ATLANTA -- Memphis faces serious financial problems in the next three years and should act soon to shore up its revenue base by merging with surrounding Shelby County, the city's mayor said Monday.

Mayor W.H. Herenton said that without a new revenue source, Tennessee's largest city will face a $50 million budget deficit by 1996 and a downgrade of its outstanding debt.

He added that he is considering running for County Mayor during the county's next election in Aug. 1994 to help achieve the consolidation of the two governments. Herenton, the city's first elected black mayor, was elected to a four-year term in October 1991.

"Memphis, as other major cities, is under financial stress caused by several factors, including a plunge in commercial property values, declining federal financial support, and persistent unemployment and poverty," the mayor said in a written response to questions about his plans for the city submitted by The Bond Buyer.

"It's estimated that the city faces up to a $50 million deficit within the next three years." he continued.

"With no new source of revenue, Memphis will face a serious reduction of municipal services and the possibility of losing the status of having a double-A bond rating," Herenton said. "A consolidated form of government would not only reduce the duplication of city/county /services, but would also serve as a catalyst for economic development."

Memphis, located in the southwestern corner of Tennessee, has a total population of about 610,337, according to the 1990 U.S. Census, and encompasses 288 square miles. Shelby County, which contains the city, has a total population of about 826,330, according to the census, and encompasses 751 square miles.

Memphis' approximately $450 million 6f general obligation debt is rated double-A by both Moody's Investors Service and Standard & Poor's Corp. The city's GOs are not rated by Fitch Investors Service.

Although Herenton said he seeks a consolidated form of government for Memphis and Shelby County, he has indicated that he would probably not push for a merger by seeking approval from both city and county voters, according to his spokesman Carey Hoffman.

County voters decisively rejected such an approach in 1971.

Hoffman said Herenton will consider running for county mayor in Aug. 1994, and, if elected, might then ask the city council to dissolve the city's charter before he resigns.

At that point a special election of Memphis voters could follow to decide whether the city's government would be disbanded, Hoffman said. If this happened, the city would be absorbed by the county, resulting in a countywide metropolitan government.

"My goal is not to be county mayor, but mayor of a metropolitan form of government, which does not exist," Herenton said in his statement Monday. "I believe that in the long run a consolidated form of government will create an economy that will run more efficiently and effectively."

Herenton acknowledged, however, that any consolidation plan faces a number of serious obstacles.

One problem, he said, is the "legality of a consolidated form of government."

He said that he would soon appoint a team of legal experts "to study the mechanics and approaches to consolidation." Hoffman said that this group could be named as early as this week.

Another obstacle, he said, is resistance from black voters in the city.

There is "the fear among African-Americans that the power gained by my city mayoral election could slip away in a consolidated form of government," he said.

William Freeman, administrative assistant to Shelby County's current mayor, Bill Morris, said that county voters could also pose very serious obstacles to consolidation.

First, many county residents fear that consolidation could lead to increased taxes, Freeman said.

In addition, he said, county residents also worry that public schools might be compromised by such a move. "For whatever reason, people feel that county schools are better, and I see this causing resistance," he said.

Freeman also said that several incorporated areas in the county view consolidation as a threat to their power and might push to secede from any consolidated government.

County Mayor Morris, who has announced this summer that he is running for governor in 1994, was not available for comment.

Rick Masson, Memphis' finance director, said that he and other city officials figured $50 million as the size of a prospective deficit by 1996 by assuming that there would be an erosion in property values in the city and that the normal increase in expenses over the next three years would not be covered by any equivalent tax increase.

Masson said that if there is no increase in the city's revenue stream, it would probably be forced to cut services.

The city council, Masson said, has committed itself to not increasing property taxes in the 1995 fiscal year, which begins July 1, 1994. The 1996 fiscal year, he noted, occurs during an election year for city officials.

Masson said that the city has approved a $318 million general fund budget for the current fiscal year which began July 1. He said the city began fiscal 1994 with an unencumbered general fund surplus of $10 million, down from $18 million at the beginning of fiscal 1993.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.