Jacksonville, FL (April 24, 2017) In a special session of the Jacksonville City Council, thirteen Pension Reform Bills 2017-246, 247, 248, 249, 250, 251, 252, 253, 254, 255, 256, 258 and 259 were passed by City Council in a unanimous vote for all. This historic event was capped off on May 25 with a formal signing of these bills by Mayor Curry surrounded by council members in a ceremony marking this very special occasion.
City pensions, the ever-growing $2.85 Billion burden that threatens to devour the city’s general fund, has been restrained. But doing so places the funding responsibility on today’s young people and those yet to be born, by shifting the burden to future years.
Legislation began with Mayor Lenny Curry convincing the State Legislature to allow for an extension of the current ½ penny sales tax for the Better Jacksonville Plan (BJP) set to expire in 2030. Upon that approval by the State legislators the next hurdle was to have a referendum passed by the Duval County voters as to allowing the BJP Sales Tax to be converted to the Pension Sales Tax. This referendum was held on August 30, 2016 and was successful by a margin of 65% agreeing to this change. As if those two steps were not difficult enough, now the process turned to the city’s three pension plans and the 9 unions that represented those employees. What had to happen next was to engage in negotiations to close the existing pension plans and move new employees to traditional 401(k) plans. During these negotiations, pay and benefits were also on the table looking for a 3 year deal that everyone could agree. In February, the police union voted to accept the agreement and within a month, most all of the 9 unions were on board, including the fire fighters union who took their final vote in mid-March. Now, the only part of the process left was City Council approval.
Cities throughout the nation are facing similar pension problems. Dallas, one of the country’s most prosperous cities, finds its Police and Fire pensions to be underfunded by $5 billion. This compares to the $1.65 billion Jacksonville needs to fully fund its Police and Fire pension.
Why such massive debt? Several reasons according to columnist George Will who wrote last February that pensions face longer life expectancies of pensioners, slow economic growth, low interest rates drastically lowering bond yields (which traditionally fund pension accounts) and unrealistic return rates. Some might also argue that benefits provided over the years have been generous and made retroactive contributing to part of the problem.
Jacksonville’s problems began during the boom time of 2000. The city continued to lower property taxes and made up for the shortfall by utilizing reserves meant for investing in pensions. Came the recession of 2008, property values fell, reducing tax revenue, then the expansion of the homestead exemption doubling to $50,000 and were Jacksonville was already one of the lowest mileage rates in the state, revenues to fund the city’s budget could not handle the escalating costs that pensions were placing on our budgets.
Jacksonville set a plan to reduce its pension costs in the present and has passed much of the expense on to future generations, unfortunately. Unlike past administrations’ proposals, Mayor Curry’s plan has a dedicated funding source. The problem is it can’t be tapped until 2031. In 2000, the voters approved the $2.2 billion Better Jacksonville capital improvement plan by passing a half-cent sales tax. That tax was set to expire in 2030. Voters were asked in 2016 to extend the tax and dedicate future year’s revenue to help fund the pensions.
The city will continue to make pension contributions in the years preceding 2031, but knowing there is a windfall to be had in 2031, the amount the city will pay until then will be much less than if the pension plan had failed. For example, the Segal Accounting Firm told the Florida Times-Union that instead of contributing $108 million to the General Employee Fund next year, that number is now closer to $70 million. The same goes for the Corrections Officer Retirement Plan that was set to cost $21 million next year, now will draw $14 million. The biggest savings from the most expensive group, The Police and Fire Pension Fund, is set to cost $220 million next year, but with the reform will now draw $137 million. In all, total payments without reform were $349 million and with pension reform that total is now $221 million.
The savings of what was paid last year of $290 million vs the new reform amount of $221 million, nets a savings of $69 million in the upcoming FY 2017-18. That savings is affected by three other adjustments; 1) the cost of payroll and benefits (minus) for the new agreements, 2) the inclusion of JEA’s pension plan which results in a transfer of $12 million (minus) going to the JEA and 3) the inclusion of $20 million (additional) for 3 years from the PFPF Reserve Fund ($60 million total) thru previous charter fund contributions with a new net total costs of ($71) million thru 2020-21 with the difference to be paid by the General Fund Growth of Revenue.
The result of these reforms has allowed the city to lower its annual pension obligations, with some savings going for city employee raises and benefits, while the remainder will be set aside for any miscalculations. The extended benefits of this reform will allow for increased revenues for future years to available, to be spent on other needed city services, easing future budgeting and reducing the likelihood of the need for an ad valorem tax increase.
However, anyone with a credit card can understand the downside of this plan. It is as if we are making only the minimum payments on a very large credit balance and allowing that debt to accrue interest that will build over time. The end result is that we will pay much more interest, costing us more money in the long run. Compare Jacksonville to an individual who knows he/she has an inheritance coming, and continues to spend on their credit cards while waiting for the rich uncle to die. The money is there in the future but unfortunately it can’t be used now.
Another important part of controlling pension costs is that the legislation cuts off new members on September 30 of this year to any new Pension benefits. Come October 1, new employees will be required to join a 401(k) style retirement system, instead.