Paul Renner says Jacksonville not targeted by ‘pension liability surtax’ language

A provision that has worried Jacksonville stakeholders in recent days in House legislation apparently is not targeting the city after all, according to the House Speaker.

Speaker Paul Renner of Palm Coast addressed the issue, answering a question from Florida Politics about whether language in the House tax package was targeting Duval County and its discretionary sales surtax enacted last decade with the Legislature’s blessing to deal with legacy pension debt.

The language in question stipulates that the “pension liability surtax imposed pursuant to this subsection shall terminate on December 31 of the year in which the actuarial funding level is expected to reach or exceed 100 percent for the defined benefit retirement plan or system for which the surtax was levied or December 31 of the tenth year after the surtax was approved in a referendum under this subsection, whichever occurs first.”

That “tenth year after the surtax was approved” language replaces 2060, the anticipated end date for the expansion of Jacksonville’s current half-cent Better Jacksonville Plan tax that will be repurposed to pension debt. But despite the implications, Renner says Duval’s massive pension obligation from its defined benefit plan that has been shut off to new entrants since 2016 is not in danger.

“I can definitively say it was absolutely not written with Jacksonville in mind,” Renner said after Thursday’s House Session.

“I think the idea was, don’t the taxpayers deserve an opportunity as you have these, call them, you know, extra taxes or discretionary taxes that maybe the voters approved 20 years ago that they can actually revisit and say we passed this tax because of an urgent need?” Renner said.

“In the case of Jacksonville, there’s a pension issue, obviously, but I think pension is a different deal,” Renner said.

Such language isn’t in the Senate version. This condition suggests a path for the status quo, as the Senate didn’t contemplate such a condition in committees and therefore, it could be a tougher sell on the floor.

Sources say there could also ultimately be a more explicit carve-out for Jacksonville’s discretionary sales surtax, which is integral to the city’s budget through 2060, given that it’s a key finance mechanism for paying off billions of dollars of debt, one that the re-amortization of the obligation was contingent on.

The Mayor’s Office and city lobbyists have engaged with the Speaker on this issue very recently, ensuring that it is on his radar.

Pension funds have gotten a new focus in Jacksonville in recent weeks amid the Donna Deegan administration exploring using pension fund assets to finance upcoming renovations to the Jaguars’ stadium, work that will be necessary to keep the team in town past the end of the current lease.

A representative of the administration suggests the city could pay the pension fund back, guaranteeing a rate of return that meets pension fund benchmarks, and avoiding financing costs that would come by pursuing financing on the bond market.

While this proposal is controversial in some quarters, and fraught with political complications rooted in optics as much as workability, this whole drama illustrates how fragile Jacksonville’s fiscal position is, and suggests the city will have to strike a balance between the competing needs of stakeholders that include the NFL team, the Legislature, and the labor unions whose futures are predicated on a solvent pension fund.

The most recent draft copy of the Police and Fire Pension Fund’s October 2022 actuarial valuation report (which helps to determine the employer contribution for the current fiscal year), suggests that the fund’s investments have been underperforming.

“Investment experience (on the net Actuarial Value of Assets) resulted in an experience loss (net of reserves) of about $37.5 million. The investment return on the smoothed Actuarial Value of Assets was 4.80% compared to the assumed annual investment return of 6.625%. (The net money-weighted investment return on the Market Value of Assets was -16.78%, as reported by the Plan’s investment consultant.) Investment gains and losses are spread over a five-year smoothing period, with gains and losses from prior years being smoothed into the current year.”

Beyond investments not meeting their targets, there is the issue of funding shortfalls that persist.

“This year’s funded ratio is 45.97% compared to 48.06% last year,” the report notes.

While the projections of the Lenny Curry administration were that the upcoming tax extension for pension obligations would make the city’s various pension funds more stable over time, that won’t kick in for a few years. Expectations are the tax will be repurposed in early 2027, and if language such as that in the House tax package were targeting Jacksonville, it would force the Deegan administration to sell a tax referendum just before running for re-election.

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Gray Rohrer of Florida Politics contributed to this report.