Retired employees of the former Memphis City Schools face uncertainty over which entity is eventually responsible for paying for their benefits after the state attorney general issued an opinion that the obligation is not owed by Shelby County.

Shelby County Schools, which was formed in a 2013 merger of the former city and county districts and is funded through the Shelby County Commission, has budgeted to pay for those benefits through the fiscal year ending June 30.

However, an opinion issued Tuesday by Tennessee Attorney General Herbert Slatery is expected to make the cash-strapped district reexamine its $1 billion liability in the matter.

Slatery said that, for Shelby County to assume the former city district’s indebtedness when school operations were transferred to Shelby County Schools, the Shelby County Commission would have to vote to assume the debt, which it didn’t.

And County Commissioner David Reaves doesn’t foresee such a vote happening based on the current structure of the liability.

Reaves hopes that the opinion, which he requested through state Sen. Brian Kelsey, will motivate the commission, Shelby County Schools and the city of Memphis to come to the table to develop a plan for managing the former city school system’s Other Post Employment Benefits, known as OPEB, which are retirement benefits such as health and life insurance but excluding pensions.

"People have been kicking this down the road for years, but hopefully this opinion will create an environment where we finally put this OPEB monster to bed."David Reaves, county commissioner

“People have been kicking this down the road for years, but hopefully this opinion will create an environment where we finally put this OPEB monster to bed,” Reaves said Wednesday. “It’s the perfect environment to fix this, but it’s going to take some tough decisions.”

New Memphis Mayor Jim Strickland immediately distanced the city from any obligation in the matter, however.

“It’s important to note that Memphis City Schools was a special school district, and was separate and apart from city government,” Strickland said in a statement. “The attorney general was not asked if city government is responsible for the special school district debt. The attorney general was asked if Shelby County government was responsible for the special school district debt.”

Reaves questioned that line of thinking, since city council had to approve the former city school district’s budget and since the district was cited in the city charter.

“These are the first salvos, and everybody is staking out their positions. But we need to call a spade a spade. Ultimately, we need to sit down to figure out how to resolve this,” he said.

Reaves said he hopes the matter does not end up in court, since Slatery’s opinion is not a binding judgment.

“Will it go to litigation? It’s highly possible, but I think that would be foolish. The wisest thing is for all parties to sit down and come up with a plan,” said Reaves, a former member of the Shelby County school board. “Out of the three parties, the city of Memphis is the only one who’s not kicked in any money for OPEB liability.”

Shelby County Schools has been weighed down by its $1.5 billion OPEB liability for city and county district retirees and has not been contributing enough to cover retirees’ real costs, prompting admonitions from county commissioners to address the issue.

Last summer, Superintendent Dorsey Hopson called OPEB “a huge gorilla around our neck” and presented options that ranged from cutting spouses from the district’s OPEB plan to providing incentives to purchase health insurance through the federal Affordable Care Act. However, as hundreds of retirees protested the proposals, district leaders backed off and opted for a comprehensive review of the issue.

Reaves said this week’s legal opinion should serve as a wake-up call to the school district, the county, the city and retirees that something is going to have to give.

David Reaves
David Reaves

“We’re all reasonable people and nobody is looking to put retirees at risk,” he said. “But we need to understand that the level of benefit we’ve been giving for a lot of years is probably going to have to change. It’s just not sustainable. We’re going to have to figure out how to fund a new OPEB level, and we need the city to be part of that discussion.”

Last summer, angry retirees contended that the district was seeking to save money on the backs of sick senior citizens by breaking a promise made to educators decades ago.

Reaves traces the problem to the former city school district.

“This is not the employees’ fault; this is about government mismanagement,” he said. “These promises given to employees were broken years ago when the previous school system didn’t budget for it. Now we have to come up with a different plan that everyone can swallow and, at the same time, keep us from going bankrupt. And we need the city to be part of that discussion.”