Jacksonville, FL - The newest batch of pension reform proposals is coming out of the City of Jacksonville and Police and Fire Pension Fund in what is set to be two weeks of quick moving negotiations.
Much of Jacksonville’s newest proposal mimics a recommendation from the specially appointed Retirement Reform Task Force, which issued a report in March. That includes a change in benefit payouts for new and current employees, changes in how the Fund is governed and additional money designated to pay down the more than $1.6 billion pension debt. The Police and Fire Pension Fund is countering with a proposal piece-by-piece, focusing to this point on governance issues.
Per an agreement reached between the bargaining parties, this is the first time these proposals have been discussed. All discussion and presentations are now taking place in public meetings.
Today’s two-part session began with optimism that some issues, including new employee benefits and Fund governance could be quickly settled. The only point which had a definitive conclusion, however, was that none of the changes being discussed would affect current retirees. In fact toward the end of today’s negotiations, moderator and former State Attorney Rod Smith told all sides they needed to think long and hard about what they are willing to compromise on so that these meetings don’t just turn in to reading proposal after proposal.
Including the two meetings today, there are a total of nine meetings scheduled through next Thursday, and Smith made it clear that those are the only sessions he hopes to schedule. To achieve that, he gave “homework” today by telling those involved that he has three goals for Thursday’s meetings which they need to come prepared to discuss. He aims to first settle new employee benefits, second settle a package of governance issues, and third begin to discuss current employees.
One piece of the deal which has not yet been disclosed is how the City aims to pay down the pension debt. While the City’s proposal conditionally agrees that additional payments need to be made, there is no mention of a source for the money. The Task Force tapped a new sales tax for the payment, but when I asked the Mayor if that is a revenue stream under consideration he said only that the payments are important and they will determine a source after some of the other bargaining issues are decided.
The Mayor’s budget proposal comes out in just over two months, and City Council must approve a budget before October 1. If reform is not achieved by then, the City estimates the payout to the police and fire pension alone will total around $154 million.
City of Jacksonville Proposal:
The City and Fund had previously agreed on changes for incoming employees which included increasing employee contribution to 10% from 7%, capping benefits and COLA, eliminating DROP and increasing the retirement age to 30 from 20. These changes were endorsed by the Task Force.
The City, in turn, has put this forward, but for a limited time frame lasting October 1, 2014 through September 30, 2017. Future changes would be collectively bargained with the Jacksonville Association of Fire Fighters and the Fraternal Order of Police, under this proposal.
Fund Executive Director John Keane has concerns about the short duration of this portion of the agreement. The unions also maintain they are not the body that should be collectively bargaining, but rather the Fund is. There is still litigation pending on the question of who should sit at the table.
The City also chose to side with the Task Force recommendation on changes to current employees. These changes would not affect benefits accrued up to the implementation date, October 1, 2014.
The biggest changes include four parts. First, COLA is capped at 1.5% instead of 3% and starts the 3rd January after retirement instead of as early as three months after retirement. Second, DROP would reflect an actual rate of return between zero and ten percent, rather than being guarantees at 8.4%. Third, final average compensation would base on the last 60 months of employment rather than the last 24.
The fourth change, however, to employee contribution, is one of the main sticking points for Keane. The proposal would immediately increase contribution to 8% from 7%, and increase again to 10% once pay cuts to the departments from the past few years have been restored. Keane says current employees should not see any increased contribution until after the cuts are restored.
This portion of the proposal includes the same defined timeline and future collective bargaining provisions as future employees.
Some of the governance proposals put forward by the Task Force are already being worked on by the Fund. Keane says they are actively interviewing for members of a Financial and Investment Advisory Committee, as an example. The other recommendations included in the Task Force recommendation and, subsequently put forward by the city, include mandating financial disclosures from various PFPF employees, criteria for the next executive director and board members, and annual actuarial assessments and financial statements.
The unfunded liability, or pension debt, currently stands at more than $1.6 billion. The Task Force made it a priority to look at accelerating the rate at which Jacksonville is paying that down. In addition to the legally required contribution, the Task Force favored paying an additional $40-60 million toward the debt until it’s 80% funded. They favored a half-cent sales tax on you in order to make that payment.
The City agrees, conditionally, in the need to pay down the debt. Today’s proposal says if all other proposals are agreed upon and the Fun agrees to dedicate half of the $9 million in “chapter funds” it receives annually from the state, then it would support the additional payments. Keane does not, however, support redirecting the chapter funds which he says are already used for benefits.
The City further would not comment on how to get the money for the additional payments. Brown had initially favored a $40 million annual contribution from JEA, although the Authority is still reviewing what that would mean for ratepayers. Brown has not said directly whether he will support the Task Force’s sales tax plan, only saying that he is reviewing all options. He tells me he would be comfortable making a commitment to make the payment ahead of deciding where the money itself would come from.
Police and Fire Pension Fund Proposal:
Keane outlined several proposals today rather than an entire “plan”. He opted to withhold several of the proposals until these get settled, saying he prefers to dedicate time to reviewing a few proposals at a time. Not offering a counter-proposal to this point is not a sign of his support for the City’s proposal.
Keane has signaled his support for the proposed changes for new employees which were previously agreed on with one exception. “Eleventh Hour” bargaining on the last deal resulted in an early retirement penalty formula which Keane does not agree with.
Under the formula, new employees would be able to retire at 25 years of service instead of 30 with a penalty. That penalty begins at only 75% payout and docks 2.5% off for each year early as well as a 3% penalty for each year early, under the current proposal from the City. As an example, an employee retiring with 28 years would be 75%-2.5%(2)-3%(2)=64%. Keane believes the initial docking should be 2% and there should be no penalty, so a 28 year retiree would be 75%-2%(2)=71%. He is willing to compromise at 2.5% docked, but not content with an additional penalty.
The City maintains the penalty is necessary in order to dis-incentivize early retirement and, therefore, create more stability on the force.
The remaining four proposals offered by Keane today deal with PFPF governance.
On the Advisory Committee, he has no support for any wording granting the committee oversight in to actuarial projections. He says because those are handled at the state level, the committee would have no ability to directly impact them and therefore become in conflict with the PFPF Board. He says they are already interviewing for experts with finance and investment expertise, but does not believe that needs to extend specifically to actuarials. The City is concerned the definition offered by Keane is not broad enough to provide the level of oversight intended by the Task Force.
The second and third proposals fell more in line with how things are now or are recommended to be, although small differences remain. The second dealt with ethics and disclosure requirements which Keane says are already made- so the City wants to see it codified. The third covers the ability of the Fund to consult with the Office of the General Counsel. While that has happened more recently, General Counsel Cindy Laquidara is now working on a letter to more specifically define how the agencies can and should work together.
The fourth proposal is considered an area of no compromise for Keane, changing how the fifth member of the Police and Fire Pension Fund Board is appointed. The Mayor’s proposal (described above) would allow the Mayor to appoint the fifth member, who would then need City Council confirmation. Keane instead propose that the Board stay as is, with the fifth member chosen by the first four members. The concern here is the perception- and possibility- that having a third voice on the board from the “City” could sway the members away from the interest of the Fund members. Keane also believes there would need to be a change in the law in order to change the board structure, although the City believes a recent legal opinion from the General Counsel could open the door.