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- Budget season for the city and county tonight on Behind the Headlines.

[intense orchestral music] I'm Eric Barnes with The Daily Memphian.

Thanks for joining us.

I'm joined tonight by the chair of the Shelby County Budget Committee, and obviously Shelby County Commission member, Michael Whaley.

Thank you for being here.

And Janika White, who is vice chair of the Budget Committee for the Memphis City Council.

Thank you for being here.

- Thank you for having me.

- Along with Bill Dries, reporter with The Daily Memphian.

We'll talk through budget seasons for you both, some overlapping issues, some you'll just, you can chime in on the other person's problems or opportunities if you want, but you're both getting close to voting on budgets for the next fiscal year.

I should note that we're taping this on Monday, so by the time this airs on Friday, some things will happen in committee and so on.

But we'll try to own that as we go through here.

The issues will be the same.

I wanna start with the county, though, Michael.

I guess the main thing is, what is the final tax rate gonna be, and how are you guys going to solve this issue of whether it's gonna be, what is it, 2.66 versus 2.69?

It gets into the wonky way of reappraisals happening and it could be, it's an $8 million difference, almost $9 million difference to the county coffers, and obviously some amount of increased tax, obviously, to homeowners.

So how do you, you can't make that decision, but what are the considerations that the Commission is working through?

Where do you think it'll land?

- Yeah, great question.

It's hard to say now what it'll end up being, but essentially the options are, accept the recapture rate that the state has set, which was based on a reduction in the number of appeals that happened on properties, and so it would be that 2.66 number.

But if we left it back at 2.69, which is the current rate, and it's the rate that people are currently paying on, that would, as you mentioned, bring in almost $9 million additional dollars.

The considerations are mainly around the contractual items that we've committed to, and certainly the costs that increase as you go over time, and, I think also just as importantly, the need to replenish the fund balance to make sure that we have reserves for emergencies as they come up, and to manage cash flow throughout the year.

- Let me ask then a bigger picture question.

You mentioned the reserve fund and getting that back to, what, $90 million.

The comptroller came forward towards the end of last year, the state comptroller and said hey, we're not real crazy about where things are going with the Commission, with the county's budget, some limits or oversight on, however you wanna frame it, on debt.

Is the county getting in better shape now or is it just, I don't know, how good or bad a shape are county finances?

- Well, just to be clear, the state actually says that our fund balance is appropriate relative to other fund balances across the state.

It's just our internal policy that is higher and we're below that internal policy.

So it's not, the challenge from the state level isn't the fund balance.

That was more so around the administrative submission of the budget that's done by the administration.

So the right schedules weren't attached, the format wasn't proper.

And that's a mistake that shouldn't happen, and it needs to be certainly corrected, and we would anticipate that that wouldn't be a problem going forward.

- Let me bring, looking at the Council tax rate, I think is, there's no real discrepancy, no fighting over that, it doesn't seem like at this point.

Is that correct?

- No, it's not been.

We did get a report that potentially there could be a three cent correction, but we've gotten some more recent news that says that we probably will remain flat.

So it's not been much of a discussion.

For us, more of the discussion has been around the new potential reduction in our share as it pertains to the state legislation with the census that's coming.

Well, the census that happened.

- And that's the share of sales tax?

- Sales tax, correct.

- Okay, the state has been talking about.

You all are trying to cut some expenses, though.

I mean, give us a kind of sense of what your priorities and what the Council's priorities are.

Again, not as much fighting back and forth on things, but there are cuts that you guys are talking about, some increases for payroll in various areas.

Give us a sense of all that.

- So right now, the mayor proposed a 2% increase across the board.

Last week we had impasse with AFSCME specifically because they were not able to reach a resolution.

And so AFSCME is requesting a 5% increase along with the $5,000 bonus that the Council is now considering.

In addition to that, I would say one of the biggest touch points has been in the last Council meeting.

We had a lot of resolutions that came through, a $1.5 million request for increase to the pre-K fund, in addition to several other resolutions for Council initiatives that were not in the mayor's budget.

The mayor, when he proposed this budget, for one of the first times since I've been on the Council, already included about $34 million in cuts in addition to, I believe about $17 million in cuts for vacancies.

So there were significant cuts to this budget already this year.

We've not necessarily looked for more, but tried to determine whether or not the priorities of the Council are also met in the budget proposed by the mayor.

- And quickly, what is the tax rate for the city right now?

- I believe it is two, I don't wanna say it wrong.

I don't know.

I should know this off the top of my head, but I don't know.

- I apologize, I made a math test out of it.

I'm gonna go to Bill.

- Let's talk about vacancies, because vacancies have been, as you know, because you are legal counsel to the County Commission, the County Commission has had discussion over several years about savings from vacancies.

What's this like on the city side to be considering that?

- You said to be considering the vacancies?

So that's what they did this year.

So this year they went through to see what vacancies we had had for over 18 months, and they put that back into the budget, and they've done that across all of the different divisions, and that totaled $17 million this year.

- Okay.

Michael, the Commission's discussion, debate at times about vacancies.

How has that wound up over several years of discussing that?

- Well, it's been a real tool in the budget over the last few years, because I think we try to always, over the last several years, maintain a disciplined budget.

And so part of that is being able to be more accurate around where the dollars that are actually being spent are going.

And when you have a large number of vacant positions that carry for years, those are funds that are restricted for those positions that could be redeployed elsewhere.

So if you have other critical needs, if you're not using those funds, you're having to raise them from somewhere else.

So it's just prudent to look at what the actual hiring trends are, and then thus what the actual need is to run the operation and be more accurate around where dollars are needed to be invested.

And that has increased over the last several years.

We've gotten, I think, more on point with where the salary spending actually resides.

- Well, I think also it seems like it would be simpler on the city side because, in that case, you're dealing with divisions of city government as opposed to independent, somewhat independent, countywide elected leaders.

Right on that, yeah?

- Yeah, I'd probably agree with that.

- Yeah, yeah.

Which is a nuance of this.

Will both city and county governments be seeing more tax revenue from xAI, and is that somewhat of a cushion in your budget deliberations?

- So in terms of ours, from my understanding after speaking with the Assessor's Office, there is an anticipated increase, but that's not already in the budget per se.

We know that it's going to increase, but not necessarily calculated at this point because it's not there yet.

- Okay.

Michael, are you the same?

- Yeah, so, right, and a big part of that offsets this recapture situation because, by nature of having to recapture the rate down is partially offset by additional commercial property tax revenue that comes in.

I think my hesitation on that, and I mentioned this during our budget retreat earlier this year, is that the way that these types of technologies and infrastructure are valued potentially depreciates significantly over time.

And so it's important not to think that, if there is additional revenue, that that's gonna stay at that level or increase.

And in fact, it could decrease based on the valuations of computer chips, for example, that's hard to forecast.

So I think it'd be important for us to be more conservative in how we look at that.

But the current year, or the new fiscal year impact is mainly offsetting the reduction from the recapture rate.

- You're also, both bodies, are tying up loose ends for the current fiscal year.

And Janika for the Council, you all had a pretty colorful discussion last week about $5 million in funding for AutoZone Park.

Does that impact the new budget year at all?

- You said does it impact the new budget?

- Yeah.

- No, because from my understanding, the request would be coming from CIP.

- Right.

- And so right now, no, the answer is no, but we have to, one of the things that I've been saying as budget vice chair is that we can't just budget year to year.

We have to look at years to come in the way that we budget on a year to year basis looking forward.

So I don't think that it will impact this particular budget, but it will have an impact on the following years.

- And Michael, speaking of the capital budget, the Commission has a decision to make because the mayor wants to use $11.9 million to start building a new Treadwell School, and the school system has a long list of deferred maintenance, right?

- Right, that's right.

And the way that the capital budget works is that there's often many projects that don't get completed.

And this is a case where dollars were allocated to the school system for an east regional school that hasn't materialized yet.

And so that amount of the budget is being carried forward into the FY '27 allocation.

And so the decision for the Commission is to either leave it allocated to a Treadwell rebuild, or to repurpose it to deferred maintenance, which is a more immediate need, because I think we need to make sure that everyone was on the same page with regard to any new school construction before just putting it toward that.

So we don't have the same situation happen where we're allocating to a project that isn't ready yet, and then have to repurpose it later.

That we're more sensitive to what the actual current need is, and deferred maintenance is certainly one of them.

- So it's not on the school system's list, the new school, but it is on the mayor's list, and the mayor's argument is, well, the revenue will be there down the road when things get settled on the new east regional school.

- Sure, I mean, I think we're eventually gonna need to do something with the east regional when the Germantown sort of situation works itself out.

It's a long term, it's a long runway for that.

But I think the more immediate concern I would have is, are we actually, moving forward on a Treadwell school, is that something that the superintendent and the school board have indicated they want to do?

I have not heard that.

So I think we need to make sure first we're on the same page, and certainly may be the mayor's priority, but it's gotta be collectively everyone's priority, otherwise we end up running into a situation where we're having to revise the budget again and again and again.

- And you've also got this new board, right?

I mean, there's a takeover board.

I don't know what to call it, so I'm calling the takeover board until someone tells me otherwise, that has been, most of which has been appointed, but they haven't really, I mean, they could totally change all the priorities, right?

That's my understanding how that board works.

- Yeah, I mean that's another reason why I think it would make more sense, because these are funds that were already allocated in prior years.

So it's being carried forward.

So if we reallocate it to deferred maintenance, there is an immediate need to do that.

- I put you on, I always promise guests to not do a math test, and I did a math test for you.

I believe it's 2.58 for the city right now.

- Okay, thank you.

- Yeah, no, that's totally fine.

And for xAI, just to wrap that part up, isn't it about $25 million to the county and $25 million to the city?

I mean, in this current year?

- No, I believe it's $18 million to the city.

- Is it 18?

Okay, yeah, again, I'm doing the math test when I promised I wouldn't do that, but significant amount of money.

I mean, do you hear from your constituents, it's been a controversial project.

Do you hear from your constituents saying, "Well, I'm glad at least we're getting money from it," or, "It's not worth it.

We don't want any more data centers."

I mean there's another xAI data center that went in across the border of Mississippi because of arguably some of the pushback.

There's a Google data center that went across the river.

What do you hear from your constituents on the xAI project specifically?

I'll start with you, Janika.

- So mainly it's been more of the concern of the use of resources, the use of the water from the aquifer, the pollution, the environmental issues that come with it.

I've not heard as much positive in terms of the revenue.

That's a piece that you don't really necessarily hear.

We focus on it on the Council side, and of course in discussions with the administration.

But in terms of constituents, their focus is, is the risk worth the reward?

- Yeah, I'd agree with that.

I mean, I think the environmental impact, if you even just look at the water situation, is quite urgent.

Because right now they're pulling from the aquifer, and that's not, the technology exists to not do that.

And so it's just a matter of.

- And they made a promise they would do that.

- Yeah, I mean, to me, that's a major, major issue.

On the finance end I'm actually hearing a lot of my constituents are, I think, quite sophisticated in how they're looking at this, because I mentioned earlier around depreciation of assets and the fact that that revenue likely doesn't stay.

We may be at the peak, right, of revenue.

And that's a really important consideration from a sustainability standpoint.

And then you look at what's happened even just recently with the subleasing of the capacity to Anthropic, for example, creates some interesting sort of business models that maybe allow them to use this computing power without paying property tax on the asset itself.

And that would also be quite a major hit in terms of people thinking this is gonna bring on all this revenue.

That's not necessarily the case.

- I'll stay on the city budget for a second.

We mentioned the money for AutoZone Park.

It raised some questions.

It seemed like, I did not listen to the meeting and I wasn't there, but I read Bill's article.

There was some frustration among Council members, a lot of sort of last minute requests.

There was some frustration about the AutoZone.

Where did this money come from?

Am I wrong?

I thought that the Council had committed, maybe it's only a verbal commitment, to a $55 million renovation of AutoZone Park.

Is that not the case?

- Not that I'm aware of.

- Okay, okay, no, that's fine.

- I'll say not that I'm aware of.

- Yeah.

Do you worry, though, that we could have, the lease goes through what, 2030, I believe.

If the money doesn't go into investing in AutoZone Park, that that park could go dark and be completely empty.

It's always been, I think, one of the complaints about it, it's never been as utilized as much as it was promised to be utilized.

It doesn't have the attendance that it was gonna be sellouts and a lot of promises that were made twenty-something years ago when it was built.

But it's in the median of Minor League ballparks.

It's a asset downtown that draws families and so on.

The talk of, well, we're not gonna fund this thing and it's just not a priority, I think spooked a lot of people who thought, oh my gosh, this big park could go dark and empty, and that's not what downtown needs.

So how do you balance all that?

- Well, that is the balance, honestly.

And when you're doing budget, you are always looking at, when you take something from one and add it to the other, you always have to make it balanced.

And then you have to figure out what your priorities are.

But in terms of my position, I can't speak for the whole Council, we do that by votes of seven.

But I will say that is a major concern for me.

If we don't have a team and now we have a stadium in the middle of downtown Memphis that's empty, that's very concerning.

- Yeah, one more for me, and this is mostly a city question, but I think it's really, in the end, kind of goes to both of you, MATA.

What is the future of MATA?

What sort of funding does MATA need?

Where is it going in terms of leadership?

And then, again, specifically to the trolley, since we're talking about downtown, but just more broadly speaking, what, as a Council member, do you see coming or where do you see MATA going?

- So a couple of things.

We've spoken with the administration regularly about the direction of MATA.

They are starting the search to look for a permanent CEO.

Over there right now, there's a trustee at MATA that is getting things in order and helping us have a better picture of what's going on.

So they have been very transparent in providing the information that we need.

I believe that we all can agree that MATA needs a lot more funding for the square miles that it covers in terms of transportation.

That's just the reality of the situation.

They've recently ordered new buses, new buses are on the way.

I know the trustee is also looking into going to other areas where they have gotten new monies from the state for transportation and trying to get some buses from there.

So I think we're headed in the right direction, but the reality of it is, is that MATA needs a lot more money to be able to function in the way that we expect it to.

- And I've forgotten, does Commission put some money into MATA?

- Yeah, a very small amount.

So the Commission has dedicated a small amount of revenue in the past and recurring to MATA, but it's not enough to, I think, truly move the needle.

It's one of these classic sort of vicious cycles of like, if we feel like the operation isn't working well, we don't want to invest in it.

Well, if we don't invest in it, then it doesn't really work well, and then people can't get to their jobs, and therefore GDP suffers.

And so these, we have to kind of get the flywheel going again with that, and you know, the county's not the main driver of MATA, but I see it as a really important tool to be able to drive the local economy.

- Six minutes left, Bill.

- Let's talk about timing.

We were talking about this before the show, and to the viewers, we're taping this on Monday, and the Commission is going to meet later today, Monday, but you'll not finish up the budget season today.

So your thinking is, set the tax rate and make the budget fit.

And some years it's different, but why is that the best strategy?

- Right, yeah, the way I'm proposing we do it this year is a bit different than it's been done in the past, and that's that I think we have the opportunity first to decide, what is the tax rate gonna be?

So what is the revenue that, as a county, we're gonna bring in?

And then know what that cap is that we've decided like this is what is reasonable.

And I think then you work to balance that budget, because if you do the inverse, then you're sort of looking at unlimited number of budget amendments and requests to do additional spending without offsetting revenue.

And at some point you have to balance the budget.

And so if you did that route, then you would be left with a massive deficit likely, because these are lots of really good things that we want to support and fund.

But then if we're not able to get the revenue to match it, we've gotta start all over, and we've gotta roll some of that back.

And who knows what's gonna happen, but my hope is that we can at least, in concept, agree on a tax rate in this meeting, have another meeting to be able to ratify that, and then make sure that the budget is balanced to the tax rate.

- What is the Council's approach on the timing?

Which comes first?

- So we typically do set the tax rate and then approve the budget.

This last Council meeting, and a few of the budget hearings prior to, there was some mention of a potential increase.

Right now, I believe a penny tax rate increase would be about $1.85 million.

And some of that discussion was around potentially getting a bond issuance for paving, and of course to match the mayor's housing project that he proposed with the 10,000 houses by 2030.

So that has been a discussion.

I don't think that it's gained much steam, people don't really have appetites for tax increases, but the reality is, is that we have very limited ways to create revenue, and property tax increase is the primary way.

- Right, and it's always about, can you count to seven on anything?

- Right.

- And at budget time, the calculation that everyone watches is, how much revenue does that penny generate?

And Michael, on the county side, a cent is three point what?

- A little more than $3.3 million.

- Okay.

- Per penny.

- All right.

- With just a couple of minutes left, I'm curious, Memphis Safe Task Force, huge, obviously huge in the news over the last year, the reductions in crimes, and controversies, all of that.

But from a budget point of view, how much, if any, did it hit the budgets of the county and the city?

Or what, I mean, were you paying extra overtime to sheriffs?

Or were you reimbursed on all of it?

Like give me the lay of the land of the impact.

- Well, yeah, I mean it hit the county quite a bit.

I mean just even if you just look at the sheriff impact of overtime, increased resources.

There were some reimbursements that have happened, but not nearly enough to offset the actual costs.

And so that is something actually we're dealing with right now.

And it sort of happened also at the time when our cash reserves are the lowest, every fall, and that made it more challenging to be able to continue the daily operations of the county.

- Same in the city.

Same in the city, and I'm not even as confident about reimbursements at this point, of us really being fully reimbursed for the additional overtime of officers.

- Is that to some millions of dollars?

- Oh, absolutely.

- And same issue?

- Oh yeah, yes.

- Was it worth it though?

- That's a question that I can't answer right now, honestly, because I don't really have the true numbers.

I don't know exactly how much of that we've been reimbursed yet or how much we will be reimbursed.

We were already trending down in terms of our numbers, crime numbers.

So that takes a much deeper analysis that I honestly have not done yet.

- Yeah, I mean the reality is that there's truth in all this.

I mean, to some degree there are some things that were beneficial, right?

Additional federal resources to be able to help solve crimes, help be able to process rape kits, for example, quickly.

Like these are kind of things that I think most people would agree are good, but then there are also components that are not as great, right?

And I think it's okay to say, hey, we want some of those resources that truly help us, and we don't really need 'em for the things that are not actually helping us.

- Yeah.

Is the spending still at the high level?

Do you have insight?

I mean there's never really a clear announcement.

Is the task force here, is it not here?

I mean, are you still seeing requests above normal from MPD and from the sheriff?

- Well, we have historically seen many requests for overtime from the sheriff.

Now they were much higher this year, but I can't say that it's directly related at this point to the task force.

- And I was gonna say, we always have pretty high overtime, and that's just because over time we've had a shortage of staff.

- Yeah.

Thank you both, appreciate you being here.

Thank you Bill.

Thank you for joining us.

Again, just a reminder that we tape this early, so there'll be all kinds of budget machinations going on, but the vote's coming the week after this airs.

Recent shows have included John DeBerry, the Republican candidate for county mayor, as well as Anthony Buckner, who's running for sheriff.

We've got Mickell Lowery coming up and Brad Less coming up.

But that's all the time we have right now.

Thanks very much and we'll see you next week.

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