A Wednesday afternoon meeting of the Jacksonville City Council was intended to facilitate deeper inquiry into Jacksonville Mayor Lenny Curry‘s ambitious pension reform package.
However, the big news was the downward impact of adjustments to payroll growth projections and COLA calculations after Monday’s meeting of the Police and Fire Pension Fund.
“We still save a lot. But we save less,” was how the city’s CFO Mike Weinstein described the impacts of $13M of tweaks that would hit the process for FY 2018 — if the legislators approve the plan.
And that is still an if.
Police and Fire Pension Fund actuaries thought the plan was too optimistic in assumptions regarding both payroll growth and sales tax revenue, speculating that even after the proposed sunset of Jacksonville’s half-penny tax in 2060, the $2.8B unfunded liability for the defined benefit pension plans that would be closed this year still would not be resolved.
The PFPF report, and a binding vote from the board, catalyzed changes in assumptions from the city.
City CAO Sam Mousa and CFO Mike Weinstein kicked off the event, noting that the mayor’s office has met with every single member of the City Council already, and is attempting to answer questions.
Mousa noted that the PFPF meeting, described above, necessitated “slight adjustments” in “program savings,” and promised detail about how those adjustments will be made.
Weinstein then went on to describe the “slight adjustments.”
“The goals were to try to create a revenue stream that would adequately fund the $3B” unfunded liability, to make sure the three funds were financially sound, and to offer budget relief to enhance services and provide raises.
“The work that our actuary had done … basically were a first cut,” Weinstein said, assuming that the PFPF actuarial analysis would jibe with the city’s.
However, the PFPF “did two things we didn’t do,” Weinstein said.
One such thing: a different payroll growth assumption — 1.5 percent per year from the city, versus 1.25 from PFPF.
The PFPF, said Weinstein, went with the “smaller payroll growth,” which led to a $2M increase in the city’s contribution next year.
“We lost $2M in next year’s savings,” Weinstein said. “They chose 1.25; we think it should be 1.5.”
“A second thing that happened at PFPF was even a bigger surprise,” Weinstein said.
“The new actuary for PFPF determined,” said Weinstein, that COLA calculations had been done improperly.
This leads to an $11M increase in next year’s payment … and is an issue that the Curry administration had attempted to message months ago.
“We still save a lot. But we save less,” Weinstein said.
“If we don’t get this done and back from Tallahassee,” Weinstein said, the collective bargaining agreements fall through.
“They’ve made their decisions,” Weinstein said.
“There’s a long history with the PFPF and the city,” Weinstein said. “We asked for 1.5 … the Division of Retirement asked for 1.5 … they made the decision and we didn’t have the time to really deal with it.”
Though the $2M is “painful,” it “didn’t merit a blowup,” Weinstein said.
The adjustments lead to the following changes:
If reform happens, the city would have to pay $221M in pension costs; if not, $360M.
The difference would still be $139M, as the original numbers were $208M and $349M respectively.
Weinstein also discussed what savings would look like: $69M compared to $82M in the original projections, comparing FY18 reform to FY17 contribution.
Weinstein also outlined calculations showing savings over four years instead of three, noting that “for the first 14 years, we will have a savings” from the $290M this year.
The anticipated savings: $69M in FY 18; $72M in FY 19; $65M in FY 20; and $55M in FY 21.
JEA savings in the plan has been reduced, said Weinstein, who noted that $60M in PFPF Reserve Funds would be part of the city contribution.
The impact of raises: also revised, with a $120M hit anticipated in FY20 and FY 21.
Weinstein also offered projections based on a 3 percent revenue growth and a 2.5 percent revenue growth in the general fund, including discussing a so-called savings bank.
“If we take the $10M and use it for growth, we still have $40M in savings,” Weinstein said of the four year projections, which see the “savings bank” bolstered in the first two years, then used to offset raises in years three and four.
Weinstein extolled potential general fund growth, with expectations that after four years, general fund growth will be up anywhere from $73M to $98M after costs.
“This does provide some relief,” Weinstein said, noting a $37M hole in next year’s budget — without reform.
“It’s not perfect. There may be pieces in it you don’t like. But the piece you don’t like may provide four pieces you do like,” Weinstein said, noting collaboration with Tallahassee and 22 bargaining units over a year and a half.
Mousa referred to this as a “sound financial program.”
“We know the issues. We know the positives. We know the negatives. And I believe we found a balance,” Mousa said.
Questions came from the council.
“We have all of these experts, actuaries … my problem with this whole situation,” said Councilwoman Katrina Brown, is a lack of a “defined number” of how much money is in the General Fund.
Weinstein noted that budget is released in July, which provides clarity.
“If you want it to have an impact on next year’s budget,” Weinstein said, the City Council needs to vote “now,” or the work will be undone.
“If you want to do this the way it’s laid out — good and bad — you need to do it in a reasonable time,” Weinstein said.
“The mayor proposes and the City Council disposes,” Mousa chimed in, regarding the budget.
Councilman Aaron Bowman noted projections don’t account for growth of expenses.
“The level of growth,” said Weinstein, depends on “variables” in future budgets.
“All those will be basically decided by you … our budget doesn’t have to go up … there are many years that our budget has gone down,” Weinstein said.
Bowman deemed this a “weak answer,” and wanted historic details on growth.
Weinstein noted that staff is down 1,000 bodies since 2009, indicating that growth is not a requisite.
“We know we’re paying a lot more … we know that expenses are going up … what I’d like to see is a better definition” than “$98M in our budget,” Bowman noted.
“We got rid of 1,100 people because costs went up,” Mousa noted. “Decisions are made to counterbalance [increased] costs by reductions.”
“I’m not sure that I want to take you to Vegas with me,” Bowman deadpanned.
One positive: an expected $40M YOY increase in property tax collections.
Council VP John Crescimbeni noted that, “if we don’t do pension reform, we’re going to be looking at cutting.”
Mousa described the potential of “terrible, terrible budget cuts.” Layoffs would be “very possible.” And Mayor Curry would not “support any millage increase.”
This is “concerning” to Crescimbeni, who noted that millage cuts in the past led to today’s degradation of services.
Mousa said the budget being developed is at current levels — as if reform does not happen.
Councilman Tommy Hazouri, a former mayor, wondered if there would be more surprises to come.
Mousa asserts that “all has been buttoned up now,” with the PFPF impact statement “outlier” now factored in.
Weinstein added that the Florida Division of Retirement approved the mechanism.
That said, Mousa added that the city is not “married” to these statistics, especially with yearly actuarial review and adjustment factored in.
“We feel very comfortable with the information presented here,” Mousa said, noting that unlike the Better Jacksonville Plan, which was predicated on borrowing with a 5 percent annual sales tax revenue growth rate, the pension reform plan does not involve borrowing.
“We’re not borrowing any money here. We’re not hoping that 4.25% will stay forever and ever,” Mousa added, noting — again — the yearly review function relative to sales tax projections.
Councilman Garrett Dennis warned against “booby traps” that might await the mayor in 2031.
Weinstein believes that contributions will accelerate, and “the real cash starts rolling in in 2031,” with the impact blunted by the declining value of the dollar (the “present value calculation”).
Other booby traps?
“Don’t do DBs. There’s too much unknown,” Weinstein said.
“Make sure you hire the right folks,” Mousa added.
Not all the feedback was bad.
Councilman Jim Love lauded the flexibility of the plan.
Councilman Bill Gulliford said that “savings down the road” will be a “big, big number,” noting that a “previous administration” provided unbalanced budgets that required a millage rate increase.
Pension reform, Gulliford added, is a “big topic” with bond rating agencies, which have seen pension as the “#1 focal point” of the yearly meetings.
“There are no absolutes. You want guarantees,” Gulliford said. “All of this is based on … a projection. We don’t know or control the things that can happen like an economic downturn.”
“What are our options? For years, we have looked at this thing … your options are pretty clear,” said Gulliford.
Those options: accept this or cut services and hike the millage rate.
“This is the best chance that I think we’ve got,” Gulliford said. “You don’t want to go where we’re headed right now.”
Councilman Matt Schellenberg noted that “we’ve been working on this for the last six years,” and “we’re on the right track.”
“The Council can always raise the millage rate one or two mills,” Schellenberg noted, though it would take 13 votes to get it through Mayor Curry.
And Councilman Al Ferraro endorsed the plan as a way to “stop the bleeding.”
“We’ve inherited a lot of things that we have to deal with,” Ferraro said. “If we don’t do this, I can see a huge problem in my area and the whole city.”
Councilman Tommy Hazouri endorsed the credibility of the plan in his comments as well.
Despite Gulliford’s endorsement, the questions kept coming.
Councilman Reggie Brown questioned why millage hikes weren’t coming.
Councilwoman Joyce Morgan wanted assurances that the plan was “recession proof,” but the administration wouldn’t offer them, but “we can’t guarantee anything.”
“The only thing guaranteed is that you’ll die one day,” Mousa said.
“The majority of the contribution,” said Weinstein, “will be handled by the half-penny as much as possible.”
Morgan kept pushing back.
“We don’t talk about how we’re going to have more for our communities. We’re going to have the savings. Can you address that?”
Mousa noted that “if you don’t vote on this, services in the community are going to get worse.”
Morgan encouraged that parlance be used as part of the sales pitch.