Paying $1.7 billion pension debt will mean direct cost to you

Since the first day of discussion on how to reform Jacksonville’s pension system, the $1.7 billion dollar unfunded liability, or pension debt, was the cloud hanging over a final plan.

Now, on one of the final weeks where a special Retirement Reform Task Force is gathering to figure out their recommendations for changing the current system, the debt is the central focus.

And I’ve learned paying that down will almost definitely cost you.

I’ve obtained a spreadsheet put together at the request of the Task Force detailing five options to be considered for beginning to pay down the debt. The goal, generally speaking, is to create about $50 million in annually recurring funds which would be earmarked each year specifically for the unfunded liability, at least until the debt is 80% funded.

On Monday, the Task Force is set to review each of these options and put forward a recommendation to the City Council. Whatever they recommend would still have to be vetted by the Council and possibly other partnering agencies or departments before taking effect.

1) JEA funding

This plan has become increasingly scrutinized in the month since the Mayor first proposed the idea. The Mayor’s team wants JEA to contribute an additional $40 million each year specifically toward the unfunded liability. JEA already pays about $200 million in to the pension system each year.

In exchange for the agreement, the Mayor says he would grant JEA’s longstanding request to create its own pension system. He believes this would save more than $500 million, and those savings could be applied toward this payment. His team also offered to partner with JEA to find other cost savings and efficiencies to make up the money.

The plan is currently under review by JEA. After the initial proposal about one month ago, JEA Board Chair Mike Hightower told WOKV any increased contribution would have to translate in to a rate hike for you. Since new details, including the independent pension option, were put forward, he has declined to comment directly on what this contribution could mean for you.

The Task Force has been hesitant to this point to commit to this plan without hearing more from JEA.

2) Ad Valorem Tax

The ad valorem tax, or property tax, is one that Jacksonville is familiar with, coming off a year when the property tax rate was hiked 14.4% by Jacksonville’s City Council to make up for declining property values, the growing pension budget, and city services which could not sustain another year of cuts.

The Task Force is entertaining another hike, with one mill estimated to generate $44,300,000.

3) Franchise Fee

According to the Council Auditor’s Office, the franchise fee is paid to the City of Jacksonville by JEA customers, with the utility collecting the bill. The fee itself is used to cover cost of the administrative oversight of JEA, the use of City right-of-ways, and for the exclusive right to serve electric, water and sewer customers.

The franchise fee right now is 3% of JEA’s revenues from electric, water and sewer. According to the Task Force spreadsheet, the fee could be doubled with the vote of 13 council members.

Raising the rate from 3% to 6% would bring in an additional $40,200,000.

4) Sales Tax

To better understand the sales tax option on the table, as interpreted by the Task Force Chair Bill Scheu, it needs to be considered in partnership with the ad valorem rate, because any increase in the sales tax would be required to be offset by a reduction in the property tax rate.

There can be a Fire and Rescue surtax created as part of the sales tax which would be used toward operations. A half cent surtax would bring in an estimated $68,000,000.

For the sales tax to effectively bring in the additional revenue, Scheu says an ad valorem increase would likely happen first. At that point, there would be a referendum for the voters to decide whether they wanted the sales tax.

If voters decided against the sales tax, the ad valorem increase would stay. If you favored the sales tax, it would take effect and the ad valorem rate would be decreased.

While there is still some legal review taking place, Scheu is confident in the ability of the Task Force to use this recommendation.

5) General Fund Budget Cuts

While a cut to the city’s billion dollar budget would not immediately impact your taxes or fees, it has a potential to resonate in city services. During lengthy budget negotiations this year, City Council raised the tax rate because many of the proposed cuts and lapses put in the budget for city departments were considered too deep to bear, especially considering cuts that have come in years leading to this point.

A 4-5% cut would be needed to generate the $40-50 million sought.

6) Other options

There are still other options not listed on this spreadsheet that could be discussed, however the support is not as strong. One example is selling some of the city’s underutilized or vacant property, and using that money to pay down the unfunded liability. This would be one-time money, however, and not recurring funds which the Task Force favors.

Big Picture

There is still another meeting on the calendar for the Task Force, which was initially supposed to have completed its review by February 12^th. These most recent meetings, however, have included some of the most significant actions- like a recommendation on benefits cuts for new and current employees.

Once their recommendation on the unfunded liability is finalized, the Task Force will issue its full report compiling recommendations they have made on different portions of the pension system along the way.  Scheu is confident some of their recommendations, including this debt funding question, will be acted on by the upcoming budget debate. Some recommendations, like benefits, are subject to collective bargaining.

I will be at Monday’s meeting bringing you instant updates on Twitter (@NewsAndNom) on the latest recommendations, and what it will mean for your wallet.