Jacksonville is considered the poster child for bad city pension systems, but a reticent police union chief and confusion over who should negotiate with the city is making it difficult for Mayor Alvin Brown to make any quick sweeping changes to a system he claims is not sustainable.
“We have to get real and solve these problems if we want to ensure financial sustainability for our city,” Brown said in October when he unveiled his proposal in a series of meetings with the city’s 6,600 union employees.
Jacksonville’s investment in the pension fund has grown from about $10 million in 2003, to $76 million last year, to $121 million this year.
Because the union refuses to talk with Brown’s negotiators, the city on Nov. 19 notified the Florida Public Employees Relations Commission that it is declaring an impasse and asking that a special magistrate be appointed to hear the issues and recommend a non-binding resolution. If either side disagrees with the ruling, the issue will go to the Jacksonville City Council, which can impose a program for one year.
Chris Hand, the mayor’s chief of staff, said it could take months for that process to work its course, but he added the city is willing to resume talks with the Fraternal Order of Police at any time.
“I greatly respect our brave public safety officers and the important work they do for our community. In this period of financial challenge, our current retirement system is no longer sustainable. It is broken and we have to fix it so we can protect long-term economic security of public safety employees while also protecting taxpayers,” the mayor said in an Oct. 29 statement releasing the plan, which he estimates to save the city $2.5 billion over the next 30 years.
A key issue is the assertion by Fraternal Order of Police President Nelson Cuba that the city should negotiate with the Police and Fire Pension Fund, a city board that handles investment of retirement dollars. The city argues it should hold its talk with the union, which is the bargaining agent for police and firefighters.
“We are confident in our legal position. Florida law is clear: Retirement benefits are a mandatory subject of collective bargaining,” Hand said.
“Judicial decisions hold that retirement benefits are a mandatory subject of collective bargaining with unions,” the city said in a PowerPoint slide on the plan.
While the impasse continues with the police union, Hand said negotiations with other city unions are scheduled this month.
Both the city and FOP believe their positions are correct.
Brown has called the city’s rising retirement costs Jacksonville’s “fiscal cliff,” while fiery police union president Cuba has characterized the mayor’s plan as “disgraceful” and “a slap in the face” to police officers.
“He [Brown] chooses to ignore it for 18 months and now he starts screaming, ‘The sky is falling! The sky is falling!’ ” Cuba said.
A key component of Brown’s plan would address the chronic underfunding of pension benefits by making the assumed rate of return 6.5 percent, rather than the current 7.75 percent, which pension fund advisers say is more realistic.
Brown is also proposing benefit changes that would apply to all new employees and some current employees. His proposals will not affect any retired city of Jacksonville employees or current employees eligible for full retirement.
It will not affect retirement benefits already earned by any current employees through the date the plan is implemented, although it will modify future benefits they earn after the new plan is implemented.
The proposal eliminates the cost-of-living increases and drops the maximum pension from 80 percent of the average salary in the last two years to 50 percent of the five-year average.
The proposal calls for officers to work 27 years instead of 20 before collecting pensions and raises police contributions to their own pensions from 7 to 14 percent per paycheck. Employees would not be able to begin collecting their pensions until age 60.
Florida State University professor David Matkin, lead author of a LeRoy Collins Institute study on Florida pensions, said he couldn’t comment on the mayor’s proposal “without knowing a lot more about the dynamics within Jacksonville.”
“These are bold changes and will certainly improve the financial condition of the pension plan,” Matkin said.
According to the Collins study, county pension contributions statewide averaged more than $21 million a year in fiscal year 2009, up sharply from $12 million about six years earlier. It determined that counties were investing only 40 percent of what they need and large cities were contributing only 31 percent.
“It’s worrisome that neither cities nor counties are investing much money to fund the promises they made to their retiring employees,” Matkin said.
At an Oct. 31 meeting with the city, Cuba read a statement saying, “If we’re blessed enough to make it through this career, and then survive, then we were hoping that the community, this city, would keep their promise to us and give us what we’ve earned. It’s not a handout, we’re not welfare recipients. We’ve worked for this, we’ve earned it, and in my opinion, we deserve everything we get.”
Cuba, in a letter addressed to the mayor’s office, called for the city to take the pension negotiations to the Police and Fire Pension Fund and not the Fraternal Order of Police.
At the Oct. 31 meeting, Cuba said, “I’m not going to talk about it. I’m done talking. Take it to the courts.”
John Keane, executive director of the Police and Fire Pension Fund, said Jacksonville has a long-standing, court-ordered settlement agreement requiring the city to negotiate pensions with the fund.
This fall, he offered to work with the city and help resolve some of the issues.
In an Oct. 12 letter to Keane, Chief Financial Officer Ronnie Belton wrote, “Our position is that the PFPF is responsible for managing the funds — not negotiating benefits.”
Keane said his board and the city reached a settlement over pension benefits in the early 1990s and it remains in effect until Sept. 30, 2030.
It has been amended nine times under the administrations of Ed Austin, John Delaney and John Peyton, Keane said.
Jacksonville’s Police and Fire Pension Fund was given a grade of “F” by FSU’s LeRoy Collins Institute, which studied 208 defined pension plans in Florida’s largest 100 cities. The LeRoy Collins Institute describes itself as an independent, nonpartisan, nonprofit organization, which studies and promotes creative solutions to key private and public issues facing the people of Florida and the nation.
Cities received an “F” grade when they funded less than 60 percent of their pension funds.
The study determined that the Police and Fire Pension Fund was only 48.8 percent funded, while the city of Jacksonville retirement plan was 47.7 percent funded.
“These plans require significant attention and are likely to be unsustainable without significant cost increases to taxpayers,” the study said.
Other cities receiving an “F” grade in the study include Cooper City, Hollywood, Miami, Miramar, Fort Myers, Homestead, Ocala, Palm Beach Gardens, Panama City, Parkland, Plant City, Port Orange, Tamarac, Temple Terrance, Venice and Winter Haven.
An “A” grade indicates that a city’s pension plan appears to be well-funded and sustainable. Two “A” cities, Gainesville and Palm Bay, have issued pension obligation bonds to fund a portion of their pension funds.
Hand said the mayor rejected bond funding of the pension plan because he did not want to borrow money to fix the problem.
Jacksonville Beach fared somewhat better with its general retirement plan, receiving a “B” grade; its police officers pension received a “C.”
Fernandina Beach is also concerned with its growing unfunded pension liability of $22.8 million. Edward Stull, the city’s financial adviser and managing director of FirstSouthwest of Orlando, told city commissioners on Nov. 7 that because of less than favorable investments, the city’s total required contribution to the pension fund has been increasing.
Commissioners agreed to send out a request for proposals for an actuary and to hire public finance law firm Bryant, Miller & Olive of Tallahassee to address the issue.
In JCCI studies in 1977, 1992 and again in 1999, underfunding of Jacksonville’s pension funds was listed as a serious problem.
Incoming Florida House Speaker Will Weatherford said one of his goals is to eliminate guaranteed pension benefits for newly hired state employees and place all of them in the state’s defined contribution plan, which is currently optional. The plan is similar to a 401k plan.
“The idea of a defined benefit plan is old and archaic, and we need to do what the private sector has done many years ago, which is moving to a defined contribution plan,” Weatherford said at a Nov. 13 news conference.
The defined benefit Florida Retirement System is rated among the strongest in the nation, with an estimated balance of $125.1 billion. An October report from state economists said it was funded at 86.9 percent.
“It’s a ticking time bomb in every state and in every city across the country,” Weatherford said.