Have you ever gotten a letter or an email when you know that the person who sent it to you is really writing to the person receiving a copy – or you can tell he’s likely writing to someone who’s getting a blind copy?
That’s the feeling that we get when we read the second bellicose letter from the state comptroller to the City of Memphis about getting its financial house in order. It’s hard not to get the impression that he’s playing to the cheap seats (a move that is highly successful based on the anti-Memphis comments on The Commercial Appeal article).
It also seems that Justin P. Wilson, the comptroller who is a political appointee of the Tennessee Legislature, is writing the over-the-top political missives while his staff is writing the thorough, more rational six-page letter that is about the “review of the refunding plan for the proposed general improvement refunding bonds, Series 2013.” It calmly and rationally lays out the non-compliance issues and the correction actions.
Non-compliance issues:
* Deficit fund balances (New Memphis Arena, Fleet Management, and Unemployment Compensation)
* Various interfund loans not in compliance with Section 9-21-408 (authorization, approval and documentation, including appropriate actions by City Council)
* Failure to file reports on debt obligation/CT-0253 for interfund loans
* Failure to maintain a balanced budget on a cash basis for each fund
* Failure of Debt Management Policy to require specific legislative authorization for principal deferral
Correction actions:
* Proper issuance of grant anticipation notes
* Amendment of debt management policy
* Amendment of fiscal year 2013 budget
* Accounting entries and fund transfers
* Filing reports on debt obligation/CT-0253 for grant anticipation notes and for the retired New Memphis Capital Outlay Note
Tale of Two Letters
The letter then elaborates on the facts surrounding each of these issues. All in all, it is an exceedingly helpful and reasonable letter, and it should be, because these are serious accounting issues (but the sorts of things that you’d think equally committed financial officials from city government and the comptroller’s office could get together to resolve). As the comptroller pointed out in this initial letter to Mayor Wharton, these problems pre-date him. For that matter, they also pre-date most on the Council.
Then, the comptroller enters from stage right, and that’s when the politics begin. His first letter – to Memphis Mayor A C Wharton – commends the mayor for his administration’s “extraordinary level of cooperation and commitment,” but three weeks later, in his letter to Memphis City Council Chairman Edmund Ford, his tone has become lecturing, shrill, and threatening.
The comptroller letter to Chairman Ford suggests that a state takeover of Memphis’ financial decisions is possible, but while he was critical, he failed to suggest what actions he thinks City of Memphis should make. “The Council should decide the City’s priorities,” he wrote. “If the Council does not do this, someone else may end up doing this. This budget may well be Memphis’s last clear chance to determine its own future.” He ends the letter with a “pledge to support your efforts in overcoming this challenge,” but it hardly reads like a letter from a cooperative partner looking to help out
But here’s the thing. Despite all the venom from some parts of the public directed at City of Memphis elected officials, there is no mayor or City Council who would know that these problems were taking place. Local government budgets, by and large, are impenetrable, and as a result, elected officials rely on their finance officials to provide them with accurate information, to act in accordance with state regulations, and to take actions that demonstrate high levels of fiduciary responsibility. When that is not being done, elected officials rely on auditors, financial advisers, and bond advisers to provide them with warnings, but often as not, these experts feel that they are support staff for the finance department rather than elected officials.
Feeding the Negative Narrative
Some of these issues began to surface when changes were made by Mayor Wharton to the financial leadership of city government, and that is surely to what the comptroller’s letter is referring to when he writes about “longstanding financial problems.”
In truth, there’s little difference between the letter to Mayor Wharton and the letter to Mr. Ford except the tone, and in large measure, the second letter was unnecessary and unneeded. There was little need to repeat his ominous threats, because the City of Memphis has no option but to resolve the comptroller’s concerns and to get into compliance with his interpretation of policies and procedures.
Some of the older heads in Nashville have been shaking their heads as they watched this play out. It was not long ago that the comptroller’s office was free of any kind of partisan suspicions. But that aside, here’s the disturbing part of the comptroller’s actions. The earlier letter to Mayor Wharton was hardly a national story, but his latest letter to Chairman Ford is a headline grabber across the country.
The comptroller’s letter, more than anything, is reminiscent of the letters Detroit got before it was taken over by the State of Michigan. In this way, the comptroller feeds a negative narrative that Memphis is working hard to eliminate, but with one letter, Mr. Wilson has not only fed the narrative, but made it worse. The message: Memphis is unmanageable and this majority African-American city is simply incapable of handling its own affairs. All in all, it plays into one of the ugliest stereotypes for majority minority cities.
Damage
Surely, Mr. Wilson – a graduate of Stanford University and Vanderbilt University – understood the damage that this second letter would do, and yet, he sent it anyway. It did not elaborate on the issues of the first letter, it did not suggest any corrective actions to take, and it did nothing put give lip service to a pledge to help.
But now, because of him, there are stories in newspapers across the country that Memphis has been threatened with state takeover, and that threat has the potential to affect everything from city government’s bond rating to local economic development plans.
In a word, this letter was reckless. Mr. Wilson should now take the opportunity to treat Memphians as if they are constituents of state government, not merely its serfs.
Spot on!!
Mostly accurate but reckless.
pulling race card won’t fix this train wreck.
Anonymous: So do you use that glib response much to be dismissive of race-related issues? There are some things that have race attached to them. This is one.
So it turns out that Nashville has more than double the amount of public debt than Memphis, with a smaller population. I wonder if the comptroller is threatening them with a state takeover.
Anon 11:39
I would imagine this is likely as much an issue about projected revenue as it is about the amount of public debt. I would assume that the biggest reason that Nashville’s public debt is not setting off alarms at the state level is related to how that debt is financed and the projected increase in revenues gathered there due to increasing property values, increasing population and the increase in average income above and beyond inflation.
Local demographic trends for Memphis indicate stagnant or decreasing future revenues which, coupled with existing debt and the burden of benefits that accompany employment as a public employee, is enough to raise a few yellow- or even red- flags. Of course that can be countered via an increase in properties on the tax roll (if certain PILOTS were ever allowed to expire), an increase in the value of property within the city, new sources of revenue (such as a payroll tax), and/or increasing the existing local tax rates.
A bigger issue here, as noted by SCM, will be the city’s bond rating going forward. Perhaps SCM- or another author- will delve into the dry yet critical issue regarding how municipal bonds are issued, how their ratings are incurred and what governmental body (if any) is responsible when a municipality finds itself struggling to recoup the money necessary to honor its financial obligations. For example, if financial analysts in the private market find reason to believe that Memphis runs a higher risk of not being able to adequately fund all of its obligations due to a projected decrease in revenue, then the city’s bond rating will decrease which in turn will increase the amount of money the city will be forced to pay for every dollar it “borrows”.
“Smart” Memphian, If you think Mr. Wilson’s letter is “feeding one of the ugliest stereotypes for majority minority cities,” quit griping and prove the alleged stereotype wrong. Memphis, fix your financial problems NOW before they get worse.
I have lived in various locations throughout Tennessee over the years, and I can tell you for certain that the people of Tennessee are not going to pay your debts for you. Fix your financial problems NOW, while they are still fixable.
By publicly demanding results from Memphis, Mr. Wilson may prove to be the best friend Memphis has. The letter was not reckless and it did not do damage to anything, except perhaps the fragile egos of Memphians unwilling to face the financial facts.
Anonymous June 19:
It seems like the comptroller, when push came to shove, is now tempering his comments and saying that what is needed are mainly tweaks. So much for political grandstanding.
As for the people of Tennessee paying Memphis’ debts, no one has suggested such a thing. The comptroller never said anything like this, and we’re not sure this could even be done without a vote of the Legislature.
We stand by our adjective. The letter was reckless with a capital R. And considering that these types of debt restructurings have gone on for years in Tennessee, his sudden interest in Memphis appears to be recklessness clearly connected to his politics.
Correct, nobody has suggested that Tennesseans pay Memphis’ debts – yet. But if Memphis does not get its financial affairs in order, within a few years, Memphians will be at the State Capitol whining, begging, protesting, and making all sorts of claims about what bad things will happen to Tennessee if we East Tennesseans and Middle Tennesseans don’t save Memphis. Your pleas will fall on deaf ears, if I have anything to do with the outcome.
Effective today, until Memphis either clearly gets its finances in order or collapses like Detroit, I will document every time Memphians 1) deny that there is a problem; 2) use the old unproven canard that Shelby Co pays more to Tennessee than it gets; 3) try to play the race card; or 4) blame the messenger. I imagine the list will become long.