A.G. Gancarski
As the Jacksonville mayoral campaign between Lenny Curry and Alvin Brown heated up, one of Curry’s vows was that he would institute a 90 day audit of the city’s financial situation. His rationale was summed up by an email from his campaign in late April in which he pledged to bring back “sound fiscal management.”
“With news reports… indicating more than half a billion dollars of accounting errors in city finances, Lenny is prepared to clean up the mess starting on Day 1. His plan for an emergency, 90-day audit is the first step and has been lauded by small business owners and job creators as exactly what Jacksonville needs,” the email contended.
FloridaPolitics.com has obtained the working draft of the Ernst and Young audit, which is a hot topic on the fourth floor of City Hall. As David Chapman wrote in the Daily Record, some council members appreciated the objectivity of the audit, while John Crescimbeni asked if there was any way the city could get its money back.
If the audit is any indication, the city could use that money. And then some. The audit reveals a city with serious financial challenges that Curry needs to resolve early in this term.
The audit begins by taking a look at the recent financial performance of the city, which could be summed up as an austerity program. The lack of wage increases has “affected all employees” and drained talent from the city. As well, the report makes note of a “significant reduction in force,” pointing out that the city has lost 1,079 full time employees from FY 2011 to FY 2014, and that wages have been flat since 2008.
The audit notes “key budget drivers,” such as the city’s unfunded pension liabilities, the potential expiring of the “automatic contribution” from JEA in FY16 (a potential reduction of $35 million in revenue), and inability to impose an indigent care tax like other cities (which removes $75 million from the city’s coffers, and imperils Shands Hospital).
Meanwhile, the long-term budget forecast is problematic.
“Projected annual deficits of more than $30m beginning in FY 17 are not sustainable and would result in the depletion of the General Fund unassigned fund balance by FY 18 or FY 19… Absent additional action, annual pension contributions from General Fund could be greater than $244m in FY 19…”
And it could be uglier, as ad valorem tax revenue is projected to increase by 4 percent per annum. If not, these projections will be more stark.
With that in mind, action items are suggested to improve the city’s financial posture. To resolve pension issues, the Curry administration is encouraged to identify “revenue streams outside the general fund.” As well, renegotiation of collective bargaining agreements is urged, as are attempts to reorganize departments and organizational structure.
The report notes that “salary lapse and unfunded positions were used as tools to balance the budget” in prior years, and suggests that a big part of the reason why is that taxes are below the average of other major Florida cities.
Though the General Fund has a “modest surplus,” the clear implication is that the pension crisis will consume that if unremedied. Five year projections show a $24 million dollar annual General Fund deficit if current conditions hold.
City officials want to “invest in human capital.” However, the report stresses, in multiple places, that the city “evaluate opportunities by department to identify ideal staffing levels based on technology investment and process reengineering,” which suggests that the fiscal capital may not be there for the human capital.
Speaking of fiscal capital, some relatively good (albeit short term) news in terms of liquidity…
“The City’s aggregate liquidity position has been adequate to sustain its needs in the past and according to the City’s revenue and cost projections would continue to do so in the short term,” claims the report.
However, “given rising labor costs, anticipated incremental contributions to the retirement systems and anticipated capital expenditures, the level of uncommitted general fund cash must be closely monitored.”
Without meaningful reform, “General fund equity in pooled cash is projected to decline closer to the Emergency Reserve level assuming lower JEA contributions, potential budget overages could accelerate the decline.”
And that need for reform is driven by the pension crisis, which shows Jacksonville in a worse position, by far, than other Florida cities.
“At 46% funded status, Jacksonville has the lowest pension funded status for the Police and Fire pension plan compared to other Florida cities included in the analysis. At 55% funded status, Jacksonville has the second lowest total pension funded status for total consolidated pension plans. “
The General Employees Pension Fund would seem, at 66% funded, to be in a position of strength. However, in 2009, that number was at 77 percent.
“Pension plan benefits are a significant cost and liability to the City,” the report continues.
Note the word “liability.”
Member contributions are “potentially low relative to benefits provided.” Meanwhile, the report also suggests that, in pursuit of solvency, the retirement age may need to be increased to reduce costs. COLA increases are also a target: the auditors surmise that they exceed projected inflation.
“Below average” tax rates, though they are politically popular, are not enthusiastically endorsed by the auditors, who say only that the “city has been able to operate” under those constraints.
Meanwhile, the ever-popular Banking Fund has $249.9 million of debt.
The good news? It’s not quite a quarter billion, yet, though if you are a slow reader, it may be there by the time you finish this post.
The Emergency Reserve may be “tapped into” in FY 17 if there is no renegotiation of JEA contributions.
And left out of this report completely? The potential fiscal impact of dredging costs.
