Two School-Merger Issues 

A veteran watchdog takes a look at the school-building matter and OPEBs.

It is difficult to follow all of the mind-numbing discussions that are going on in the 23-member Consolidated School Board and the 21-member Transition Planning Commission. My sympathy goes out to the members who are giving their time and effort to this work, and they should at least get free comfortable cushions for the time they sit there and listen to all the opinions.

I have been thinking about this debate, and I have an opinion on several key questions, one that is currently hot and another that seems to have been put aside and not discussed, at least in the media.

Who owns the school land and buildings in the incorporated cities outside the city of Memphis and in Shelby County? We are talking about Germantown, Collierville, Bartlett, Arlington, Lakeland, and Millington. The liability for these buildings is on Shelby County government's books, and the assets are on the books of the Memphis school system and the Shelby County school system.

It seems to me that if, for instance, Germantown wanted these facilities, the remaining liability (bonds issued for the purchase and construction cost of these facilities less the amount paid to date) should be transferred to Germantown's books and taken off Shelby County's books. This liability should be for the actual land and construction cost and not include any $3/$1 average daily attendance ratio that might have occurred at the time of construction.

Then the next step in this process, again taking Germantown as an example, should be a reconciliation of the tax rate for that city's Shelby County taxes.

Germantown residents pay Shelby County taxes, and those taxes include a portion for education and a portion for debt. The portion paid to Shelby County for education should be reduced by the percentage of students that they promise to educate rather than have Shelby County educate them. Also, the portion paid to Shelby County for payment of bonded debt should be reduced to reflect the percentage of debt that they have taken over by assuming liability for the school bonds.

Of course, Germantown taxpayers will see their city tax bills go up in proportion to the new education and bond tax load, plus whatever else the city determines is required to run an educational establishment.

The result of this transfer arrangement would be that Germantown divorces itself from the Shelby County educational system and would be completely independent. Is that a good thing? That will be up to the people of Germantown, and any of the other incorporated cities in Shelby County that do likewise, to determine.

This analysis will no doubt be challenged by people on both sides who keep arguing that the suburbs must pay "a fair market price" or, on the other hand, that they should get the properties for free. I am not a lawyer, and there may be state laws and precedents that would not allow such an arrangement as the one I have proposed, but, as a businessman, it seems fair.

Now as to the other not so public issue: OPEBs. "OPEB" stands for "Other Post Employment Benefits" — mainly health care for retirees. On June 30, 2010, the unfunded OPEB liability for the Memphis City Schools system was $1.53 billion. In other words, they were paying 70 percent of the actual health care costs of retirees on an annual basis but ignoring the future costs. The Shelby County Schools system's similar unfunded OPEB liability, as of June 30, 2010, was $242 million.

Now, when you consider that the Memphis school system has three times as many employees as Shelby County Schools, the unfunded OPEB liability, to be proportionate, should be in the range of $726 million, not $1.53 billion. The differential leaves $804 million to be assumed by the new combined school system. Is it fair to ask taxpayers to assume this unexpected burden? You have to ask the obvious questions: How and why did this occur?

I have been studying and writing about the operation of local government for a number of years, and I have come to one simple, obvious conclusion: Shelby County government and Shelby County Schools have been much better run from a financial standpoint than have city of Memphis government and Memphis City Schools.

I make no judgment on the educational achievement of the two systems, and I hope for a resolution that will be good for all the children. It seems obvious to me, from my background of 40 years in competitive business, that competition improves products and forces innovation and lowers costs. I say, let the competition begin.

Joe Saino follows public issues and writes about them on his Memphis Watchdog blog and in other venues.


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