“Pension Tensions”


As city employees in other divisions are preparing to purge each other, to bring budgets into balance, law enforcement faces potential changes that will directly affect the futures of hundreds of cops up and down the chain of command. At issue: a pension fund that, like the retirement savings of almost every single American, is severely imperiled by the unfolding collapse of the global economy. A leader whose run began at odds with core constituents, who openly defied the judiciary over a courthouse that may very well never be built, is ending his run at odds with a police union whose support was arguably the tipping-point for his victory in 2003.

As part of John Peyton’s plan to balance the budget for FY 2010, and to create more freedom to deal with the uncertain immediate future, Peyton has proposed significant changes to the structure of the Police and Fire Pension Fund, which maintains a place of relative privilege compared to other civil servants reflecting the dangerous nature of the year. Peyton proposes to raise the minimum eligibility requirement for a full payout from 20 years to 25. While 25 years is still five less than the 30 required for other employees to cash out, this change alone directly affects the immediate future for hundreds of police that are currently edging closer to the 20-year mark. It is doubtful that many of them are willing to work an extra five years for money already promised them.

Further, Peyton proposes to eliminate the guaranteed 8.4% annual rate-of-return for those officers remaining on the job. Such guarantees ring false in these uncertain times, but in the previous era they acted as a common enticement to draw the savings of American workers into what were essentially Ponzi schemes run through the major brokerage houses, who routinely broke the law to ensure such return. The idea of Peyton canceling a guarantee that was never realistic to begin with may strike some as the epitome of tough fiscal conservatism, but for the prospective pensioners he is all but admitting that they will be lucky to see any return on their investments at all.

The Police and Fire pensions are a single entity, yet JFRD officials have been meek on the subject by contrast. Maybe it’s because the police have driven public discussion on the subject, or maybe because the department is stuck, typically, in a litigious mess with overtly racial overtones, and can barely muster the political stroke to keep certain firehouses operational, never mind the pensioneering. Maybe they choose to left the higher-profile FOP do the heavy lifting, while JFRD makes the public safety arguments in seeking to stop the proposed closure of some fire houses.

Given that no cop can predict when or if injury could end his or her career and force them to rely on their pension to ensure their family’s security, they must wonder if anything will be there for them. This sends a bad message to younger cops, who will have to watch loyal veterans getting shortchanged through no fault of their own. It remains unclear how the fund can continue to grow, with the markets in the tank and the city underfunding it even during years of peak growth. For a police force whose vulnerability to corruption is a matter of public record, the rhetoric employed by both Peyton and Cuba may be sowing seeds of disaster to be reaped by the next generation.

Weeks before Peyton had unveiled his budget proposal, the Jacksonville Community Council, Inc. had released Our Money, Our City: Financing Jacksonville’s Future, the 68th report in its 34 years highlighting major long-term issues the city has had dealt with in the consolidated era. JCCI could be regarded as our equivalent of the Council of Foreign Relations, an all-encompassing think-tank of sorts that counts almost all of the city’s major players in politics, media and business. As such, these reports collectively are an indispensable resource, worthy of anthology treatment.

The new study goes right to the problem: revenue from property taxes has dropped, and the declining market means less income into the privatized pension funds, which have been underfunded even during periods of peak economic growth. The pension plans of city employees are administered in two independent categories: General Employees and Corrections Officers, and Police and Fire. All are currently underfunded; the latter was never fully funded, while the former has not been since 2000.

Neither the COJ nor its employees pay into Social Security, so the pension funds are their only source of retirement income, although the city pays Medicare taxes on employees hired after 1986. Employees contribute 7%-8% of their salaries (Police and Fire receive another 4% from “Chapter Fund Contributions” derived from fees on property casualty insurance); the accumulated cash is invested, and any returns revert to the funds. The retired employee can receive up to 80% of their salary; the low end is determined through calculating years of service, average monthly salary, and an annual accrual rate. Police and Fire is a little simpler: 60% of the average salary earned in the two years prior to retirement. The City is required to contribute any extra money needed to ensure retirees receive their promised benefits, which vary by person.

Herein lies the rub. During the years of significant market growth, the profits on pension investments exceeded calculations, and the city didn’t pay into the fund at the levels they needed to. The city’s contribution to the General Employees plan has been roughly halved in 15 years, from 22% to 10.4%, although from 1997-2006 the percentage hovered between 10.6% and 3.1%; it paid in nothing from 2001-2003. However, its contribution to the Police and Fire plan has grown by a factor of ten, from 3.5% to 32.1%. Unfunded liabilities only continued to grow, especially in the Police and Fire plan.

When the market tanked, obliterating hopes for future profits, the city still had less than was needed to meet the predetermined level of support. The result is a fund that has always been underfunded. Although the General Employees fund did run at or near parity from 1997-2002, the Police and Fire fund was underfunded by 10% in 1995 and at 13% in 2000. The gap has only expanded since. As of 2008, the General Employees Pension Fund was only funded at 82% of its current obligations, while the Police and Fire Pension Fund was funded at a shocking 49.1%.

In other words, the fund contains about half as much money as it should, and no one offers any guarantee that such a massive gap can be closed. What this means, exactly, for the next wave of retirees (and remember, the Baby Boomers have reached retirement age) is a matter under discussion right now, at the highest levels. Jacksonville currently lags behind other major Florida cities, which are generally funded at the acceptable levels that our was a decade ago; notwithstanding the likelihood of similar problems headed their way, this will make it harder to compete for the cream of recruitment talent—in Miami, for example, their Police and Fire fund enjoys a 7% surplus!

This is the third time JCCI has weighed in on the subject of the Police and Fire Pension Fund alone; previous recommendations from reports issued in 1977 and 1992 were only sparingly adopted, despite the establishment consensus implied by them. At least one ranking JCCI member expressed frustration: “All of those things have been highlighted before … We should not be facing such severe challenges as we are now.” He hopes that JCCI will not be revisiting the subject again in 2024, but it’s more likely that JCCI won’t exist at all by then. Officials have been busy meeting to discuss how to deal with possibly losing all city funding. 30% of the staff has already been cut, and those remaining face pay cuts and a freeze on any raises. That is their thanks for warning us.

Like many other agencies, JCCI has relied on the City of Jacksonville for much of its financial support. While it is run as an independent non-profit, JCCI received as much as 70% of its funding through its two primary contributors—COJ and the United Way of Northeast Florida—with 30% coming from other sources. That ratio has been inverted in just two years. The United Way is cutting funding another 25%, while much of COJ’s contribution has already been cut. The city continues to provide funding for the studies dealing with Race Relations and overall Quality of Life indicators, but the latter is set to be cut by 40%; without the tax increases, all city funding could end. JCCI thus spends its 35th anniversary fighting for its own survival. 

This is what happens when you betray your leaders. The union backed Peyton against a sitting sheriff, Nat Glover, a longtime JSO veteran who understood the needs of his cops better than anyone running that year. When he lost the endorsement of his own peers, to someone who had no public profile just a few months earlier, it sent a message to voters that Glover had serious deficiencies as a leader, so severe that the cops didn’t back him even though a Glover victory would have essentially handed control of the city to JSO. Any issues with the pension fund would have probably been better addressed by Glover, whose financial interest is obvious (to the tune of $89,000 a year).

In bowing to petty politics, the union behaved in a way more typical of the Mob, where people are killed by their best friends and today’s boss is tomorrow’s bullet-bait. For whatever flaws he may have, John Peyton is not Michael Corleone. The offer he made to the union could have been refused, but it wasn’t, and like most politicians who induced acts of abject treachery from a rival’s supporters, he double-crossed them. It should have been clear in 2003 was that the entire nation was on the verge of fiscal calamity, and that anyone promising rates-of-return higher than the already-crippled market was probably lying, or just irrationally exuberant. Remember, we’re talking about professional bullshit detectors, here, not the kind of rubes who sign papers without reading them. How could they be moved to act so starkly against their own interests?

JSO bears the burden for a generation of poor social policy and a decade of economic recklessness practiced in the name of perpetual growth. While the incidents of corruption and excessive force have been exhaustively documented by local media, their appears to be an imprecise understanding of their role. JSO is not responsible for creating vast unknown hordes of well-armed, wilding teens and ‘tweens. It’s not their fault the school system sucks. nor their fault that this city was designed precisely to preclude public transportation as a practical choice for the majority of citizens, thus yoking us all to America’s blood-feud with al-Qaeda—which, of course, is funded by our “allies” at OPEC. And above all else, JSO was not responsible for letting hundreds of violent felons out early, so they could go on to commit the majority of our city’s murders.

All of that is the fault of the civilian leadership, and of the citizens that resolutely failed to hold them to account. Now that it’s too late, and everyone’s dreams for a better life in a better city have been put on the chopping-block, the bonds between heels have dissolved, and the dirty tricks have begun—well, continued. Nelson Cuba, whose reign as president of the local Fraternal Order of Police has been dotted with controversy, called for all officers to boycott gas stations owned by Gate Petroleum, a company whose long association with the Peyton family is widely considered a crucial point for understanding Peyton’s rapid ascent and his subsequent performance as Mayor. Sheriff John Rutherford, whose own run has coincided with Peyton, immediately came out against that proposal, offering the briefest glimpse of longstanding internal dissent among officers.

The response from City Hall to the subtle pressures being exerted by FOP was immediate and decisive. By way of reinforcing the need for revising the plan, a list of the leading pension-takers in city government was released. The list included former Sheriffs and Fire Chiefs, as well as career functionaries in other agencies, some of whom are taking home six figures in annual income from their pension plan. It was like bringing a rocket launcher to a knife-fight, with similar levels of collateral damage, but effective nonetheless. As city departments are already being pressed to accommodate new rounds of budget cuts, which will necessarily entail eventual cuts in both base salaries and benefits, as well as layoffs, the result will be government that will be smaller, and vastly less effective.

The JSO rank-and-file disagreed about the boycott of Gate, long associated with the Peyton family, whose persistent police presence was an invaluable selling-point for late-night business. Over in Riverside, the Gate on Stockton St. is generally regarded as an unofficial police substation, and locals in distress have learned that Gate stations make effective safe-havens. In some parts of the city, Gate stations positioned near major intersections or highway ramps actually serve as informal staging-grounds for the DUI shakedowns that will be increasingly important to a city starving for revenue. As such, the boycott could potentially alter police procedure, with unknown results. Others argued that boycotts are beneath the dignity of a department that is supposedly “above politics”—the sort of self-definition common to cops nationwide, who need to maintain a semblance of objectivity as the political climate changes.

However, still other officers assert that, on a matter as important as their retirement, which are already dangerously underfunded and will soon be underfunded even more, the option of silence is not available. If the pension fund collapses, which is quite possible if this recession continues too far into the next decade, the consequences would be beyond catastrophic, not only for the police but for the citizens, whose only organized protection against crime would be dramatically undermined. The only winners in such a scenario would be this city’s ever-growing criminal class. 

It’s worth noting, at this point, that the problems facing city government now are not all their fault. The cuts to state property taxes constituting the core of Charlie Crist’s current legacy as Governor came into effect with FY 2008, as city and municipal governments moved to mitigate their effect in preparing their own budgets for that year. FY 2010 began for most states on July 1—although Jacksonville, like the federal government and private industry, begins FY 2010 on October 1, by which time states have begun to parse the data from their first fiscal quarter—and a report from the Center of Budget and Policy Priorities suggested that as many as a dozen American states were already in the red, before the year had even begun. Other reports from around the political spectrum imply the scope is closer to comprehensive.

For what it’s worth, Jacksonville is not alone. The Center on Budget and Policy Priorities (CBPP), whose report “State Budget Troubles Worsen” was released on June 29, paints a disturbing picture of the immediate future. For starters, Montana and North Dakota are the only states not projecting budget shortfalls for FY2010; the other 48 states’ shortfalls exceed $165 billion—nearly one-fourth of their budgets. “Even before the new fiscal year starts on July 1, new shortfalls of $23 billion have opened up in the adopted budgets of at least 12 states and the District of Columbia,” according to authors Elizabeth McNichol and Iris J. Lav. Worse, estimates from 29 states suggest shortfalls totaling between $38 billion and $180 billion, for fiscal year 2011.

Florida projects a shortfall of just under $6 billion—not even a tenth of California’s crazy $54 billion shortfall, but still 22.8% of our state’s budget. This is only slightly more than the $5.7 billion shortfall for FY2009; readers may recall the contortions needed to get last year’s budgets balanced. But last year’s budgets were mostly approved prior to the major economic meltdown, which started with bad housing numbers from last summer and then accelerated as the stock market collapsed in earnest on “Black Tuesday”, September 29. By the time FY2009 began, two days later, all Hell had broken loose, and any budgets not already facing shortfalls would face them shortly after.

The choices being faced by local leaders is so stark that Peyton has started his own website to walk citizens through the labyrinth of proposed changes. FixItNow.cc is his hedge against the uncertain reception his proposals have received—not only from long-standing sources of dissent, but from key political allies, as well. Peyton, whose personal discipline and work ethic has drawn praise from even hard-core apostates, has taken the offensive, placing the budget crisis in the context of larger developments and stating, implicitly, that nothing could have been done.

While the budget negotiations are technically a matter for the mayor and city council to reckon with alone, in reality the process plays out against a backdrop spanning over 700 square miles. Never are the citizens of Jacksonville so pervasive engaged as during the annual budget process; a cynic might argue that a more consistent, active engagement would have spared the people much of their pending pain. Peyton is prevented from term limits from running again, and has given every indication that his electoral career is over; his lame-duck status leaves him reasonably immune to the usual political pressures, while empowering him to make the kind of hard choices most chief executives would refrain from even suggesting in their first term.

Peyton, however, is not alone in this process. His budget proposals must be approved by a majority of the City Council—19 men and women with their own political agendas and their own constituents to serve. Among them are several who have either already decided to run for mayor in 2011 (though none have said so publicly, yet) or are considering it. As such, Peyton’s successor will almost certainly be voting on his budget proposals, and the nature of those votes will bear directly on a campaign that is now less than two years away. It’s impossible to say if, or how, that will influence the budget negotiations or the ultimate vote, but clearly Peyton intends to set the pace for these critical debates.

(Recall that, within a year of taking office, Peyton had already run afoul of supporters like JB Coxwell, and pension shortfalls were among the financial management issues raised in a PowerPoint presentation distributed among interested parties in 2004. For a while during his first term, Peyton was rumored to have been targeted for a challenge from within his own party in 2007. Ultimately, however, Mike Weinstein’s insurgent campaign failed to thrive, and whatever issues existed between the two were squashed—in public, at least—as Weinstein went on to a useful career in Tallahassee.)

While the FixItNow site exists ostensibly as a repository of Peytonesque talking points, it does his opposition some favors, as well. For example, while touting cost-cutting efforts by the Peyton administration (such as eliminating 400 COJ positions since 2006), it notes that “the Jacksonville Economic Development Commission – the job creation arm of the city – is half the size it was when Mayor Peyton took office in 2003.” Given the current state of job growth in Jacksonville, it was maybe not the best example. Peyton plans to cut another 100 city jobs, while departments will be asked to “trim” five percent off their operating budgets, while freezing all pay increases and experimenting with furloughs for some employees, which amounts to a pay cut. (These cuts apply only to “non-public safety” aspects of local government.) This, in addition to his promised “reform” of the pension plans.

Even if the entire proposal is approved verbatim, the city will still be $50 million short by current estimates, raising the specter of still-deeper cuts that go right to the fundamental functionality of the city. These could include: closing two fire stations, five libraries and ten community service centers; canceling the World of Nations and the Jacksonville Jazz Festival; closing the Ritz Theatre and LaVilla Museum, as well as the Equestrian Center and the Sexual Assault Response Center (truly beyond the pale); eliminating citywide recycling and many of the social and cultural programs we all take for granted, including “virtually all” children’s programs. For a mayor whose legacy is staked on a commitment to early childhood literacy, this must be a very bitter pill. En toto, this is the nightmare scenario; Jacksonville may never recover after such cuts take effect.

Peyton’s solution—tax hikes—is, at best, a stopgap measure that might provide enough revenue to keep the budget balanced. Evidence accumulating from around the country suggests, instead, that the collapsing global economy, and the states’ botched response to it, is driving down tax revenues faster than new tax increases can mitigate. With nearly half (46.7%) of the General Fund generated by property taxes, and the assessed value of all that property continuing to fall as jobs erode every day, there is very little chance that revenue from property taxes or sales taxes will rise to projected levels. Looming further in the horizon is the possibility that Jacksonville could lose the rights to host the Florida-Georgia Game, which would eliminate millions in revenue, as well as a major component of the city’s national image.

Raising taxes will enhance the COJ’s outlook, but at the potential expense of the private sector. For decades, a major selling-point for Jacksonville was that boasted much lower levels of taxation than the rest of Florida’s major cities. The danger here is of raising taxes to the level of Orlando, Tampa or Miami, without any corresponding uptick in the quality of life. Now is a time when we may really pay dearly for the inconsistent efforts of local leaders to build a solid cultural foundation, to say nothing of a quality education system, that could actually compete with these other cities for what is looking to be a significantly decreased number of tourists and relocating taxpayers.

If one cares to trace all of this back to the moment that the US housing market stalled out, in 2007, we are now in the third year of an economic recession that has only accelerated with time, and which defies prediction, even in the short-term. This is the context of these unfolding pension dramas. There is probably nothing that could have been done, in regard to fiscal policy, that would have prevented this situation; The issue is to what extent it could have been minimized. Depends on who you ask.


July 14, 2009

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s