Jacksonville Police and Fire Pension Fund sees bounce in funding level, but extra contributions urged

Good news and bad news for those watching the trials and travails of Jacksonville’s Police and Fire Pension Fund.

The good news first: Per a recent actuarial report from the fund, 2017’s funded ratio is 47.60% compared to 43.02% last year (after reflecting all Actuarial Impact Statements).

This is the highest ratio since 2010.

The fund was bolstered by a bull market in investments, with “the total net investment return was 14.27% compared to the assumed annual investment return of 7.0%) and salary increases which were less than expected (6.3% actual versus 10% assumed for the year, including the 6.5% across‐the‐board salary increase given on October 1, 2017).”

The 68-page report notes that retirements, turnover, and new hires were above projections (decreasing the experience level on the force), and mortality levels underperformed expectations.

Now, the bad news: Despite these positive auguries, the PFPF still has qualms about the funding mechanism of what will be a continually growing pension liability — the 1/2 cent sales tax poised to kick in in 2031.

“We are unable to assess the risk that the timing and/or amount of future pension liability surtax proceeds may significantly deviate from the projections (due to legal challenges, economic hardships, or any other reason),” the report says, positing a potential solvency risk.

Another red flag: assets are exceeded by actuarial liability.

“It is important to note that the Fund’s assets are insufficient to cover the actuarial liabilities for inactive members. As of October 1, 2017, the market value of assets, net of reserves, is approximately $1.76 billion, and the actuarial liability for current inactive members is approximately $2.80 billion. Given the low funded ratio and the fact that the pension liability surtax revenues will not be received until more than 13 years from now, it is advisable to consider making contributions to the Fund in excess of the minimum required contribution shown in this report.”

The city of Jacksonville passed comprehensive pension reform in 2017.

Jacksonville closed entry to defined benefit plans to new hires, instead implementing a robust defined contribution scheme with 25 percent matches for defined contribution plans for police, fire, and correctional workers, and raises amounting to 20 percent over three years for public safety workers.

Pension reform was a necessity for the current year’s budget, reducing the pension contribution to $218 million from $360 million, and creating room for incumbent politicians to move forward with capital improvements and pay raises for all city employees.

There are, say some analysts, worries down the road.

Bloomberg Intelligence analyst Eric Kazatsky said Jacksonville “has been challenged by a steadily increasing fixed-cost ratio, which could put downward pressure on credit ratings and add to debt risk.”

Meanwhile, Jacksonville is considering the eventual impacts of selling JEA, the municipal utility, at least in part.

Jacksonville City Councilman Matt Schellenberg asserts that the time is right to sell the electrical portion to Florida Power and Light or Duke Energy.

Worth noting: while the total appraised value of JEA assets, at $5.3 billion, is well above the debt load of $4 billion, the electrical side is in worse fiscal shape than water and sewer.

The appraised value of the electrical holdings, per an internal JEA report, is just over $2.6 billion, against a $2.3 billion debt burden.

That money, said Schellenberg, could pay down debt, address the $3.2 billion unfunded pension liability, or be used to defray losses in annual JEA contributions ($116.1 million currently) to the general fund.

Jacksonville City Councilman Danny Becton, who has been trying to get legislation through to earmark an additional city contribution to pension obligations, noted last year that the pension liability could reach $10 billion by 2031.

Total liability per this report: $3,692,694,731.

Even factoring in the weakening dollar, volatility in equity markets (the current “correction”) suggests that pension funds like Jacksonville may have a tougher time exceeding investment targets in 2018 than the previous year.