unregulated "bond daddies." The company has been a rainmaker for municipal bond deals and investment banking deals and hires top talent. Regions Morgan Keegan sponsors the local pro tennis tournament, and its headquarters has been the centerpiece of the downtown skyline since 1985.

At the heart of the allegations are Kelsoe and some well-placed colleagues who were supposed to be supervising him. Their words and e-mails could end his brokerage career.

In July 2007, with the Dow Jones Industrial Average close to its all-time high, a Morgan Keegan vice president, Kim Escue, complained that Kelsoe had been giving her the runaround for weeks. She was responsible for reports on Morgan Keegan mutual funds for customers and brokers.

"I have been stalled and put off since the get-go on this, and it is definitely in our best interest to drop coverage if we cannot do our regular due diligence," she wrote in an e-mail.

She wasn't the first employee to learn that Kelsoe got special treatment. In 2006, Carter Anthony, who was Kelsoe's supervisor, was told by Morgan Keegan president Doug Edwards that Kelsoe was "to be left alone." The funds were removed from Anthony's oversight.

In May 2007, Gary Stringer, a senior vice president, wrote an e-mail to a colleague expressing his worries about a Kelsoe fund.

"Mr. and Mrs. Jones don't expect that kind of risk from their bond funds. The bond exposure is not supposed to be where you take risks. I'd bet that most of the people who hold that fund have no idea what it's actually invested in. I'm just as sure that most of our FAs [financial advisers] have no idea what's in that fund either."

Morgan Keegan issued a statement saying it intends to "vigorously refute these charges." But how, where, and with what? The referees made the call. Morgan Keegan may negotiate its way to survival, but any lawyer who can't win an arbitration claim against it now should be disbarred.

Thursday, April 8, 2010

The Price of Free Hey, Memphis Zoo, welcome to my world.

Posted By on Thu, Apr 8, 2010 at 4:00 AM

Free is one of the biggest issues of our time.

Free makes it easier to do my job. But Free holds down my earnings and could cost me my job sooner or later. Free made this newspaper possible. Now Free is killing newspapers.

Free shouldn't be taken lightly. Like marriage, early retirement, and poker tournaments, it should be entered into thoughtfully. You should probably get some counseling before you mess around with Free. Free can be a bitch.

Books have been written about Free. Economists and psychologists have studied Free to death. A Google search is free. Google's founders say information should be free. They do not, however, work for free. Google is a $23 billion company.

Parents and kids have pondered Free and Not Free since the invention of the allowance.

So I sympathize with the Memphis Zoo, which learned the hidden costs of Free last week when all those kids showed up.

Admission to the zoo, normally $15 if you're over 11, is free on Tuesday afternoons. Last Tuesday was sort of a Festival of Free. Spring break means free time. The weather was cloud-free. The thrill of being part of a crowd so big that cops and television crews came over to take a look was also free.

Free day is a tradition predating the Memphis Zoological Society's 1994 contract with the city. It was originally on Saturday, then on Monday. Last week the zoo and the mayor made some changes including no free days during March and a requirement that kids 16 and under have a chaperone 21 or older. But this will put a burden on the zoo staff ("Let me see your IDs, who's the chaperone, who's with who?"), and it ignores the problem of neighborhood encroachment the other 11 months of the year.

Another idea might work. Make free day dollar day. Or, as a reader suggested, "TN Twos-day" for $2.

We value things differently when we have to pay for them, even a small amount. Chris Anderson, the editor of Wired magazine, wrote about this in his book Free: The Future of a Radical Price.

"It's as if our brains were wired to raise a flag. ... If you charge a price, any price, we are forced to ask ourselves if we really want to open our wallets. But if the price is zero, that flag never goes up and the decision just got easier."

The students who came to the zoo on free day were making a rational economic choice. Free beats $15. Would they have come if the price was $1 or $2? Or would they have come to Overton Park and just hung out, which raises other issues?

My guess is that what economists call the "mental transaction costs" would keep a lot of people away. I bet most of those kids showed up last week to see the crowd, not the animals.

The zoo and other public facilities have a touchy problem on their hands when it comes to Free. Some of my neighbors in Midtown think the zoo should build a parking garage to handle the overflow of cars. But I think they're overlooking the problem of Free. A parking garage would charge $5 or more and would not be hassle-free when crowded. A zoo spokesman says shuttles are being considered, but people shun them when there are alternatives. If you park on the streets, it's close and free.

Concerts at the Levitt Shell in Overton Park are free, and the crowds are generally modest in size and demeanor. Maybe some evening there will be a flash mob of aging baby boomers and hippies. Wait, we already did that 40 years ago.

Free doesn't work for some things. Musicians learn early on the perils of Free. Mud Island River Park went Free but still has a hard time drawing crowds. You couldn't give away free tickets to University of Memphis football games or Memphis Redbirds games the last couple of years. You can't give away magazines either, so publishers charge premium prices on newsstands and bargain prices for annual subscriptions, plus a free gift. You can give away newspapers like this one, because our advertisers pay good money. By putting this column on our website before putting it in the paper, I may be undercutting them. And bloggers and news aggregators may be undercutting me.

Free is hard. I wish the zoo luck.

Thursday, April 1, 2010

Old-School Success

Vergos and his generation knew more hard work than networks.

Posted By on Thu, Apr 1, 2010 at 4:00 AM

Like the restaurant he founded, Charlie Vergos, who died last week at the age of 84, was one of a kind.

Charlie Vergos' Rendezvous is the definitive Memphis barbecue restaurant and gathering place for downtowners and visitors. You can always run into somebody — politicians, bankers, stockbrokers, lawyers, fans and coaches — at lunch on Friday or at dinner on the weekend. It's a must for friends from out of town.

Until he became ill a few years ago, Vergos was a fixture in the dining room, where he presided in shirtsleeves, arms crossed and eyes seeing everyone and everything. Once he got to know you, he would find you a table and greet you with the latest news. His conversation was often as pungent as his barbecue.

Vergos, like others of his generation, knew more about hard work than networks. After high school, he attended night law school for two years but never went to college. He was 22 years old when he opened his basement restaurant in 1948, and he kept it going through thick and thin.

In our era of nonstop networking, the quarterlife crisis, college admissions anxiety, and a recession that we are told is the worst since the Great Depression, it's worth remembering the careers of Vergos and others who left a lasting mark on Memphis.

Kemmons Wilson, the founder of Holiday Inns, which had its headquarters in Memphis for several years, was a high school dropout who sold magazine subscriptions and popcorn at movie theaters as a kid. He built his first house with earnings from pinball machines. His business partner, the successful homebuilder Wallace E. Johnson, called himself "a poor little old peckerwood boy from Mississippi." Johnson took correspondence courses after high school. His biography is titled Work Is My Play.

Abe Plough, founder of the Memphis drug company that became part of global giant Schering-Plough, went to work in 1908, after grammar school, selling bottles of "antiseptic healing oil" from a horse-drawn wagon. The Plough Foundation is a positive force in Memphis a century later.

Elvis Presley was a greaser who grew up in a federal housing project and majored in shop at Humes High School. "His peers deemed him effeminate and different," wrote David Halberstam in his book The Fifties. "Everyone, it seemed, wanted a shot at him, particularly the football players. ... The one thing he had was his music."

Sam Phillips, founder of Sun Studio, was, in Halberstam's words, "a raw, rough man with an 11th-grade education, pure redneck in all outward manifestations, such as his love of used Cadillacs."

B.B. King picked cotton and drove a truck in the Mississippi Delta before hitchhiking to Memphis to work as a deejay and play guitar on Beale Street. He's still touring. Songwriter and actor Isaac Hayes of Stax Records fame got his diploma from Manassas High School when he was 21.

Writer and Civil War historian Shelby Foote got into the University of North Carolina at Chapel Hill on his second attempt, after his high school principal refused to recommend him. Foote was a bohemian in his younger years and not much of a joiner.

"About six months after I moved here, my fellow Legionnaires had a meeting to do something about all the smut that was coming into Memphis," Foote said in 1996. "They went to a bookstore and got three of my paperbacks and took them to burn them." (Thinking better of it, they threw them in the garbage dump instead.)

Marion Hayes, the founder of ServiceMaster, which has its headquarters and 684 employees in Memphis, never got beyond the eighth grade while growing up in Pocahontas, Arkansas.

Jack Binion, the father of the World Series of Poker and one of the first to see the potential of Tunica as a gambling destination, got his education working in his father's casino in Las Vegas, starting when he was a teenager. Fifty years later, he sold Horseshoe Gaming to Harrah's for $1.45 billion.

Granted, some of these people lived a long time ago. But it's not like there weren't any colleges or the "right" civic groups. I have a vague memory from high school of the Sinclair Lewis novels Babbitt and Main Street.

So if you're young and restless, didn't get into Vanderbilt, don't have 100 friends on Facebook, never heard of the creative class, or if you're older and have kids who work dirty jobs, remember that there are still lots of ways to make it.

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