insights (2007-01)

Ragsdale’s Budget Bind

Mike Ragsdale won’t concede he’s in a bind, but the county mayor does acknowledge that he’s “the most challenged that I’ve been” since he assumed the post in 2002.

The bind or challenge, as you will, centers on how to fund a pension plan for the sheriff’s unformed officers that voters narrowly approved in a November referendum. Establishing the plan will create what’s known in the argot of pensiondom as an unfunded liability of $57 million, representing the projected benefits due to the 772 presently eligible officers when they retire.

Under the Knox County Charter, as it stood prior to the referendum, that entire amount would have to be funded up front. As amended by the voters, however, the Charter now allows for it to be amortized over 30 years at the rate of about $4.7 million annually. In addition, actual pension payments under the new defined benefit plan will cost the county about $1.6 million a year more than its costs have been under the 401(k)-like defined contribution plan in which all 1,600 county employees (exclusive of the school system) have been participating up to now.

The county might be able to cover the full $57 million unfunded liability with the proceeds of a bond issue. But debt service on the bonds would approximate the cost of amortized funding of the liability. So any way you slice it, the costs of county government are headed up by more than $6 million a year.

That’s twice as much as the $3 million annual growth in county revenue from present property and sales taxes (exclusive of what’s dedicated to schools) if recent trends continue. So even if the county were to dispense with any employee pay raises and additional contributions to schools to which Ragsdale remains committed, there would still be a sustained shortfall.

So what’s the county mayor to do?

All that Ragsdale’s prepared to say at this point is that, “We are looking at every option.” These include delving into actuarial and financing esoterica, seeking bigger remittances from the county’s fee offices such as the Trustee and County Clerk and perhaps looking to the beneficiaries of the new pension plan to shoulder some of its cost. Beyond that, he avows that, “We’re always looking for ways to make ourselves more efficient.” But he doesn’t disavow resort to a property tax increase.

When asked if he would like to leave a legacy of having held the line on property taxes for his entire eight years in office, Ragsdale responds, “That would be a very good thing if we could accomplish it, and I believe it would be very realistic if it weren’t for this pension plan, but it compounds that challenge greatly.”

The ballot proposition setting the terms of the new pension benefits that roughly equal those of the city’s police officers contained a caveat that they would have an “8 cent impact” on the county’s budget. Since each penny on the county’s $2.69 property tax rate yields about $750,000, an eight cent increase would generate the $6 million that is needed. If, after going through all the other motions, Ragsdale recommends such an increase, it would still be very modest compared to the 25 cent and 55 cent increases that his predecessor Tommy Schumpert got in the first year of each of his two terms in office.

Ragsdale’s education initiatives, in which he takes great pride, would alone seem to require at least $6 million in additional annual funding within the next few years.

Those start with his Great Schools Partnership that was established to provide supplements to the school system’s regular budget, foremost for extra teacher pay at hard-to-staff inner city schools that show performance gains. A program known as TAP (for Teacher Advancement Program) is in place this year on a pilot basis at three schools. While the final performance measures and resultant teacher bonuses won’t be known until next fall, Ragsdale is enthused by the reports he’s getting on its progress and is clear it needs to be extended to more schools. The partnership’s executive director Cheryl Kershaw has targeted 24 schools for inclusion by the 2008-09 school year at a cost of $10 million. But Ragsdale says, “I think we’ll have to get at it incrementally, starting with three more schools next year”.

At the same, the county mayor remains committed to funding new school construction with the county’s general funds rather than requiring the school system to draw upon its own separately dedicated property and sales tax revenue streams. Already, the county has done so for the new Hardin Valley High School and a new Powell Middle School, and at least two new elementary schools are on the drawing boards at a cost of about $15 million each. Asked if pension plan costs could impinge upon the county’s covering their debt service, Ragsdale reiterates that, “I’d like for the school system to use their revenues to improve teacher pay and make a difference in children’s lives.”

How readily County Commission will adhere to the county mayor’s recommendations remains to be determined. There’s been some balkiness of late over issues such as changes in the county’s health insurance plan. But Ragsdale brushes any differences aside. “I’ve found County Commission to be incredibly responsive… I can’t think of a single major initiative on which they haven’t worked with us,” he asserts.

Still, the going promises to get tougher for the county mayor, especially where any legacy initiatives such as a new downtown library are concerned.