Sunday, November 09, 2008

Herenton, council study options for cutbacks, including buyouts

By Amos Maki, Memphis Commercial Appeal [link]
Sunday, November 9, 2008

As the effects of the global meltdown trickle down to City Hall, Memphis officials are considering employee buyouts and other measures to deal with what could be the city's worst financial year in nearly two decades.

Mayor Willie Herenton and the City Council gathered Saturday at the FedEx Institute of Technology at the University of Memphis for their annual retreat. While the banter was lighthearted at times, the financial scenario laid out by city officials was anything but.

Herenton said next year probably will be the toughest of his 17-year tenure, with a host of cost-drivers -- fuel, utilities and contributions to health and retirement benefits -- continuing to escalate, while sales tax and property revenues are likely to decline.

Herenton promised no property tax increases next year and delivered a broad cost-control plan to council members, who have the ultimate control over the city's purse strings.

The tentative plan includes offering buyouts and severance packages to city workers to reduce personnel costs, cutting capital expenditures, looking for opportunities for city-county consolidation and retooling heath care and pension benefits.

Herenton did not say how many employees would be offered buy-outs and promised to provide details to the council in the next 30 days.

"There will be no property tax increase to support our budget in 2010," said Herenton. "We have developed a buyout plan in an effort to reduce personnel costs."

Herenton said the city is prepared to restructure its health care, retirement and benefits plans.

"In the corporate arena, the employees are paying more and the employer is paying less," said the fifth-term mayor.

"These are trend lines at the corporate level and governments are now looking at the same kinds of trends," said Herenton. "It is predictable that in the future the benefit programs provided to employees will change."

City officials said they likely will start the 2010 fiscal year, which begins in July, facing a $25 million deficit because of increased costs.

The city probably will have to scale back its capital budget, the five-year plan that funds major projects like road improvements and costs $90 million to $100 million annually. City finance director Roland McElrath said the capital budget will likely be $70 million next year.

McElrath also said sales-tax revenue, state revenue sources and property-tax revenues are all likely to decline next year. Sales taxes, which generate about 20 percent of the city's revenue, are likely to get hit hardest.

"We think this trend will continue downward, and unless we see a quick turn around in the economy there will be a sharp drop-off in 2010," said McElrath.

The city has around $89 million in reserves, the roughly 10 percent of the city's general budget that the credit rating agencies like. That number includes a likely $16 million surplus this year.

Looking ahead to next year, council members and the mayor said major cuts to government spending are likely, possibly even in fire and police services, whose budgets represent more than 50 percent of the city's spending.

"We are in these times going to have to prioritize needs," said Councilman Shea Flinn. "It could get very ugly, very quickly."

-- Amos Maki: 529-2351

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