What procedure does Shelby County need to follow to assume the unpaid retiree health-benefit (OPEB) debts that Memphis City Schools left behind when it dissolved?

Plain-English summary

In 2011 the Memphis City Schools surrendered its charter and transferred all operations to Shelby County Schools. The merger left a thorny financial residue: Memphis City Schools carried an unfunded Other Post Employment Benefits (OPEB) liability, the actuarial cost of retiree health-care and similar non-pension benefits, that did not disappear with the charter. State Senator Brian Kelsey asked the AG's office what state law required for Shelby County to absorb that debt.

The AG's office pointed to a single statute: Tennessee Code Annotated § 49-2-1002(d). That subsection sets the default rule that when a city or special school district transfers its operations to a county, existing indebtedness stays with the transferring district and existing repayment arrangements continue. The statute then carves out a specific override: the county legislative body may, by a majority vote of its members, adopt a resolution affirmatively assuming the indebtedness.

Applied to Shelby County, that meant the Board of Commissioners (the county's legislative body) needed to pass a majority-vote resolution explicitly agreeing to take on the OPEB liability. Anything short of that, an executive directive, an informal commitment, a partial resolution, would not transfer the debt. The opinion was careful to add that it addressed Tennessee statutory law only; it did not address any provisions of the 2011 federal consent decree that resolved the underlying school-merger litigation, which may have imposed additional or different requirements.

Currency note

This opinion was issued in 2016. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Background and statutory framework

Tennessee's school-district consolidation framework lives in Title 49, Chapter 2, Part 10. Section 49-2-1002(d) deals with what happens to school assets and debts when a city, town, or special school district transfers its operations to a county. The provision was drafted on the assumption that the transferred district's existing debts have an existing repayment plan, often tied to property tax levies or bond indentures, and that the cleanest course is to let those repayment plans run their course. So the default is: indebtedness "remain[s] the obligation of the town, city or special school district, and existing arrangements for the retirement of the indebtedness shall be continued until the indebtedness is retired and paid in full."

But the statute lets a county step in if it wants to, "unless the county legislative body, by resolution adopted by a majority of the members, agrees to assume the school indebtedness owed by the town, city or special school district." The escape hatch is procedural, not substantive: any unforced majority-vote resolution by the county's legislative body works.

For Shelby County, "the county legislative body" was the Board of Commissioners. OPEB, the Governmental Accounting Standards Board's term for retiree non-pension benefits (health care, life insurance, disability, legal services), counts as "indebtedness" for purposes of section 49-2-1002(d) under the opinion's reading.

The transfer of Memphis City Schools operations to Shelby County in 2011 was the subject of separate federal litigation and a partial consent decree. The AG declined to address whether the consent decree imposed obligations on Shelby County beyond what state law required.

Common questions

Q: At the time of this opinion, was Shelby County automatically responsible for OPEB liabilities from Memphis City Schools?
A: No. The default rule in section 49-2-1002(d) was that the indebtedness stayed with the transferring district and existing repayment arrangements continued. The county had to take affirmative action to assume the debt.

Q: What kind of vote did the Board of Commissioners need?
A: A simple majority of its members, voting on a resolution that affirmatively agreed to assume the OPEB indebtedness.

Q: Could the County Mayor or the school board agree to assume the debt on its own?
A: No. The statute specifies "the county legislative body, by resolution adopted by a majority of the members." Other county actors lacked the authority to bind the county to the obligation under section 49-2-1002(d).

Q: Did OPEB count as "indebtedness" within the meaning of the statute?
A: The opinion assumed yes, citing GASB Statement 75 as treating OPEB obligations as a liability that must be reported on the financial statements of the governmental entity that owes them.

Q: Did the federal consent decree from the merger litigation affect this analysis?
A: The opinion expressly declined to address that. It limited itself to Tennessee statutory law. The consent decree could have layered additional duties on Shelby County independent of the section 49-2-1002(d) framework.

Citations and references

Statutes:

• Tenn. Code Ann. § 49-2-1002(d) (Assumption of indebtedness by county legislative body)
• Tenn. Code Ann. § 49-2-502 (Authority for transfer of city/special-district operations to county)

Cases (background):

• Board of Education of Shelby County v. Memphis City Board of Education, 2011 WL 3444059 (W.D. Tenn. Aug. 8, 2011)
• Board of Education of Shelby County v. Memphis City Board of Education, 2013 WL 821172 (W.D. Tenn. Mar. 5, 2013)

Other authority:

• Governmental Accounting Standards Board Statement 75 (definition and reporting of OPEB obligations)

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2016/op16-001.pdf

Original opinion text

January 5, 2016
Opinion No. 16-01
Assumption of Memphis City Schools' Debts by Shelby County after Transfer of School Operations to County

Question
The City of Memphis Special School District (Memphis City Schools) carried an unfunded Other Post Employment Benefits (OPEB) liability when it surrendered its charter several years ago. At that time all Memphis City Schools operations were transferred to Shelby County Schools. Under State law, what process is required for Shelby County to assume the OPEB indebtedness of Memphis City Schools that existed when school operations were transferred?

Opinion
For Shelby County to assume the OPEB indebtedness of Memphis City Schools that existed when school operations were transferred to Shelby County Schools, Tennessee Code Annotated § 49-2-1002(d) requires the county legislative body to adopt, by a vote of a majority of its members, a resolution assuming the OPEB indebtedness owed by Memphis City Schools.

ANALYSIS

Your question relates to the 2011 transfer of the operations of the Memphis City Schools to the Shelby County Schools following Memphis City Schools' surrender of its charter. At the time of this transition, Memphis City Schools apparently had existing financial obligations related to Other Post Employment Benefits (OPEB). You have asked what Tennessee law requires for Shelby County to assume the existing OPEB indebtedness of the now-abolished Memphis City Schools.

Tennessee Code Annotated § 49-2-1002(d) sets forth the applicable requirements for assuming the indebtedness. It provides as follows:

(d) The county board of education shall operate the schools of any town, city, or special school district transferred to them by authority of § 49-2-502 and this section as a coordinated part of the county school system, to the end that a unified and balanced school system may be maintained in the county. All school funds belonging to the town, city or special school district, including state funds allocated to the town, city or special school district, shall be expended entirely for the benefit of the schools of the town, city or special school district. Where there is any school indebtedness owed by the town, city or special school district at the time the transfer of administration is effectuated, the indebtedness shall remain the obligation of the town, city or special school district, and existing arrangements for the retirement of the indebtedness shall be continued until the indebtedness is retired and paid in full, unless the county legislative body, by resolution adopted by a majority of the members, agrees to assume the school indebtedness owed by the town, city or special school district.

(Emphasis added).

Accordingly, to accept and assume the existing OPEB indebtedness of the now-abolished Memphis City Schools, the Shelby County Board of Commissioners, the legislative body for Shelby County, must, by majority vote of the members of that body, adopt a resolution affirmatively agreeing to assume the OPEB indebtedness owed by Memphis City Schools. Tenn. Code Ann. § 49-2-1002(d).

HERBERT H. SLATERY III
Attorney General and Reporter

ANDRÉE SOPHIA BLUMSTEIN
Solicitor General

KEVIN STEILING
Deputy Attorney General

Requested by:
The Honorable Brian Kelsey
State Senator
7 Legislative Plaza
Nashville, TN 37243-0231

Footnote 1: "Other Post Employment Benefits" (OPEB) is an accounting term created by the Governmental Accounting Standards Board (GASB). OPEB are benefits, other than pensions, that U.S. state and local governments provide to their retired employees; they include principally health care benefits, but may also include life insurance, disability, legal, and other services. GASB Statement 75 (No. 350, June 2015) refers to OPEB as ongoing obligations that must be reported as a liability on the financial statements of the governmental entity subject to the obligations. Accordingly, this opinion assumes that OPEB obligations constitute indebtedness within the meaning of Tenn. Code Ann. § 49-2-1002(d).

Footnote 2: The transfer of school operations from the Memphis City Schools to the Shelby County Schools was the subject of a lawsuit and a subsequent consent decree agreed to by most of the parties to that suit. See e.g., Board of Education of Shelby County, Tennessee, et al. v. Memphis City Board of Education, et al., 2011 WL 3444059 (U.S.D.C., W.D. Tenn. August 8, 2011); 2013 WL 821172 (U.S.D.C., W.D. Tenn. March 5, 2013). We therefore note that this opinion addresses Tennessee law only, and does not address any provisions of the consent decree that may impact the question presented above.