Mayor Lenny Curry says a half-cent sales tax on the Aug. 30 ballot will clear the path for solving Jacksonville’s pension crisis “once and for all” so the city can finally move forward after years of being held back by exploding pension costs.
“If we get a ‘yes’ vote on Aug. 30, it is a brand new day for the city of Jacksonville,” he said at a recent news conference.
Will his plan work?
It’s a crucial question for voters to decide in a city where past decisions by city leaders, combined with the 2008 stock market crash, turned Jacksonville into a poster child for financially troubled pension plans.
Curry, who declined to be interviewed for this story, repeatedly invokes the ruin of Detroit, which declared municipal bankruptcy. He said Jacksonville will become another Detroit if it doesn’t get control of its pension costs and deliver better services in neighborhoods across the city.
Opponents say Curry is using scare tactics to win support for a half-baked plan that wouldn’t be fully worked out until after the referendum.
“This is very much akin to a high-pressure pitch from a car salesman in effect saying, ‘What will it take to get you into a car tonight?’” said John Winkler, president of Concerned Taxpayers of Duval County.
At the request of The Times-Union, outside pension experts reviewed a financial analysis of Curry’s plan. They say it appears the numbers add up, but they also point to something Curry doesn’t talk about in television ads urging support for the sales tax: His plan will cost substantially more in the long run.
By taking years longer to pay off the pension debt, Curry’s plan would add about $1.5 billion more in pension payments through 2049 — taxpayer dollars that would flow to pension expenses rather than other city needs.
“It’s not some kind of free lunch,” said Jean-Pierre Aubry, associate director for research at the Center for Retirement Research at Boston College. “It’s coming from taxpayers down the road.”
It’s the same kind of trade-off that happens when someone extends the payment period for a home mortgage or takes more time to pay off credit card debt, said David Draine, a Pew Charitable Trusts researcher who studies pension plans nationwide.
“If I pay less now, interest on the debt will mean I will pay more later,” Draine said. “If I’ve got a reason to think I can afford those higher costs later, that may be a fiscally prudent thing to do.”
Draine was an adviser for a Jacksonville pension-reform task force that called in 2014 for the city to accelerate paydown of pension debt by enacting an immediate half-cent sales tax increase for that purpose.
A ‘CREDIBLE’ PLAN
In Curry’s proposal, the half-cent sales tax for pension costs would not start until 2031, after the existing half-cent sales tax for the Better Jacksonville Plan expires. Curry says that’s not a tax increase because the overall 7 cent sales tax stays the same.
Draine said Curry’s proposal charts a different course than the task force recommended, but the financial analysis shows Curry’s plan still pays off the pension debt “over a reasonable time frame.”
“It’s another credible funding plan, and the question is which is going to work best for the city,” he said.
Opponents of the half-cent sales tax say the answer to that question is to resolve the problem now, not shift the burden to the next generation with a sales tax that will start in 14 years.
“An awful lot of the sales tax is going to fall on our children and grandchildren,” Winkler said. “We are imposing on another generation a tax that doesn’t need to be there.”
The 14-year gap between the Aug. 30 referendum and when the sales tax would start is just one of the differences between this referendum and past sales tax elections.
In 1988, Duval County voters backed a half-cent sales tax that resulted in removing widely despised tolls booths from several bridges and highways. In 2000, voters rallied to the $2.25 billion Better Jacksonville Plan for a long list of detailed projects across the city.
Curry isn’t promising money for any specific projects to gin up support. His pitch for the sales tax is that it will get a handle on pension costs “eating the budget alive” and prevent Jacksonville travelling the same path as Detroit.
“My solution is very simple, and it’s the best of a series of bad options, to be clear,” Curry said at a recent speech to the Downtown Business Professional Group. “There is no pretty way to fix this.”
21 PERCENT OF OPERATING BUDGET
In the upcoming 2016-17 fiscal year, the city’s pension contributions will total $292 million for its three pension plans: police and fire, general employees, and corrections officers. Those contributions come from different buckets in the city’s budget and also from JEA. The biggest share of pension costs hits the city’s operating budget.
In next year’s proposed $1.093 billion operating budget, pension contributions will suck up $226.4 million, which is 20.7 percent of the operating budget, a dramatic jump from the 10 percent share in 2011, according to figures from the City Council Auditor’s office. The explosion in pension costs chokes City Hall’s ability to carry out everyday city services like public safety, libraries, parks, pothole repairs and mowing roadsides.
The culprit is the city’s enormous pension debt, which now stands at $2.85 billion for pension obligations that retirees and employees have already earned and stand to collect over the next three decades.
The city currently is on track to fully fund the Police and Fire Pension Fund’s obligations by 2036, the Corrections Officers Pension Plan by 2044, and the General Employees Pension Plan’s debt by 2046.
Curry would extend the paydown period another nine years for the Police and Fire Pension Fund, three years for corrections officers, and one more year for general employees.
Other cities and states have likewise sought budget relief by stretching out the pension paydown, Draine and Aubry said.
PAYING MORE LATER
Spreading Jacksonville’s payments would reduce the city’s contributions by $720 million through 2031, freeing up money that could be used for other city needs. Then from 2032 through 2049, the city’s pension payments would be $2.2 billion more compared to the current schedule.
The net impact of that approach is the city would shoulder an extra $1.5 billion in payments. That would negate the savings the city achieved last year with a pension-reform package that changes benefits for police and firefighters. Officials with former mayor Alvin Brown’s office said at the time that city would save $1.5 billion over 30 years.
All those savings “would be erased with a mouse-click” by extending the paydown period, said Tom Majdanics, a Jacksonville resident who submitted his own proposals to the pension task force in 2014.
“Our generation should take care of our own business and not kick the can down the road to our kids,” said Majdanics, who opposes the sales tax referendum.
Last year’s pension-reform package was a pay more now, pay less later proposition. The city agreed to put an extra $350 million above and beyond the legally required amounts into the Police and Fire Pension Fund over a 13-year period.
But the city didn’t come up with a way to dedicate a funding source for pension costs, so the extra payments are further squeezing the city’s budget.
The proposed half-cent sales tax would deliver a dedicated source for paying off the pension debt.
‘ISN’T AN IDEAL WORLD’
Aubry and Draine said they don’t know any other place in the country that uses a sales tax dedicated to paying down pension debt.
Proponents of the half-cent sales tax argue that makes the overall strategy work — the city’s contributes less in the coming years, and when the higher contribution amounts begin after 2031, the half-cent sales tax will kick in and pump money into the pension plans.
“I think the fact that they are trying to get a handle on this and have a solution is terrific,” said Carol Weissert, director of the LeRoy Collins Institute at Florida State University, which has highlighted the financial woes of pension plans statewide.
She said Jacksonville’s pension crisis built over many years and “it will take a long time to get out, but at least there is a way out.”
It’s not a perfect solution, Weissert said.
“In an ideal world, you might have more (pension debt) paid off in the current generation and less in the future generation, but this isn’t an ideal world,” she said. “This is a political world and I think decisions were made with that in mind.”
Curry opposes any increase in the city’s current sales tax or property tax rate, saying many residents are struggling and cannot afford to pay more taxes. He said state lawmakers would never have approved a sales tax that begins before the Better Jacksonville Plan’s tax expires.
“There is no other choice,” he often says while urging support for the sales tax.
Critics say he hasn’t fully fleshed out that choice.
PACKAGES AND PROMISES
If voters support the tax, the city still must close at least one of its three pension plans to new hires, or else state law won’t let the city collect any of the sales tax. The law also would require current employees to pay at least 10 percent of pay for their pensions, up from the 8 percent rate most pay now.
Those changes would require collective bargaining with unions in talks that would start after the referendum. Collective bargaining should have come first, said Winkler, who founded a Just Vote No political committee opposing the tax.
“We haven’t been presented with a pension-reform package,” Winkler said. “We’ve been presented a promise that if the tax passes, they’re going to work on a package.”
Curry says voters will hold his feet to the fire so retirement plans for new hires are sustainable.
The lack of specifics about changes to the city’s retirement program makes it difficult to fully assess the financial impact.
Milliman, the actuarial firm hired by the city to do the financial analysis, shows in its July report that part of its number-crunching involves a “new plan” for new hires, but the type of option examined is a mystery. The report doesn’t say and the mayor’s office won’t, either. In response to a Times-Union question, the mayor’s office said in an emailed statement, “We have provided no indication of what the plan will look like.”
GROWTH PROJECTIONS ARE KEY
Curry’s plan has some risk factors.
Shifting pension costs to the period after the sales tax starts might put City Hall in the same position it is in now — facing tough budget choices because of inherited problems — if sales tax revenue isn’t sufficient to cover the additional $2.2 billion in pension contributions that would be deferred beyond 2031.
City projections show if sales tax revenue grows at a 2 percent annual rate, the city would generate $2.54 billion in sales taxes from 2032 to 2049 when the pension plans would be fully funded.
“If it grows slower than expected, then making up for those increased later-year payments will take out more resources from the rest of the budget,” Draine said.
The Better Jacksonville Plan’s sales tax grew at 2.6 percent rate from 2002 through 2015, even accounting for the Great Recession.
City Councilman Greg Anderson said based on the historic average, 2 percent growth is realistic. “Certainly, recent years show even healthier increases,” he said.
Another concern arises when a city reduces its pension contributions to get budget relief because the pension plans have less money to invest while also paying out monthly pension checks.
Draine and Aubry said based on Milliman’s report, the pension plans have enough assets for them to avoid cash-flow problems.
‘ELEPHANT IN THE ROOM’
The heads of the police and firefighters unions said they’re confident Curry’s plan won’t weaken the pension plans before the sales tax starts, and the tax itself is the missing piece in pension reform because it fully addresses the $2.85 billion pension debt.
“This is a way out of a very bad situation and it’s probably the easiest way out,” said Randy Wyse, president of the Jacksonville Association of Fire Fighters. “Using a sales tax totally committed to paying down the unfunded liability is a better way to do it. It gives us better security.”
“What we’re looking at is finally having a dedicated funding source for the elephant in the room,” said Steve Zona, president of the Jacksonville chapter for the Fraternal Order of Police.
On Aug. 30, voters will decide if Curry’s plan frees the city from the weight of that elephant, or whether city leaders should go back to the drawing board for a different solution.
David Bauerlein: (904) 359-4581
Our editors found this article on this site using Google and regenerated it for our readers.
China installs facial recognition to crack down...
4 Blaine officers fall ill from chemicals coming...
A TROUBLED TRANSITION
Lottery's scratch-off payouts got little state...
Beryllium workers get new protections after decades...
Jesse Jackson Jr.: Sandi and I are $1.8 million...
Emails to Emanuel raise questions about dozens...
124 Illinois prison nurses get layoff notices
Grant could mean new life for hundreds of World...
Juvenile questioned in sexual assault of girl,...
'No man is above the law' Supreme Court...
Pittsburgh data storage firm Avere Systems earns...
|Mysterious ‘Hairy Blob’ Creature Could Be Decomposed Whale, Washed Ashore In The Philippines [VIDEO]|
|What Does Mama June Look Like Now In 2017? ‘From Not To Hot’ Star Suffers Complication During Makeover Surgery|