For years, Florida’s municipal pension plans have been under scrutiny with numerous conflicting reports of unfunded pension liabilities. These conflicting reports, politicians, and media use chaotic histrionics to incite fear that cities will not generate enough revenue to cover the costs of public service; a complex subject but one of significant interest to the ultimate taxpayer, the resident.
Let’s take our humble little town of Boca Raton and our four pension plans demanding endless revenue streams. Since 2009, our “General Employees” Pension Plan has been graded an “A” due to a solid 95.72% funding as reported by the Leroy Collins Institute (LCI), a Tallahassee-based think tank. Of note, almost all cities general employee plans are well-funded pension plans with grades of an “A.”
The LCI study included pension plans for Florida’s 100 largest cities. Our Police and Fire plans received grades of “C” and were ranked 53rd among the largest cities. While the General Executives plan received a grade of “D” and at the bottom 30% of the state. Regrettably, the Boca Raton City Commission and City Manager all but ignored this 2011 independent report by taking zero action to remedy these failing pension plans.
Again in 2014, LCI conducted an updated statewide report on pension progress. The report concluded that while several issues from the 2009 study had been addressed at the collective bargaining table with some improvements being implemented, overall only limited concessions benefitted the public. In fact, the report clearly identified that all cities elected officials would need to earmark a larger share of municipal budgets to cover pension benefits.
The update covered Boca Raton’s plans for fiscal years 2012 and 2010. Below are the grade changes:
- General Employees A and A (no change since 2009)
- General Executives C and C (improvement from D)
- Police and Fire D and D (downgrade from a C)
The general executives’ pension plan improved from a “D” to a “C” directly attributable to remedying the funding shortfall. No surprise that top Boca Raton executive staff would ensure their pension plans were fully funded (especially now that the City Manager has announced his upcoming retirement). But staff and city commissioners ignored the police and fire pension issues which resulted in a “D”; a strong example of a management failure.
Finally, in April of 2015 when markets were low and the S&P 500 total return finished the year up a mere 1.38% the police and fire contracts were signed retroactively from October 1, 2014 thru September 30, 2017. At the time of signing, Mayor Susan Haynie touted the contracts were the “most meaningful pension reform” that has occurred in the history of the city. The contracts were projected to save approximately $93 million in combined pension obligations over the next 30 years.
Contract concessions were:
- 2% annual cost of living raise
- officers must contribute additional 1.2% or 11.5% toward their pensions
- retirees max at 77% of the average of their last three years pay before retirement
- 2% annual cost of living raise
- changes to pension plan to ensure plan is actuarially sound
- all pensions capped at $100,000 and capped at 90% of last three years pay before retirement (previously no caps)
Today’s pension plans invest not only in stocks, but also in uncorrelated assets such as alternative investments and let’s not forgot fixed income in the form of corporate bonds, treasuries, preferred stocks, etc. Alternative investment and equities comprise 60% of most pension investments. Fixed-income are low risk-low reward, equities offer more risk and opportunities for more rewards while alternative investments, which includes hedge funds, range from low-risk to high-risk with rates of return fluctuating widely.
Currently, markets are hitting new highs but predicting results based on the “stock” market would not provide any accurate outcome except by fluke. The shift towards riskier pension investments is a precarious practice and local governments would be wise to take the long view when it comes to pension investing.
The bottom line is: Boca Raton police and fire may be sitting on a ticking time bomb and may look for a citizen bailout in the not too distant future. An accommodating city council will only hasten that time frame. This is not time to play “kick the can.’
In preparing this article for publication, BocaWatch reached out to Councilman Jeremy Rodgers for comment. Councilman Rodgers, prior to being elected to the City Council held a seat on the City board overseeing pension issues. As of ‘press time’, Councilman Rodgers has not responded.
BocaWatch invites Councilman Rodgers to provide further insight into the state of the City’s pension plans and the circumstances in place to protect our residents, the ultimate taxpayer.