Mr. Chairman; Members of the Commission.  Thank you for allowing me the opportunity to address each of you this afternoon as we make an assessment of our progress, and address the realities and challenges of county government for this new year.
 
Today, I stand before you to report that our County has in the last several years become more viable, more efficient and more responsive to the community's needs. 
I make this statement with a keen sense of where we are.  We are always interested in benchmark ideas and possible best practices employed by other communities and governments, but the best assessment of Shelby County's health is not one derived from a comparison to some sister community.  Instead, we are able to best judge our health and progress when comparing the Shelby County of today with the Shelby County of yesterday.  And we have in my opinion been true to our pledge to make government more efficient.  The Shelby County Government of today looks better in the mirror than the Shelby County Government I inherited and even the one you inherited a short time ago.

Our improvements, however, are by no means cause for any of us to rest on our laurels.  This is because as much as we have improved, the mirror of self examination still reveals serious challenges that require our vigilance and intensified focus in this new year.
 
Of paramount importance, preliminary projections show that Shelby County Government will begin its FY09 budget process looking at a significant budget gap. With few exceptions, the gap is a result of normal inflationary expenditure increases and does not include any service level increases or new services.  In this regard, Shelby County government is no different than other businesses affected by inflation.  As consumers, we have all been impacted in recent months by this, whether in the form of a more expensive gallon of milk at the grocery store, a costly airline ticket to visit a loved one during the holidays, or the new fee charged to send a document through an overnight delivery service.  When these businesses charge us more to make up for their increased costs, they are not being reckless or inefficient, but rather are merely trying to continue to provide goods and services to their customers.  We in county government share in this dilemma, which is exacerbated by the simple fact that in many instances we do not even have the ability to eliminate or reduce services, as many of our functions are mandated by the State. 
 
I say all of this to stress that this gap is not one created by unfettered spending.  Please review Chart A on the handout to see the projected FY09 revenue versus the FY09 expenditures and transfers.  Overall, the budget shortfall measures up to about 14.5 million dollars.

Be advised that this 14.5 million dollars is a "minimum" budgetary shortfall. This amount could rise, depending on other factors such as how we solidify the financial footing of The MED and the impact of the pending enactment of senior tax relief in Shelby County. 

This is not a new challenge to Shelby County Government. In fact this challenge pre-dates each of your tenures with the County as members of the Commission and even my tenure as Mayor.  In our attempts to redress this issue and the overall fiscal health of Shelby County, we have for several years been implementing the recommendations of the efficiency study conducted in 2004.  We have been encouraged by the significant cost savings and revenue enhancements due to these efforts including:

• Reduction in the average number of employees from FY04 - FY06 resulting in significant savings while maintaining high levels of customer service.
• Implementation of Debt Management/Reduction Plan, reducing the annual borrowing requirement to under $75 million (primarily for schools) and refinancing/ restructuring County's debt. Under the new plan debt peaked at $1.8 billion and is trending down ($1,766,296,000). The borrowing plan in effect previously (2002-2003) would have resulted in a peak debt service of $205,000,000; the new peak debt service will be only $182,000,000, a savings of $23 million per year (fourteen cents on today's tax rate).
• Implementation of fees totaling approximately nearly $3 million for services such as mosquito control, crime victims assistance and pre-trial services.

With mutual cooperation between the Administration and the County Commission, both former and present members, we've made significant steps in the right direction in addressing the fiscal health of Shelby County Government as these results will tell you.

And we have been encouraged by these steps in the right direction.  However, the signs point to the fact that this is the same road we've been traveling for the longest time. 
Aside from legislative mandates that dictate our spending patterns, every possible expenditure in County government has been examined and duly excised. Any further cuts in discretionary spending will significantly impact the level of services that we can provide to County residents. 

We have been diligent in exploring alternate sources of revenue such as development fees, an adequate facilities tax or impact fees. We also sought the enactment of a realty transfer tax. However, the County Powers Relief Act - which came about in part because of those efforts - excludes Shelby County from its new revenue sources because we do not meet the definition of a "growth county." In essence, the possibility of new revenue from realty and development sources cannot be revisited until 2010.  
   
Consequently, we are now searching for non-realty based revenue sources that are broad-based and structured so as not to place an inequitable burden on any sector of our economy, age, or income group.

One option would be a privilege tax imposed in the same manner as the Tennessee Privilege Tax. This would be a tax paid by employees, including those working here but living outside of Shelby County.  It would be collected and remitted by employers in much the same manner as other withholding taxes. Preliminary estimates show that a privilege tax of $8 per month per capita would generate $24 million annually.  This assumes a total workforce of 500,000, with exemptions for workers making below the annual median wage.1  The proceeds would be segregated from the general fund and placed into a "trust" to make them easily traceable as to precisely how much is generated and how it is used. Our early thinking is to place the funds into a Public Health/Public Safety Trust, with law enforcement, public health and the MED being the primary beneficiaries. Proceeds in the trust would be distributed pursuant to an interlocal agreement to include all governmental entities within the county.

Our dependence on the property tax unfairly burdens our senior citizens who can least afford a tax increase and who - after years of working - have already paid their fair share. This proposed privilege tax shifts the burden away from our senior citizens who have the least economic resiliency and spreads it among those who are still working and in many respects consuming government services. 

This is not a new idea. Several other major metropolitan areas have enacted similar programs: Denver imposes an Occupational Privilege Tax on individuals who work within the city limits of Denver. Other models include the Kentucky Occupational Tax, the Alaska Education Employment Tax, the Pennsylvania Occupational Privilege Tax, the Chicago Employers' Expense Tax, and the St. Louis Payroll Expense Tax. 

Realistically, I cannot stand before you and purport that passing such a privilege tax will be easy to accomplish. It will not. The proposal will face significant opposition from employers and the general public. It will require bipartisan support in the legislature and we are not yet sure who will sponsor the bill. If we proceed with the effort, it will be unreasonable to expect that it can be accomplished with the frugal lobbying budget we now have. 

And, quite frankly, I would be remiss if I did not say very clearly that I do not believe that the privilege tax will provide a long-term solution to our budgetary woes. It is only a band-aid...providing some immediate relief to our wounds, but not a cure for our illness.

There might be other revenue options. Some cities, including Seattle, Peoria, Norfolk, and Kansas City, Missouri have a tax on prepared foods, or food and beverage tax. A two cent (2¢) food and beverage tax in Shelby County could generate approximately $28 million per year. Again, I do not have a great deal of confidence that such a tax would pass the legislature without significant bipartisan support. 

We could consider raising the local option sales tax, the wheel tax, the mineral severance tax, the register's fees, cable television franchise fees, probation supervision fees, or Drug Court treatment fees. We could impose a special tax on the distribution or sale of alcoholic beverages, or a local tax on tobacco products. However, the proceeds from this laundry list of fees and taxes would still not produce enough revenue to do more than temporarily stop the budget bleeding. 

What additional cost saving measures can we implement? Very few, without legislative changes. As I mentioned earlier, we believe that any further cuts in spending will be detrimental to our ability to provide services to our citizens. However, we are certainly open to seeking change to some of the legislative mandates that dictate our spending patterns.  

We cannot ignore that the two costliest components that drive our need for revenue are the state-mandated requirements that the county fund the school systems and the criminal justice system (law enforcement and the courts.)  Without question, these are two basic services that must be provided not merely at a level adequate enough to ensure basic quality of life in our community, but in a manner which will allow our city and county to grow and our citizens to prosper.
 
We need to take an in-depth look at the way we provide these services, and reevaluate whether there is a better and more efficient way to do so.   This does not mean that we overlook the immediate need for additional revenue, but it focuses our attention on the looming structural imbalance in our local government and the need to address this issue as a vital part of a long-term solution. 

Operating a county government in an urban area is akin to driving a large sports utility vehicle.  Imagine that I was driving a Hummer, one of those full-size vehicles that is very comfortable but not very fuel efficient.   Imagine that I asked Commissioner Carpenter for 60 dollars for gas for the Hummer, and he refused.  What if I then asked Commissioner Chism for 50 dollars, and he said it was still too high.  What if I followed up by asking Commissioner Bunker for 40 dollars and Commissioner Avery for 30 dollars, and each of them told me no.  Let's say that given my requests, everyone decided that they would collectively give me 20 dollars for gas, with the strongly worded suggestion that I change the oil, check the pressure on the tires and have everything done to the vehicle that will increase fuel efficiency.  So I take the 20 dollars for gas and move on the suggestion to look at fuel efficiencies.  The only problem that I have is that no matter how consistent I am in having the fluid levels checked and maintaining proper pressure with the tires, I am still driving a vehicle that gets only about 15 miles to the gallon. 

Members of the Commission, the Hummer is Shelby County government and either we find a way to provide more fuel, or we must look seriously at changing vehicles to accomplish the goals and mandates laid out before us.   This evening I propose to you that we give proper consideration to the Hybrid of Metro Government or some form of consolidated government as a way of addressing our present and ongoing fiscal challenges.  

I should say in advance that those members of the community at large who feel that we can cut our way out of this financial dilemma have not seen first hand what many of us who have worked for years on this issue in county government have seen.  Namely, there is a fundamental imbalance that cannot be remedied through a piecemeal approach where we cut here and there to make up for the millions where we fall short.  

Also, it is unfair for those who want us to go just as far on limited fuel and then who challenge absolutely our request for more fuel on one hand and our look at possibly changing vehicles on the other hand.  

I believe strongly that it is time to seriously study the prospect of consolidation. State law has structured County governments to operate in rural settings. Shelby County is an urban county, much more suited to a metropolitan form of government than our current structure allows. We need to determine whether a change to our form of government will provide us with more progressive, comprehensive, and equitable means for financing our needs.  And while a very preliminary assessment reveals that that in the long term we could achieve an annual savings of over $20 million under a consolidated government, we need to also carefully assess the costs and increases avoided as a direct result of the elimination of the inefficiencies and fragmentation which occur because of the existence of two governments.  

Accordingly, I have asked my staff to move forward with reviewing the legal, financial, and procedural aspects of the various consolidation options which are available to us as a county with a charter form of government.  I want to hear from all of the citizens in the county and the municipalities; I have already spoken to a number of the suburban Mayors to initiate discussions on this topic that is of vital importance to all of us.  

Should we find that consolidation is a feasible and desirable alternative, I am prepared to take action to move in that direction so long as the present boundaries and autonomy of the two school systems remain intact. While the funding mechanisms for schools might change (for example, future capital improvement funds would be based solely on need rather than on an archaic, automatic formula), a condition precedent for any consolidation effort would be to maintain the structural integrity of both systems.  Without this certainty, I believe we would be hard pressed to garner the level of support needed from both our city and county residents to make a consolidation effort successful.

Thank you for this opportunity to set forth my game plan for the next few years of our administration.  Like any game plan, we must be aggressive yet realistic in setting our goals.  With that in mind, let me summarize:

Our immediate goal:  Continue to implement the Efficiency Study, and fill our budgetary gap by pursuing several items with this year's General Assembly that will provide temporary relief, allowing us to continue to piecemeal solutions to what very well may be a structural deficiency in our form of government.
 
Our intermediate goal:  Examination of consolidation, its benefits and costs, with input from all of the County's residents.
 
Our long-term goal:  Streamlined government that equitably and cost-effectively serves the needs of every citizen in Shelby County.  

In conclusion, there is no way we can cut ourselves into prosperity.  Nor can we tax ourselves into prosperity.  I am convinced, however, that by working together we can grow our way into prosperity by becoming more streamlined, and I look forward to working with you in the coming year on this important endeavor.
 

Chart A

 1. The U.S. Department of Labor Bureau of Labor Statistics estimates 505,750 workers within Shelby County (May 2006) with an annual median wage for the Memphis, TN-MS-AR MSA of $28,180 ($13.55 per hour.) See attached for additional information.