Mayor details possible JEA partnership on pension reform
Brown offers ways to work with taxpayer-owned JEA to reform retirement system
JACKSONVILLE, Fla. – Mayor Alvin Brown released new details Tuesday that show how Jacksonville's community-owned utility, JEA, could partner with the city to reduce the $1.7 billion unfunded liability of the Police and Fire Pension Fund without the need for a utility rate increase.
"This is a challenge we face together as one community. And we must solve it by acting together as one community," Brown said.
In January, Brown met with the Jacksonville Retirement Reform Task Force and proposed a comprehensive pension reform plan that saves taxpayers $2.75 billion from the city's general fund over 35 years, according to actuarial reviews. The mayor's proposal also saves $130 million over the next five years.
City officials said Brown's plan provides a solution to skyrocketing pension obligations for police and firefighters. In just more than a decade, the city's annual obligation to the pension fund has jumped 15-fold to $148 million in this year's budget, officials said.
"Every dollar spent on these rising pension costs is a dollar taken from essential services to protect public safety, grow our economy and improve the quality of life in Jacksonville, " Brown said. "If the city cannot adequately provide those services, it affects everyone in our community -- including JEA. Its employees and ratepayers are the same citizens and taxpayers who receive quality police and fire services, visit parks and libraries, use senior centers, benefit from Jacksonville Children's Commission programs and enjoy the economic benefits of companies moving to Jacksonville or expanding their operations here."
As part of the plan, Brown offered to begin discussions with JEA to participate in an expanded financial partnership with the city to accelerate payment of the $1.7 billion unfunded liability. He proposed that JEA consider investing an additional $40 million per year for the next 14 years -- or until the pension fund reaches an 80 percent balance, which could be sooner.
In exchange, the city said it is committed to working with JEA to find revenue and savings opportunities to help offset the costs of an increased contribution. For example, the city said it is prepared to accept JEA's longstanding request that it be allowed to create its own pension plan separate from the city's General Employees Pension Plan. That step could help save JEA more than $500 million over the next 35 years, officials said.
On Tuesday at a meeting of a task force subcommittee, Brown detailed revenue and savings opportunities for JEA to partner with the city and help reduce the large unfunded liability in police and fire pensions. He said these opportunities include:
- Savings from restructuring JEA pension obligations: Over 35 years, the utility can save $503 million with changes affecting only new workers, actuarial studies show.
- Savings from JEA's natural gas costs that continue to be below the utility's budget: JEA has experienced surpluses in its reserve fuel fund. In 2012, JEA produced a $35 million fuel surplus due to low natural gas prices. In 2013, the fuel surplus was nearly $37 million. A similar surplus is projected for 2014.
- Revenue growth above projections in our growing community: While JEA has forecast based on rating agency advice, the latest report from the U.S. Department of Energy projects that electricity consumption nationwide will grow about 1 percent per year -- 28 percent by 2040. A 1 percent increase in JEA's business would translate into $18 million in increased revenue per year.
- Productivity gains: A modest 1 percent improvement in JEA's operating expenses translates into $3.7 million in annual savings.
- Savings from the reduction of debt: As it pays off its existing debt, JEA is already gaining significant annual savings as a result of lower principal and interest payments.
Officials said JEA and the city of Jacksonville have a longstanding financial partnership. They said since the time of consolidation nearly 50 years ago, the utility has worked with City Hall to participate in solutions to community challenges, including economic development and public infrastructure.
"We all live in Jacksonville, and we must work together to do what's right for the community," Brown said. "I am confident we can forge a partnership with JEA to solve this major financial challenge for taxpayers."
JEA chairman Mike Hightower said top executives haven't reviewed the mayor's plan in its entirety yet, so it's too early for them to say whether or not residents' water, sewer or electric bills will increase.
"Until I know what they're asking, I'm not going to speculate on the outcome," Hightower said.
He pointed out that JEA, like the city, is also deep in debt.
"I just know that JEA is a multibillion-dollar operation and we have $500 billion in debt," Hightower said.
Council President Bill Gulliford said the new pension plan isn't realistic.
"How does the mayor say the rate won't go up? Is he on the JEA board?" Gulliford said.
Customers are objecting to paying extra for water, sewer or electric.
"It's already out of control," resident Jimmy Butler said. "A rate increase would cripple a lot of people. A lot of people would be in the dark."
Hightower said before JEA would even consider a rate increase, it would hold a series of public hearings. The mayor said he feels confident that once JEA does the math, it will see that the numbers will not require any extra costs passed on to the taxpayer.
The proposal is under review by the 18-member Retirement Reform Task Force, which is chaired by attorney Bill Scheu. Brown spoke to the plan funding subcommittee of the task force on Tuesday. The full task force is scheduled to meet at 1 p.m. Wednesday in the Lynwood Roberts Room at City Hall at St. James.
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