Why not cancel construction projects to fund the pension?

memphis skyline

MEMPHIS, Tenn. — We’ve heard many people ask why the city council can’t just cancel some of its proposed projects and shift that money to fund the pension.

For example, the city plans to spend $30 million to renovate Raleigh Springs Mall, with another $30 million in private money. The project includes a new police precinct, library, community center and various city offices.

Money for such a project comes from the capital funds budget which also finances roads, sewers and other services.

Money for salaries, healthcare and the pension system come from general operating funds.

Money from the capital budget cannot be moved over to general funds.

However, general funds are used to pay interest on capital projects. The interest typically runs 6-8% per year. That means cancelling a project such as Raleigh Springs would not would not free up $30 million, but it would free up 6-8% of the interest paid on that project.

As of July 1, the State of Tennessee requires local governments contribute 100% of the cost, determined by outside agencies, needed to keep their pension funded.

Governments have six years to get to that 100% funding mark. Unlike Memphis, some governments are members of the Tennessee Consolidated Retirement System which has long 100% pension funding.

The Segal Company, a human resources consulting firm, found the city pension is underfunded by $467 million.

That contradicts a report commissioned by the firefighters union which put the number at $301 million and a report done by PricewaterhouseCoopers which put it at $682 million.


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