Behind the Headlines – December 19, 2014

Behind the Headlines – December 19, 2014


(female announcer)
This is a production of W-K-N-O, Memphis. Production funding for “Behind
the Headlines” is made possible in part by.. Mayor A C Wharton on Ikea,
pension reform and more tonight on “Behind the Headlines.” [theme music] I’m Eric Barnes, publisher
of the Memphis Daily News. Thanks for joining us. I am joined tonight
by Mayor A C Wharton. Thanks for being here. Thanks for the invitation. Also, Bill Dries,
senior reporter with the Memphis Daily News. We will start. When did you become such
a fan of Swedish furniture? [Mayor chuckles] When the folks
from Ikea showed up. I became the world’s
greatest, greatest fan. So, I guess six
or seven months ago. Yeah,
I’m the number one fan. (Eric)
Number one fan! So, and those who
haven’t heard it, it feels like
there isn’t anyone. I’ve heard Ikea being
talked about on sports radio. It was probably one of
the most popular stories we’ve had on the website. I had people texting me.
Is it true? Is it true? The kind of excitement is sort
of interesting and unlike other projects, I think, that
have been even bigger, and more jobs,
and more money. Well, it is.
It strikes so many chords. This is not about where
can I buy the best dresser, or closet, or whatever. This new mindset,
which is just as rewarding to me as the actual dollars. They know what the
niche is out there. They see the coming
markets, the millennials, those who are willing to
do things differently. It’s innovation and that’s
what Memphis is all about as I’ve said. Just some of the basics. It’s about a $70 million
investment that they’re making. Between 65- and
70-million dollars. Two- or three-hundred
thousand square feet out here with Wolfchase. It is huge. By the way, that’s one
of the smallest stores. That’s one of the things
that’s so important about it. This will be the
prototype for the smaller store. This is the first market of this
size that they’ve gone in to. We’re not as large as the
other markets that they have. But they saw something here that
perhaps we don’t see internally. And this will be the lead store
in terms of the smaller stores. And roughly how many
jobs are we talking about? About 225 jobs. I want to say these are what
we call fully loaded jobs. A 40% benefit package.
Of course, it will be.. At peak times, it
will be more than 225. This then gets in to there will
be some sort of PILOT request, a tax incentive request. Is that correct? Do we know the
scope of that yet? I believe I have
not reviewed that. It’s going to be in the
scope of maybe an 11-year PILOT, which I think will save
them somewhere between 11- and 12-million dollars. Right. And then we get in
to the debate about.. And we’ve talked about a lot
this year because there have been so many projects we’ve
talked about with you before. There will be critics. I haven’t seen them yet because
there has been so much kind of excitement about the Ikea thing. The critics say, well, this is
another tax giveaway by the city of Memphis,
by the county. Is it a tax giveaway? No. Again, we have to keep that
particular piece of property that they’re going in now. I don’t know the precise amount
of money it’s paying in taxes but it’s nowhere near what it
will pay once Ikea with its money, it’s 64-,
65-million dollars, once they improve it and after
it rolls off after ten years, we will triple or double. So, actually..
And they will pay a payment. They will pay money to the
city and county even during the abatement period. That will have to be
calculated by EDGE. But, again, we are paid. We receive money during
the time that it is quote off the tax rolls close quote. But then after
it comes back on, when it comes
back on with a bang. Because the tax is not only on
the real estate which will go up but all of the personal,
the furnish and everything, the inventory. They’ll start getting
taxes on that from day one. And then
the construction jobs. Four- or five-hundred
construction jobs in the meantime. So, that’s money in to the
pockets of folks here in Memphis, Tennessee
who take that money. They will improve their
homes or they’ll buy cars. We’ll get the taxes off that. So, it will start spinning money
in to the economy immediately even before
the store is open. They’re going to
use local contractors. So, this is money
that will start generating before the doors open. Okay, Bill? Mayor, in terms of the whole
PILOT discussion that we have, you talk about when
these PILOTs roll off. We’ve had
PILOTs for a while. Have we seen a benefit from
these past PILOTs that we’ve had rolling off and actually seeing
a boost in the tax base from it? In terms of
boosting the tax base? Yes. Perhaps not on that particular
site because under instances, they have been extended. But you have to
look at it this way. When the I-P tower
goes up, gee whiz! Everybody wants to
open a restaurant nearby. Everybody wants to
open a drug store nearby. They’re not getting PILOTs. The values of the surrounding
properties increase the minute someone says, I am
putting a new skyscraper, a new high rise in here. And all of that
is calculated in. I mean, the doctors’
offices, everything who.. Any kind of business
that wants to say, I want to tap in to those
customers over there at International Paper, comes up. The same thing
will happen with Ikea. In terms of the
Graceland project, we saw the use of a TIF, a
Tax Increment Financing zone, and a Tourism Development Zone
in that particular project with a very tightly
drawn zone for it. Is that a future use
of a tax incentive, a new use of a tax incentive or
is that something that is unique to the Graceland project? I think it is the feature.
I think we’ll see more of that. And basically, I know you
understand it quite well. But under that Graceland T-D-Z,
it’s only the increment that’s on that campus that
goes back in to that project as opposed to going.. One-hundred and twenty acres.
Now back to what I said earlier. When someone who sees that hotel
there and they decide they want to open a
restaurant, clothing store, whatever, it does not
abate those taxes at all. They come right to us. So, the Graceland project on
its campus and its campus alone, the increment there will stay on
that campus to pay for the bonds and whatever. Everything off that
campus, when it increases, it comes to
the city and county. So, what does that
mean for the fairgrounds? Fairgrounds is
totally different because it’s a much larger
geographical scope. It is progressing. We expect it to come up in
the first of the coming year. Director Lipscomb has been in
extensive negotiations with the county with respect to insuring
that the schools get their portion of the increased
revenue coming in there. We’re going to hold
the schools harmless. They’ll get that. I think it will acted
upon favorably by the County Commission although
that’s not required. And once that’s done, we
think it’ll get to Nashville. But it’s a much larger scope. Now it’s different from
the Graceland project. It takes on a lot of territory. What one of the criticisms of
the fairgrounds is that it is so big, that it taps in
to such a, you know, the Overton Square area,
the Cooper-Young area, that it’s.. That’s one criticism that it’s
just too large and tapping in to development outside the
narrow space of the fairgrounds. The other is that there’s
no named private developer. So, we had Harold Collins on
last week and Lee Harris and other city council and
other people who said, it’s a big deal.
It’s a lot of money. It’s a big risk for the
city and no named partner. So, Ikea, as we all know,
whatever you think of the PILOT, you can’t argue with
the fact that Ikea is putting 70-, 65-, 70-million
dollars, or Crosstown, or, you know, Graceland. Some people criticize there’s
no enough money but Graceland is putting a lot of money in
to building that hotel. And so, there’s no named
partner with fairgrounds. Is that hurting the project? Oh, there’s always.. You wish you
could name a partner. But as you pointed out, this
is so large and we have been in contact with named partners. Once they see it’s
going to be a done deal, then those names
will start coming out. But does it worry you? I mean, it’s kind of a build it
and they will come versus some of these other
big projects where, again, Bass Pro,
whatever you think, whatever people think of that,
they are putting up big time money to make
that project happen. And they’ve been a
named partner from day one. But keep in mind we’re not
going to start spending money on improving anything until
we know we have someone. We’re not going to create some
huge thing out there spending millions of dollars to say,
now maybe we can find somebody. That’s not going to happen. (Eric)
Okay. Once it’s approved, we’ll be
able to identify folks to come in and say we’ll
partner with you on it. A couple just to stay on the tax
incentive things for a second. A couple of other
projects that came out. Cummins, maybe not as big
a headline for some people but a ot of jobs. And that was a
retention, a retention PILOT. That’s one that gets people,
rubs people the wrong way because they say,
well, you know, they’re.. I’m a business in Memphis.
I’m staying here. Why don’t I get a
PILOT just to stay? Why do these big companies get
PILOTs not to bring new jobs and new businesses to
town but just to stay? What’s your answer
to that criticism? Again, when you look at
the number of employees, they are bringing in I believe
roughly 70 new employees. They will be improving a lease
hold of about 500,000 square feet that would not have
happened had they left. I was very involved closely on
that when I know the exact site they were looking at
down in Mississippi. That was a real possibility
that we would have lost them. And Cummins has been so
involved in this community. Those are
good paying jobs. And this is their worldwide
distribution center in large part because of FedEx is here. So, they’re going to attract
other industries that will come in to support some of their
products and activities there. So, we have to keep them
as an anchor, quite frankly. It’s sort of like an
anchor in the shopping center. You want to keep your anchor
there and others will come. And we will get the
tax increment on that. One more thing on the whole tax
incentives thing because it has been a big issue all year. There have been
a lot of projects. So, the critics say there’s
been a lot of give-aways. The people in favor of
it say there’s a lot. So, it’s been a
big issue all year. Target is putting a
big distribution center down in the Memphis area. Other stuff has
moved in to Mississippi. Part of what I
think you have said.. We have had other people on
the show have said is that fundamentally, if Shelby County
and Memphis do everything right, they still can lose business to
Mississippi because the state of Mississippi has different rules
than the state of Tennessee. Is there anything
you can do as Mayor? I mean, will you be lobbying or
talking to legislatures as the session opens up to say, hey,
is there any way we can level the playing field? Because the PILOT program,
I think you’ve said before, no one really likes it. It’s not.. It’s an awkward program.
It’s complicated. Where as, Mississippi can
just come abate those taxes, write them a check. I mean, it’s a much
simpler process because of the difference of state law —
Mississippi and Tennessee. What can be
done about that? There are two things. First, to answer your question,
am I going to talk to the legislature? — yes, I am. As a matter of fact, we brought
this up when the legislature delegation had its meeting
here a couple of weeks ago. What I’d like to see the state
legislature do is to say that in these border
cities and counties.. And I want to approach
it on a statewide basis. Because Hamilton
County has the same issue. Tri cities area. Knoxville — not so much because
you have to beyond there to Johnson City,
Bristol, Kingsport, those areas over there. Montgomery County on the
north near Kentucky there. So, what I want to do is to get
all those cities and counties in the same area and say, look,
let’s come up with a law that states if the folks in those
cities and towns approve a certain incentive that will
allow them to go head-to-head with the out-of-state
folks, then so be it. And give us some flexibility
which we do not have now. One other thing that we can use
to level the playing field is do more for our workforce. And this is why we rolled out
the Greater Memphis Alliance for a Competitive Workforce,
brought in Doctor Fenter from Mid-South
Community College. With the number of people we
have here who are in that broad area for employees, if
we improve their skill set, we can become one of
the most competitive regions in the country. If you look at that
demographic, 18 to 35, we have one of the
largest groups in that area. We haven’t trained them though.
They don’t have the skill set. We can improve our competitive
ability if we work on that. And those are two
things we’re going to do. Yeah, Bill? In terms of work
force investment, workforce training,
we’ve written about this to some extent. But I think people are still
largely unaware of what a close call we had when
we got Electrolux and we got City Brewing. We landed those big economic
development plums and we came close to losing them because of
the lack of the ability to sort out a work force and
find the kind of labor they were looking for. That’s correct. And that’s not
lost on the scouts who look at certain areas. One is what kind of workforce. And this is one of the most
difficult challenges we have because folks in Memphis say,
now we want all of these jobs to come from the city of
Memphis or Shelby County. I wish we could say that. But you’re not going to get any
major employer to come in and say, I’ll get all of my
employees from one spot. They want a big pond in which to
fish whether it’s in Arkansas. But if we get our
workforce in order, we will be able to say, hey, you
got them right here in Memphis. You don’t have to go to
Arkansas or Mississippi. Segueing over to pensions. It’s been a big
fight this whole year. Sometimes this whole tax
incentive PILOT thing has come in to it because you and others
have been criticized and said, well, you’re giving away
all this money to companies. And then, you know,
big tax giveaways. And then, you’re cutting
the benefits of hard working firefighters,
police officers, E-M-Ts. Where are we right now? The city council just voted on
a change to the pension plan. Are you happy with
where we’ve landed on this? This is progress.
Yes, I’m happy. Did I want more?
Yes. But look,
this is progress. This is not being
played out only in Memphis. You ought to look
all over this country. Every city has
either been through this, they’re in or they’re
getting ready to go in to. Davidson County. Everybody goes, “Oh,
Nashville’s just heaven.” Look, they got the biggest fight
going on with O-PED up there. Hamilton County just
went through this. We are light-years as a
result of the favorable action by the council. We are light-years ahead of
where we would have been had we not taken this action. And let me say this. It’s going to resonate quite
well with the bonding agencies because we have taken that
first step toward containing our unfulfilled
obligations at $551 million. It’s not at all rare to have an
unfunded liability out there. City’s have that.
State’s have that. What we have done now that other
cities and states have not done is we have basically said
it’s there but guess what. It’s not
getting any larger. Over the years, it’s
going to start to shrink. That’s what causes
the rating agencies.. It’s that trajectory, right? You don’t have to have all the
money in the bank right now. It’s kind of
like a mortgage. You don’t have to be able to pay
off your mortgage tomorrow to be in good standing with your bank. But you’ve got to
be on a trajectory where you
can sustain it. And we are now
on that trajectory. There’s predictability there
as to what we’re going to pay. And we’ll meet the
state’s five year mandate. But between the pensions and
the changes to health insurance benefits earlier in the
year, it’s a lot of pain for the employees. It’s a big hit. Let me say this.
Let me slow down on this. I understand fully that the
employees of the city of Memphis have done what most
employees have not done. 4.6, two years in a
row, $16 million a year. The employees have paid their
fair share of helping to bail the city out. They didn’t
cause the problem. We all know the recession hit
so this is not about blame. And I understand that fully. Not getting
raises in four years, healthcare costs increasing. The employees
have really taken a hit. This is why I will
never be dismissive of them. I was at a funeral
visitation recently. Two employees
came up, two retirees. We had a nice discussion.
I told them I understood. So, I understand that fully.
And I will say this. As a result of what we’ve done,
we will soon have our ability to go back to giving cost
of living increases, raises, at least a
bonus or whatever. But in years past here recently,
every dollar we got was going in to the insurance of the pension. And we couldn’t think in
terms of doing more things for the employees. One of the criticisms.. You know, the unions
certainly brought this up. We’ll focus on the police for a
second because you talk about economic development. You talk about
changing Memphis and so on. One issue is crime. And the administration
is putting a big burden on police officers. A big part of what, you know,
most of the city budget really is people. And a big part
of that is police. Has it hurt the
readiness or effectiveness of the police department? Has it hurt retention or
hiring that these benefits have been cut? Let me say
it would be less.. It would be intellectually
dishonest to say it has not placed a strain. It has.
There’s been overtime. There’s been call,
after call, after call. Director Armstrong
and I talk every day, meet every Tuesday morning. We look at the calls and look at
how many shifts were held over. So, yes, it has
placed a strain on it. Yet the police officers have
managed to get the job done. That’s the bottom line. Now can we go on
like this forever? Absolutely not. Out of the class of 100
or so that we brought in, we’re now down
to about 41 or so. They’ll finish
up in February. We’ll start another
class right after that. So, yes,
it has placed a strain. But the men and women of the
police department have risen to the occasion
and have made it. But you can’t do that
on a sustained basis. And this is why we’re going to
put more money in to the police department, get more
classes in, get the body cameras and all of that stuff. Okay, Bill? The pension plan change that
the council passed was the alternative offered by
Councilwoman Wanda Halbert. And it included employees
with seven-and-a-half years of service and undergoing
in to the hybrid plan. Did you need to have some
unvested employees in the formula in the changes to make
this work or could this have worked in a way
with just new hires? It could have worked, Bill. But the savings would
have been miniscule. It wouldn’t really keep us on
the trajectory that we needed to be on that we referred
to just a minute ago. Under the plan that was passed,
Councilman Halbert’s compromise plan, we’ll save just
under $6 million a year. Under my hybrid plan,
it would have been roughly $10 million a year. And that really adds up because
our obligation next year, 2015, we’re still short
maybe ten million or so. So, every million
dollars does count. So, yes, we would if we had to
have some unvested in there to really keep us on the
trajectory that we’re on. And in the budget discussions
leading up to the council’s budget this past spring, they
cut approximately $12 million, I believe. And as I understand it, that
went in to a fund at some point. Will that go toward the Arc? Yes, it will.
And that’s one of the things. Listen, there’s a
lot of misery in this. But Memphis has done some things
that other cities have not done. We grabbed two of the biggest
threats to financial stability and tackled
them at one time. One, the O-PED. It started out at
about $27 million savings. But we took out five or six
to put in the police department for public safety. And then as we restored some of
those groups that were pulled out of the original O-PED
plan, retiree insurance plan, it knocked it down
to about 23 million. So, yes, part of those
dollars go in to the pension. So, you know,
there’s a lot of hurt here. But in one way, we took money
out of one employee pocket and moved it over in to the
other employee pocket. It came out of health insurance
but it went in to make sure your pension is there. Yeah, just three or
four minutes left here. Another talking about
millions of dollars. A settlement with the schools.
This was, what? — roughly $57 million of a
lawsuit going back to, what? — 2008 or so that the former
Memphis City Schools filed against the city when they
cut the funding to the city. You settled that this
week with Dorsey Hopson, the superintendent. Describe the settlement. I assume you
think it’s a good deal. Why is it a good
deal for the city? I think
it’s a good deal. Again, one of the clouds hanging
over the financial credit worthiness of the city is
that judgment out there. Every year I have to sign
and file something known as a certified annual
financial information report. And you have to list all of
the threats, contingencies. And every year I
have to list $57 million. When I was sitting with the
bond agencies in New York, they brought
up three things. You need to get your
reserves up which we have done. You need to do something
about that 57-million which we will do. You need to do something about
pension and insurance costs. So, it removes another cloud. And the terms of it.. I’m sorry to cut you
off but the terms of it.. It’s not a
$57 million payment. It’s money up front and
then the rest over 12 years. Is that correct? That’s correct. Your cash money is
around probably $33 million. We’ll have police officers in
the schools get credit for that. That’s about $2.6
million and other bond debt. Yeah, Bill? And the council got the
notice of this the same day as the Ikea
announcement. That was a
big day for you. But the way the letter
from you was worded, there was some doubt. Does the council have to
approve this settlement? We have to
amend the budget. Under the city charter,
I have exclusive authority to reach a settlement. Now if I had the
money in a desk drawer, I wouldn’t have to
go to the council. But there’s nothing in the
budget as approved that’s at settlement of school lawsuit,
certain amount of money. So, I’ll go to the
council and I hope. I’ll ask their
approval to raise that money. Has there been any discussion
since Tuesday with them about possibly changing the terms? Because some of them didn’t
seem to be too happy about this. Well, let me tell you the reason
we had to do it the way we did, Bill, is I didn’t want to take
any terms to the council until the school system had said
this is what we will take. I didn’t want to get in to.. I’ve got the lawsuit settled
but what’s the terms, Mayor? This, this, this. Only to find out that
the school board bought. So, Superintendent
Hopson and I said, look, take it to your
board, approve it and then we will go to council. We did just that.
It had not been approved. It was going to the
board that very night. And we were
communicating by text and phone. The minute he sent me a
text that said approved, I said give it to
the council right now so they’ll know
this is definite. And we’ll
take it from there. Just not enough time to
talk about a serious issue. But there’s more money going
towards the rape kit backlog. Can you update us on the status
of the rape kit backlog and where that stands? Yes, they’re
gradually coming down. I don’t have
an exact number. But through a combination of
local funds and funds that we’ll get from other sources, we’re
going to get those kits done. And we’ll
have the money. And we won’t
have to raise taxes. Alright.
Thank you for being here. Have a great Christmas.
Thank you, Bill. Thank you for joining us.
Join us again next week. Goodnight. [theme music] CLOSED CAPTIONING PROVIDED
BY W-K-N-O, MEMPHIS.

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