Police Pension Investments and the Cityi's unpaid liability

[Noone]

Somebody please address the $2Billion unfunded pension liability in this.

[icarus]

Somebody please address the $2Billion unfunded pension liability in this.

no.  it doesnt apply.

Real Estate deals conducted by the Pension Fund have nothing to do with the debt incurred by the city of jacksonville to the Pension Fund.

In fact, if you did mention it, you would have to discuss the failure of the City to live up to its financial obligations---which has nothing to do with investment projects.

It has everything to do with this project.  COJ deposits money with the pension board to manage to satisfy COJ's obligations to pay pensions.  The relative success of the pension board in managing the assets given to the board determines how much more or how much less COJ has to contribute so that the total amount of assets managed by the board are sufficient to meet the pension obligations.

Let us make the assumption the shipyards property is worth $30m (even #s are easier to understand).  COJ foregoing any semblance of rational or logical thought transfers the property to the pension fund.  This initial transfer satisfies $30m of pension payment obligation on the part of COJ.

The pension board contributes the $30m property in a joint venture with Kilashee. Kilashee runs up significant development expenses and even manages to move some dirt and pour some concrete. Boom ... no more money because neither lenders nor equity players are willing to contribute capital or risk loans to a project with no market or foreseeable way to pay either a return on money or even the return of the initial money.

Existing lien holders to date move to foreclose on the property or COJ is forced to reclaim the property for unpaid taxes or by foreclosing on municipal liens.

Now, the pension board has lost $30m in land as well as all the expenses it incurred on the deal and COJ now owes an additional payment to the pension board to plug the $30m + hole in the board's managed assets.

Sooooo ... it has everything to do with an unfunded pension plan.  Care to double down?

[icarus]

I truly do admire the passion you bring to a debate but lets methodically address why you are so clearly misinformed:

1. COJ as well as a great many cities made promises it couldn't keep to public employees (usually made by politicians in return for votes). COJ and other cities failed to make the necessary payments for a number of reasons ... but for our purposes we can agree on one fact ... COJ's pension obligation is underfunded.

2. Pension funds do in fact work the way I described. The obligor, in this case COJ, deposits money or other assets into the investment fund managed by the pension's board.  If the pension board successfully manages the assets, the good performance of the investments can reduce the current obligation of the obligor to make a payment to fund the pension.  In industry parlance, this gives rise to a pension holiday.  The performance of the assets being managed is such that it covers the current obligation of the obligor to fund the pension. Conversely, if the pension board does a bad job of investing the assets, the obligor's obligation to fund the pension (unfunded portion) can actually increase.

3. Future financial performance can and does affect the total funding obligation.  To use the Kilashee proposal as an example, if COJ donated the land ($30m) to the pension fund, it would satisfy $30m in COJ's current funding obligation. If Kilashee turned out to be the Walt Disney of our era and financial performance was such that the pension fund recieved back a total of $100m on its investment, the total obligation of COJ to fund the pension would have been directly reduced by an additional $70m due to the financial acumen of the board in investing in the shipyards.  Of course ... the converse is what you don't want to discuss in relation to the Kilashee proposal and why you removed this to a new thread.

4. these are actual facts on how pension funds are managed and how financial performance affects total obligations (funding %).  It is also a reflection on the fiduciary duty of members of the pension board to make sound investments for the benefit of pension recipients and the obligor, COJ.

Its ridiculous to make an argument strictly based on emotion with very little fact on your side.

[icarus]

And, that Stephen is what I personally call a "Blue Sky" argument .... Sir, can you please factually prove to me the sky is blue? Or, as an alternative, can you please provide a factual basis for why the sun is hot?

Being a reasonably intelligent man with a strong support for Downtown Jacksonville, I can only assume you have availed yourself of obtaining a public library card at the Main library.  As you may not know, it is filled with a wondrous array of both texts and periodicals describing the internal machinations of pension funds and municipal finance.  I'd recommend consulting one of the research librarians if you have trouble finding the section. This would be the quickest way for you to satisfy your intellectual curiosity and provide for your own self edification as an expert in pensions and municipal finance. I would be loathe to disavow you of the opportunity to do this on your own ....

And, so we are perfectly clear, based on your last comment and this one ... we can both walk away because my interest was in pointing out the fiduciary duty of the pension fund to make a sound investment as it relates to the Kilashee proposal not to provide a lecture on municipal finance.

P.S. - if you want factual data on the performance of the local pension fund, you might want to stand in line with every other taxpayer, fireman and policeman waiting for meaningful disclosure from the board.

[icarus]

Stephen -

I literally don' think this warrants a heated debate but I think you are pretty close to understanding.

First, COJ has a pension obligation which is the value in today's dollars of the pensions to be paid to current retirees and future retirees. In the case of the Pension Board in the Kilashee proposal, this is all the former and current police and firefighters. This value is calculated by actuaries (math masochists) based on life expectancy, number of current and former employees and return on investment (managed assets).

Two things we are discussing affect both the calculation of that value.  Returns and losses on the management of the fund's assets by the pension board.  Based on recollection, not fact, I want to say the pension board manages to eke out a return close to 5% ... please let me know the real number if you know. The return on the investments either increases or decreases COJ's pension obligation.

Each year the actuaries would calculate the current obligation as such:

Current value of future obligations + value of current obligations - initial fund balance- return on investment + loss on investment +cost of administration = pension fund obligation

I'm not implying that the City is on the hook for losses.  I'm stating the City is on the hook for losses.  And, this is why it is relevant to Kilashee's proposal.  A great many cities including COJ took pension holidays where the financial performance exceeded expectations so they chose to spend the money on other things instead of reducing the obligation (new medians and palm trees are popular with voters).  Now, cities including COJ are confronted with both reduced tax revenue and substantial reduced financial performance including losses in intervening years.  This 'double down' has significantly increased the pension fund obligation as a percentage of revenue.

If the pension board were to lose money year on year, we would get a new board and probably an investigation by several government agencies. The pension fund is not something that can be tapped without consequence and often doing so results in dire consequences based on past performance. I have friends and family in both branches, fire and police, so I am only too aware of the performance of the board and COJ.

Its a true crisis and making risky investments would only exacerbate it.

[icarus]

Think of the pension fund as an interest on checking account at a bank.

The City, the account holder, has set up automated debits from the checking account to the retirees.  COJ has made deposits in the account but not enough to cover all the planned debits.  The interest on the money in the account increases the cash balance and thereby reduces the amount needed to cover future debits.

If we get an unexpected loss in the account, the City still has to put enough cash in to cover the debits.

The city's obligation is the retirees not the Pension Board and its obligation is not satisfied unless the retirees receive their pensions.

The reason for the Pension Board is two fold (1) administer payment of pensions and (2) manage assets.  The main justification for the board is the managing of those assets.  If the amounts contributed are effectively managed, the return on the investment should keep pace with the increased obligations to retirees.  The City is trying to invest enough money in today's dollars to cover future obligations.

In simpler terms, if I put a $1,000 in my checking account to cover a bill and my banker took the $1,000 out, I still have to put enough in the account to cover the $1,000 bill.  Come on Stephen, I can't put it in any more basic terms and you really do need to do some studying on your own from here on out because I'm no longer teaching finance.

[icarus]

I can't believe you threw the billionaire card.  If it were to apply, and in this case it doesn't, it would only apply in the context of the federal government which relies on income tax to fund its obligations for social programs.

COJ signed the collective bargaining agreement. It knew the amount it is going to owe in the future and the pension board calculates it every year.

COJ has a balance in its checking account every year. It has a choice (1) make a payment to investment account (pension fund) to cover retirement (pensioners) or spend it.

For decades, COJ and other cities have opted to spend it.  COJ made promises to public employees based on pie in the sky returns on investments and increases in revenues which either failed to materialize or didn't meet the mark. this is the reason we have a unfunded pension plan.

Now, we only have one choice .. cut spending or increase revenue.  No one is willing to make the hard decisions that come with cutting spending or deferring projects so too many people point to higher revenues.

Well, I know what I make and try as I might ... I can't wave a magic wand to create more money so what makes the City think it has the right to?

[icarus]

And, most importantly, what gives the Pension Board the right to risk money on a finger to god skyscraper instead of an investment in bonds, stocks or cash ... because we are the ones who will pay if it fails.

[mtraininjax]

The original poster asked about the two billion dollars that the city has not done a damn thing to pay for despite knowing about it for the past twenty years.

LOL! Washington DC has set the fine example, care to double down on 19 trillion in debt with no solution for it, other then Chapter 13?

[Kay]

icarus

I really appreciate your patient and thorough responses to Stephen.  However, Stephen has made an emotional decision to support the tall needle project.  So you are wasting your time with him because facts do not matter to Mr. Dare once he takes sides.

[icarus]

Stephen - If the Pension Board makes unwise and risky investments such as the proposed shipyards project and loses money, yes, the City could very well owe more than the original obligation. But to simplify it for you, I owe you $100. I have $50. I can pay you the $50 towards my $100 debt or I can bet you actually understand pension finance with Kay.

Being eternally optimistic and believing you are right in assuming that the billionaires are ruining Duval County's finances, I take the bet. Surprisingly to me but not Kay, I lose.  I now lost my $50 to Kay who can't quit telling me she told me so and I still owe you $100. (Kay probably works on wall street.  )

So, yes, Stephen, I still contend that the City can owe more than its current obligations if the pension board embarks on a fool's errand such as this.

[thelakelander]

I'd like to sweeten the pot for all involved. I'm proposing "Sprinkling You With Pixie Dust." It will be a multi-billion dollar mixed use project featuring whatever makes your panties wet.

I'd like to put a Macy's, an NBA team and the world's largest water slide for starters. I'll also extend the Skyway. You want a 1,000' observation desk, I say don't sell Jax short, let's shoot for 2,000 feet because tourist dig the long ball. Hell, we can throw in an extra Winn-Dixie or two for the Mayor. I used to master Sim City back in 92', so my development cred is like Fort Knox.

All we need to get the ball rolling is for you all to pay to purchase the property for me, then we can split the profits.

Trust me, I got this. Here's a rendering of my $100k master site plan:



Seriously though, at this point, what's described above pretty much defines this proposal. If this scenario isn't high risk for any investor, I don't know what is.

[thelakelander]

still nothing but graphics?

well, I suppose you know, go with what you got.

You don't like my master plan? I thought my rainbow colored skyway would pull all the people off I-95. Would it help if I make the leprechaun visible? Don't undersell Jax. This can happen. Purchase the property for me and I'll make your tourism dreams come true! We can save the Fund, clear COJ of debt and become the next Disneyland.

[icarus]

Im sorry but your arguments simply have not improved since the day we sat down with Robin Lumb on this subject.

You keep agreeing with me and then denying that you do in the same breath.

Stephen- you seem to grasp the upside (agree with me) but fail to acknowledge the downside. Maybe, its just because your an eternal optimist. (I've never met Robin Lumb or you for that matter and I've obviously never sat down with either him or you.)

Let me once again try and boil it down for you in simple terms:

I owe Kay $100 due in ten years.  I can wait and pay her $100 in ten years but I only make $120 a year so I better start saving now.

I hire you to manage my savings.  I give you $30 to invest towards paying my $100 debt in ten years.  You advise me that I can make good money by loaning the money to Mr. Killashee. It turns out you were wrong and I lost the entire $30. Its five years later and now it would cost me $140 to pay what would have cost me $100 five years ago (inflation and what I paid you to lose my $30). So, now its going to cost me $140 and I lost $30 so my original $100 debt is going to now cost me $170 and I only have 5 years to save towards it instead of 10.

If that doesn't help, maybe the following article on Detroit's pension can provide further context:

http://www.bloomberg.com/news/2013-07-23/bad-real-estate-deals-return-to-haunt-detroit-s-pensions.html

Requesting facts and blaming billionaires are not effective arguments and quite frankly, I have nothing to gain by pointing out your ignorance on this subject. I really want you to understand math, pensions and budgets so you can be an effective advocate for your opinion even if it is not my own.  Go to the library check out a few books and get back to me.  By the way,  posting a few links from a cursory google search does not prove anything other than prove you know how to cut and paste.

[ChriswUfGator]

I'd like to sweeten the pot for all involved. I'm proposing "Sprinkling You With Pixie Dust." It will be a multi-billion dollar mixed use project featuring whatever makes your panties wet.

I'd like to put a Macy's, an NBA team and the world's largest water slide for starters. I'll also extend the Skyway. You want a 1,000' observation desk, I say don't sell Jax short, let's shoot for 2,000 feet because tourist dig the long ball. Hell, we can throw in an extra Winn-Dixie or two for the Mayor. I used to master Sim City back in 92', so my development cred is like Fort Knox.

All we need to get the ball rolling is for you all to pay to purchase the property for me, then we can split the profits.

Trust me, I got this. Here's a rendering of my $100k master site plan:



Seriously though, at this point, what's described above pretty much defines this proposal. If this scenario isn't high risk for any investor, I don't know what is.

In fairness, this sounds a lot like the reasoning for a new convention center...