A Burden That Could Lead to Bankruptcy
A longtime watchdog of the Police & Fire Pension Fund shares his recommendations for what the city of Jacksonville should do next about retirement reform
I am relieved that Mayor Alvin Brown's retirement reform proposal was rejected by the Jacksonville City Council. It was financially inadequate, and the product of illegal, secret negotiations.
In May, the mayor announced his retirement reform proposal, developed after the mayor's staff, the police and firefighter unions and the Police & Fire Pension Fund (PFPF) collectively bargained, in secret, for two months.
This bargaining was conducted in secret because the Jacksonville Association of Firefighters (JAFF), which is a labor union, funded a lawsuit by its president, Randy Wyse, which started in February. But even before the suit was filed, the city and the PFPF, plus the JAFF, made plans to use this lawsuit as a means to settle disputes concerning retirement benefits, and collectively bargain retirement benefits in secret, under the guise of mediating (settling) the lawsuit. The public and the media were not informed of the location of these bargaining sessions (they were mostly in Gainesville) and were not allowed to attend.
Yet, state law (the Sunshine Law) requires that collective bargaining between governmental entities and public employee unions occur in meetings open to the public, and the city generally followed state law for many years. I had attended one such bargaining session as an interested member of the public. Most attendees were public employees.
Why should taxpayers care? First, secrecy in government is bad news. The public and the media need to be able to see what deals are made, how and by whom. Otherwise, who knows what corruption and side deals occurred? Seeing the result is not enough. Second, pension costs will exceed 20 percent of Jacksonville's general fund budget next year. That is, more than 20 percent of what the average taxpayer pays will go to local retired public employees, and thus taxpayers will not obtain any services regarding those payments.
Yet Jacksonville is not alone in its problems. One of the biggest problems in American government is that states and localities have permitted many public employees to retire in their 40s and 50s (and sometimes late 30s), and collect lifetime, escalating pensions. For example, the average police officer and firefighter in Jacksonville has retired at age 49 historically, and the current average retiree pension of such people exceeds $54,000 per year. This far exceeds the average wage in Jacksonville.
The mayor's retirement reform proposal would have slowly increased the average retirement age to about 52 (but for new hires only), and would have slightly slowed increases in average pension levels, for new hires only. But PFPF retirees would still continue to receive escalating pensions for 30-plus years, as they do now. Many would receive $2 million or more in public funds while retired — many already do now. One such retiree is a convicted child molester, who committed his crimes while employed as a Jacksonville Sheriff's Office police officer. The PFPF will pay his pension, which will total about $2 million while he's in jail.
Such continuing burdens could ultimately lead to bankruptcy.
In other words, the mayor's retirement reform would only modestly dent our problems, and Jacksonville's terrible financial statistics would linger for a generation or more. The unfunded liability associated with public employee pensions would remain at about $2.5 billion, or about $3,000 per city resident.
Here are my suggestions for what the city should do next:
1. Do not continue to bargain secretly with union officials and John Keane (the retired firefighter who runs the PFPF, whose compensation package approximates $500,000 per year). Bargain publicly with union officials instead, and require that retirement reform affect all employees, including active employees, going forward.
2. Stop being so nice to people who harm the city. Take all steps necessary to fire Keane — courts and ethics officials have repeatedly found that the PFPF violated the law, and Keane has run the PFPF for more than 20 years. Also, sue Keane and the PFPF for instituting an illegal pension plan that personally benefits Keane to the tune of more than $2 million (present value). This plan uses PFPF assets. The city itself had deemed this special pension illegal, but was willing to forget about such misconduct as part of those secret negotiations, to grease the wheels of retirement reform. This is cynical and disturbing.
3. Pursue the city's other claims about breaches of fiduciary duty on the part of PFPF officials. Try to clean house at the PFPF.
4. Given her flip-flops, contempt for the law, cynicism and many errors, fire General Counsel Cindy Laquidara, or at least vote no confidence in her. The City Council should protect its institutional interests. A weak and pliant legislature leads to bad government.
5. Fire PFPF trustees Walter Bussells and Adam Herbert, who hold these jobs because the City Council appointed them. I've made many efforts to inform them of the many scandals associated with PFPF, and they have neither inquired further, nor accepted my requests to start a dialog. Why? Perhaps because they're retirees from government positions receiving large pensions. In Bussells' case, his public pension (thanks to his JEA service) is almost $250,000 a year. Such conflicts of interest with the interests of taxpayers and, indeed, with the interests of most PFPF members, means that their judgments are distorted, their loyalties in question. Replace them with tough-minded people with private sector backgrounds. (The fact that Bussells and Herbert went along with denying people the right to speak at meetings of the PFPF board of trustees speaks volumes about their values, and their contempt for the public.)
6. Demand that the PFPF revert to using the 7.75 percent assumed (expected) rate of return. The PFPF, like most pension plans, has earned more than this threshold over the last 30 years. Keeping this assumption will save taxpayers about $21 million a year, beginning fiscal 2014. The agreement between the city and PFPF has a "dueling actuaries" type of provision, permitting the city to hire its own actuary to justify the 7.75 percent, and then, if the PFPF will not yield, bounce the decision to a third actuary. Since the Florida Retirement System has used 7.75 percent for many years, and since the average assumed (expected) rate of return used in Florida for public pensions is about 7.7 percent, the PFPF should ultimately lose, if the city forces the issue. What's the harm in trying, if $21 million a year in extra taxpayer costs is at stake?
7. Demand that the City Council auditor institute a forensic audit of the PFPF, focused on expenses and investments. PFPF's expenses are excessive, and not solely due to Keane's overcompensation. I compared PFPF's expenses with those of Tampa's similar pension fund, using data they filed with the state. The Tampa fund has 45 percent more assets than PFPF has, but its annual administrative costs (investment fees, employee salaries and the like) are only 61 percent of those of the PFPF. In other words, per dollar in assets, PFPF is more than twice as costly to run. This, plus surveys, show that the PFPF's cost structure is horribly out of whack, costing taxpayers around $4 million per year. A forensic audit is needed. Look behind the invoices. Look also at PFPF travel expenses — they're too excessive.
8. If the labor unions refuse to collectively bargain in public, look into imposition of terms via the impasse process.
9. Announce massive layoffs, focused on senior levels if possible, coupled with as much outsourcing as possible, to pressure the unions and those who support them (i.e., the sheriff) to make serious concessions.
10. The city need not collectively bargain respecting non-union employees of the JSO and Jacksonville Fire & Rescue Department. Impose reduced benefits for those employees going forward now.
In short, the city should act like a company whose survival is at stake. The city should fight hard for those who deserve its primary loyalty — taxpayers. o
Lee is a retired attorney and a former finance manager who managed a corporate pension plan and 401(k) plans. He's also a director and vice president of Concerned Taxpayers of Duval County. He lives in Jacksonville.