Mayor Alvin Brown and the city of Jacksonville negotiating team on Monday unveiled his pension reform proposal for police employees in a collective bargaining meeting with the Fraternal Order of Police. The plan is estimated to save $1.5 billion over 30 years, according to city officials.
"I greatly respect our brave public safety officers and the important work they do for our community," Brown said in a news release. "In this period of financial challenge, our current retirement system is no longer sustainable. It is broken and we have to fix it so we can protect the long-term economic security of public safety employees while also protecting taxpayers."
City officials say the numbers tell the story of the need for retirement reform. They say that currently, the Police and Fire Pension Fund has a high level of unfunded liability.
In October 2003, assets in the fund were worth $400 million less than its total pension obligations, according to a news release. By October 2011, that deficit had grown to nearly $1.4 billion, according to the release. Under-funding earned the fund an "F" grade in a 2011 study by the LeRoy Collins Institute at Florida State University.
The city's retirement challenges also have huge budget implications, according to the release. In fiscal year 2010-11, the city's annual contribution to the fund for employee pension benefits was $76.1 million. In the budget that City Council recently passed for fiscal year 2012-13, that obligation had grown to $121.3 million -- a nearly 60 percent increase over just two years ago, according to the release.
The city said it will devote nearly 13 percent of its entire general fund budget for 2012-13 to the fund's pension obligations -- more than twice the amount that taxpayers spend to operate the Department of Public Works, according to the release.
"For years, the city of Jacksonville has done public safety employees and taxpayers a disservice," Brown said. "Public safety officers were promised retirement benefits, but those benefits were never fully funded. As a result, taxpayers have been asked to carry an increasing burden of city retirement benefits. We have to get real and solve these problems if we want to ensure financial sustainability for our city."
According to the release, Brown's plan would address those challenges in two ways. First, it would address the "chronic underfunding of pension benefits" by making the assumed rate of return on fund investments more realistic.
"Right now, the fund assumes that its investments will earn a 7.75 percent return -- an assumption that experts agree is too optimistic in the current economic climate," the release reads. "Mayor Brown proposes to lower that assumed rate of return to 6.9 percent -- a rate that PFPF investment advisors project is more realistic."
Second, Brown proposes benefit changes that would apply to all new employees and many current employees. His proposal will not affect any former city of Jacksonville employees who are already retired or any current employees who are already eligible for full retirement at the time the new plan is implemented, according to the release. It will not affect retirement benefits already earned by any current employees through the date the plan is implemented, although it will modify the future benefits they earn after the new plan is implemented, according to the release.
This year, Brown and four unions -- the Fraternal Order of Police, the American Federation of State County and Municipal Employees, the Jacksonville Association of Fire Fighters, and the Jacksonville Supervisors Association -- reached agreement on four new labor contracts that are projected to produce nearly $33 million in combined savings for the next three years. Those agreements, ratified by City Council, did not specifically address retirement benefits but required that the city and unions hold meetings over the balance of 2012 to reopen and discuss that subject to see if agreement is possible.
Brown's retirement reform proposal for PFPF employees was presented at the first of those meetings with the FOP on Monday. He will present his retirement reform proposal for AFSCME employees in the General Employees Pension Plan at a collective bargaining meeting on Tuesday.
"When my administration took office, we were able to work with the unions on new contracts that protect both dedicated public safety officers and hardworking taxpayers," Brown said. "Those successful negotiations proved that anything is possible when we work together. Given what is at stake for Jacksonville, I am hopeful that we will use the same spirit of teamwork to accomplish retirement reform that protects our employees and our citizens."