Why Was Alvin Brown's Pension Reform a Bad Deal?

[NotNow]

JFmann00,

Just a few things that could be done:

1. Dedicate 1 mill of property taxes to the pension unfunded liability.
2. Transfer unused and idle real estate to the PFPF.
3. Hire enough police and firefighters to stop the excessive use of overtime (which costs more than salary but does not contribute to the pension fund).
4. Ban the replacement of PFPF positions with AMIO's or "friends of Alvin".
5. Float a bond.  If we can do it for football and concerts, we can do it for our people.


The firemen have offered many other solutions to the problem at:

www.truthaboutpensions.net

I agree with StephenDare! that these pensions, which have been in existence and healthy since the 1930's, ARE sustainable.  Tampa and Orlando have solved this problem.  The State of Florida has one of the healthiest pensions in the country.  ALL of those funds offer better benefits than the Jacksonville fund. 

This is about political will...and money.  We find the money for scam hotel deals and stadium pools.  But we pretend that we can't afford to pay the pensions that were promised to our employees.  That's not only dishonest, it's immoral. 

[SunKing]

You have to be kidding.http://mobile.reuters.com/article/idUSTRE81718S20120208?irpc=932
The airline, a unit of AMR Corp, proposes to terminate its four underfunded pension plans as part of its bankruptcy proceedings, replacing them with a 401(k) offering. The pension plans' assets and liabilities would be transferred to the Pension Benefit Guarantee Corp (PBGC), the government-sponsored agency that insures most private sector defined benefit pensions.

The plans, which cover pilots, flight attendants, agents and ground crews, have an estimated total of $8.3 billion in assets and $18.5 billion in liabilities. American told employees this week it expects 90 percent of its workers to receive full benefits.

That's a reduction in debt. And that's a corporation that had an existing entity onto which it could offload its debt. Even then, there will be fewer benefits paid than originally promised. I have been on my phone this entire time but I challenge YOU to show me I'm wrong. You've literally brought 0 numbers, from any source, to the table.

Im not the one making a claim, and I don't have to prove you wrong.

There are no numbers that back this whole 'Pension is unsustainable' claim, JFMan.

Simple as that.

Your argument fails.

Stephen why do you waste time and effort arguing points that either dont exist or that have no relevancy to the issue? 
If you truly believe in the system that we have, yet dont fully understand the numbers, then please explain your proposal to expand the current system as a means out of the trap.  I am sure we would all like to hear it. I expect links, charts and oh yes a white paper.  We are all waiting.

[JFman00]

When I say unsustainable I mean that if nothing changes, the city will eventually be unable to meet its obligations. Indeed, if you read far far back I propose a general way to make them sustainable which is cut future benefits (matching retirement fund), raise taxes, and cut services. (somehow that's a Fox News worthy proposal from the way certain people read it).


For numbers.


http://www.coj.net/retirement-reform/docs/rr-taskforce/background-information/jcci-cityfinances.aspx

Yes, this is JCCI, but their methodology is outlined. Don't worry, more sources follow.

Page 23: For the FY2010 budget, pension obligations will likely exceed 10 percent of the City's General Fund Budget. On October 1, 2008, the total unfunded liability was estimated to exceed $1.4 billion – when the Dow Jones stock market measure was at 10,850. After October, the market declined 40 percent before beginning to climb back, further impacting pension funds and increasing the unfunded liability. The projected pension costs are expected to rise rapidly for at least the next 20 years as the current unfunded liabilities are paid down.

http://apps2.coj.net/City_Council_Public_Notices_Repository/20090721%20Pension%20Sustainability%20Comm%20Mtg%20Min.doc

SPECIAL COMMITTEE ON CITY PENSION SUSTAINABILITY MEETING MINUTES TUESDAY, JULY 21, 2009

The recently retired state actuary has been negotiating with the City in recent years regarding several of the City's pension plan assumptions, including the 8.4 % assumed rate of investment return for the GEPP (8.5% for the PFPF) and the edition of the mortality tables being used.

John Keane asked Mr. Miller to provide him with the actuarial assumptions that factor into the calculations resulting in the $1.3 billion future pension obligation cost figure that has featured prominently in the Mayor's recent speeches on the proposed budget. 

Mr. Keane echoed Mr. Miller's earlier comments about the state actuary questioning the City's actuarial assumptions, and noted that both the PFPF and the City have spent considerable time negotiating with both the outgoing and incoming state actuary about what are reasonable and prudent assumptions.  A reduction in the assumed rate of return from 8.5% to 8% or even 7.75% would add tens of millions of dollars to the already daunting pension contribution figures. [note: DIJA, S&P 500, NASDAQ rates of return over the last 50 years. The discount rate stands at 7.75%]

Alan Mosley stated that the charts distributed earlier by Mr. Miller indicate that, regardless of how the investment markets and the UAAL fluctuate over the next 30 years, the growth in "normal" pension costs is also unsustainable for the City budget over that period as well.

http://apps2.coj.net/City_Council_Public_Notices_Repository/20090317%20Pension%20Reform%20Comm%20Mtg%20Min.doc

The City's required contribution to the GEPP is projected to increase from $28.3 million in FY07-08 to $38.6 million in FY09-10, while its contribution to the Corrections pension is projected to increase from $4.2 million in FY07-08 to $9.1 million in FY09-10.  The plan was 83.6% funded as of October 1, 2008.  Mr. Miller and the committee discussed the 8.4% assumed rate of return for the plan and the fact that many other jurisdictions and the State of Florida have lower assumptions (7.75% to 8%) built into their plans.

Dick Cohee, Deputy Executive Director of the Police and Fire Pension Fund (PFPF) presented the current status of the fund which was 49% funded as of the time of the last actuarial report, down from 64% the previous year due to the state of the investment markets. 

http://www.coj.net/departments/finance/docs/accounting/2012-city-of-jacksonville-cafr-sec.aspx

2012 CoJ Comprehensive Annual Financial Report

[2012 numbers not available, a 2012 actuarial valuation of the PFPF is out there but not available online, I'd love to see it.]

Police and Fire Pension Plan as of 9/30/2011 (numbers in thousands)

Actuarial Value of Assets 1,042,241
Actuarial Accrued Liability 2,427,198
Unfunded Actuarial Accrued Liability 1,384,957
Funded Ratio 42.94%

http://www.coj.net/retirement-reform/docs/rr-taskforce/background-information/12-2012-summit-strategies-report-pfpf.aspx

Dec 2012 memo from Summit Strategies group

• As of October 1, 2011, the Fund was 38% funded (market value divided by Actuarial Accrued Liability).
  The funded status is expected to improve to 53% by October 1, 2022 assuming: a compounded annual return of 7.75% is achieved over the 10 year investment time horizon, and required contributions of $1.87 billion are timely made.
• If the 7.75% annual return is not achived, the funded status at the end of the forecast period will be lower than expected and contribution requirements will be greater than expected.
• An unconstrained portfolio, one able to invest without the statuatory restrictions, produces an expected return of 7.0% but with significantly lower volatility. Even without the statuatory restrictions, achieving a 7.75% return will be difficult in the current low interest rate, high volatility environment absent taking excess risk.

http://www.coj.net/retirement-reform/docs/may-2013/retirementreform-actuarialanalysis.aspx

Milliman actuarial analysis of the MPS, May 2013

We note that the results of the 2011 valuation prepared by Pension Board Consultants, Inc. measured the Plan's total actuarial liabilities (funded and unfunded) at approximately $2.4 billion.

http://www.coj.net/retirement-reform/docs/rr-taskforce/other-points-of-view/civiccouncil-6192013.aspx

Jacksonville Civic Council response to Mayor Brown's plan, June 2013

The City's cash contributions to the Police and Fire Pension Plan for the period 2002-2010, averaged $36 million per year. In the current year, the City will contribute $122 million - 13% of the operating budget.

[goes on to repeat the numbers from the JCCI study which for some reason should be entirely ignored]

http://www.thefiscaltimes.com/~/~/media/Fiscal-Times/Research-Center/Budget-Impact/Academic%20Papers/2010/10/13/NMRLocal20101011.ashx?pid=%7B2714ECAC-F955-4339-8A13-EA5793353400%7D

The Crisis in Local Government Pensions in the United States*
ROBERT NOVY‐MARX, UNIVERSITY OF ROCHESTER AND NBER [BS Physics from Swarthmore, PhD Finance from the ultra-conservative institution of UC Berkeley, former Booth professor]
JOSHUA RAUH, KELLOGG SCHOOL OF MANAGEMENT AND NBER [Currently at the Stanford Hoover Institute, Netspar (Network for Studies on Pensions, Aging and Retirement in the Netherlands) research fellow, BA Econ from Yale, PhD Econ from MIT, former Booth professor]
October 2010

We calculate the present value of local government employee pension liabilities as of June 2009 for approximately 2/3rds of the universe of local government employees. Using local government accounting methods, the total unfunded liability in these areas is $190 billion or over $7,000 per municipal household. When government accounting is corrected by discounting already‐promised benefits at zerocoupon Treasury yields, the total unfunded obligation is $383 billion or over $14,000 per local household. If on a per‐member basis the unfunded liability is the same for the 1/3rd of workers covered by municipal plans not in our sample, the total unfunded liability for all municipal plans in the U.S. is $574 billion. This unfunded promise is above and beyond the roughly $3 trillion (or almost $27,000 per household) unfunded liability of all state‐sponsored pension plans in the U.S. Many U.S. cities are therefore carrying substantial off‐balance‐sheet debt in the form of unfunded pension obligations. We also identify 6 major municipalities whose current pension assets would only be sufficient to pay already‐promised benefits through 2020, and 20 whose current pension assets would only be sufficient to pay already‐promised benefits through 2025.

[See Jacksonville in Table 6 and Table 7. No, I don't know where they're getting their numbers from, just showing that the JCCI and City provided numbers are not gross exaggerations compared to other estimates out there]

[JFman00]

You have to be kidding.http://mobile.reuters.com/article/idUSTRE81718S20120208?irpc=932
The airline, a unit of AMR Corp, proposes to terminate its four underfunded pension plans as part of its bankruptcy proceedings, replacing them with a 401(k) offering. The pension plans' assets and liabilities would be transferred to the Pension Benefit Guarantee Corp (PBGC), the government-sponsored agency that insures most private sector defined benefit pensions.

The plans, which cover pilots, flight attendants, agents and ground crews, have an estimated total of $8.3 billion in assets and $18.5 billion in liabilities. American told employees this week it expects 90 percent of its workers to receive full benefits.


That's a reduction in debt. And that's a corporation that had an existing entity onto which it could offload its debt. Even then, there will be fewer benefits paid than originally promised. I have been on my phone this entire time but I challenge YOU to show me I'm wrong. You've literally brought 0 numbers, from any source, to the table.

Keep in mind that a municipality claiming bankruptcy is not the same, nor is it treated the same as a corporation filing. The tax law has different chapters for a reason. It would seem JFMan that you are in favor of COJ exercising such opportunity if Detroit proves successful, which is very dangerous. That means one term be used to buy buy buy, and the following term can be use to file file file. A horrible pattern.

If that is your belief, you are not alone, but it is a dangerous slippery slope to get caught on.

I don't think bankruptcy is at all desirable. The entire point of voluntary restructuring is to prevent such a thing and bankruptcy should be a last resort. Why? Because bankruptcy is worse for everyone. It's worse for the pensioners, worse for the taxpayers and worse for business.

I was trying to illustrate what could happen if we continue waiting to reform benefits and institute other changes (tax increases, service cuts). Without a doubt Detroit is going to be an interesting case and show whether state-law mandated pensions can be touched in bankruptcy, but if they can't how exactly is Detroit supposed to provide other services? I have a very, very, very difficult time believing that raising taxes alone would be political possible, let alone at increases sufficient to permanently solve the problem (even given the already rosy assumptions).

JFmann00,

Just a few things that could be done:

1. Dedicate 1 mill of property taxes to the pension unfunded liability.
2. Transfer unused and idle real estate to the PFPF.
3. Hire enough police and firefighters to stop the excessive use of overtime (which costs more than salary but does not contribute to the pension fund).
4. Ban the replacement of PFPF positions with AMIO's or "friends of Alvin".
5. Float a bond.  If we can do it for football and concerts, we can do it for our people.


The firemen have offered many other solutions to the problem at:

www.truthaboutpensions.net

I agree with StephenDare! that these pensions, which have been in existence and healthy since the 1930's, ARE sustainable.  Tampa and Orlando have solved this problem.  The State of Florida has one of the healthiest pensions in the country.  ALL of those funds offer better benefits than the Jacksonville fund. 

This is about political will...and money.  We find the money for scam hotel deals and stadium pools.  But we pretend that we can't afford to pay the pensions that were promised to our employees.  That's not only dishonest, it's immoral. 

When I say unsustainable, I mean if nothing (benefits, taxes) changes. At numerous points throughout this discussion I've floated ideas on how to make the system sustainable. The other cases mentioned are doing well now precisely because they behaved responsibly in the past. As I've tried to illustrate Jacksonville is in a bad situation because the irresponsibility in the past has a "blossoming" effect as time passes.

[JFman00]

Probably a lot less of it.

hmm.  I never ran across that during the seven years that I ran a bankruptcy practice JFMan.  Sounds like you are speculating to me.

Why do the terms voluntary restructuring, and debt haircut exist if principal is always sacrosanct? With the housing downturn, weren't creditors accepting loses on their loans when they foreclosed?

So are you going to admit that youve pronounced the pension 'unsustainable' based on a belief so unfactually based that it approaches a religious quality?

You havent seen the numbers.  Any numbers.  On the other hand, you've heard from an actual cop who disagrees with you, and you admit that the problem is that the city skipped payments.

At no point have I disagreed on what caused the city to get to this point.

Further, youve admitted in principle that the debt is still a valid debt.

But you think the problem is that the pension itself is 'unsustainable' as a result of number you havent seen, in a report that hasnt been printed, from a group that you keep incorrectly identifying as "JCCI"?

Here's a link to the JCCI study, see page 23: http://www.coj.net/retirement-reform/docs/rr-taskforce/background-information/jcci-cityfinances.aspx

In reality the problem has nothing to do with 'the pension'.

Jacksonville skipped a few payments while voting itself a tax decrease.  Not very smart in the long run as it turns out.

Now it will have to pay those obligations.  Probably by restoring its former rate of taxation.

Please show me that restoring the former rate of taxation is sufficient, numbers detailing the non-existent problem in previous posts

It sounds like you have a political bias and have tried to insert that bias into a conversation about 'pensions' regardless of the actual math or history.

My political bias consists of starting with a problem (already a difficult task with people like climate-change deniers), defining a range of possible solutions and only then making a value judgement on which solution is better than the other. Nothing frustrates me more than people who refuse to even acknowledge options because they personally don't like them.

Its a good thing both of us are fairly patient people, or else this conversation might have actually turned out less than civil!

As for  me, Im going to reserve opinions on how much debt the city owes its public safety employees until I can see the actual math.

But in the meantime, Im not going to pretend that we don't owe the money.  Or that we don't need them.

Nice chatting with you, but I don't see the conversation going any further until there are some actual numbers produced.

As a public sector worker I don't think I'll ever see the promised reward of the defined benefit plan that doesn't kick in until 20 years. I'd rather get matching contributions to a personal fund so that even if the defined benefit plan goes away for whatever reason, I have something to count on. I wasn't even born when most of these plans were enacted and I wasn't able to vote until they already appeared like they were trouble. Why should I bear the full brunt of service cuts and tax increases to give benefits I won't get and didn't vote for?

At the same time, I acknowledge that not only would it be cruel to slash DB pensions to the bone, it's politically impossible. I've proposed the solutions I have not because they're what would be best for me, but ones that would appear to be both politically feasible and sustainable in the long run. I have a hard time believing that the average citizen would agree that the number one priority of government is to pay pensions. Indeed say that pensions are sacrosanct all you want, but here's a very real case: Tale of Prichard pension program (yes, weird source, but author is a professor at the University of Southern Alabama and breaks down what happened quite well)

[SunKing]

Also btw if you go to Pembroke Pines website (10th largest city in Florida) they have active requests to bid out all facility and ROW maintenance, water utilities operations and the entire Parks Department to private contractors. It takes a little research but its there.

[JFman00]

What are all of these?http://www.metrojacksonville.com/forum/index.php/topic,19329.msg342250.html#msg342250

Or the JCCI study I linked to here:
http://www.metrojacksonville.com/forum/index.php/topic,19329.msg342255.html#msg342255

[JFman00]

Action is being pursued based on these numbers. The math isn't shown because that's what actuaries are hired for. You can say they don't exist all you like but you have yet to do anything to support your conclusions. I've provided sources and extracts that support what I'm saying. You say "they say the exact same thing I have" yet don't provide any quotes or numbers. At all. The city is taking action based on the assumption that there is a problem. If you disagree, prove them wrong.

[JFman00]

When you're in a leaky boat that might be sinking, you probably want to stop sinking. You don't wait to start bailing water until you know where you're leaking, what caused the leak, how big the leak is and what the best material to stop the leak is.

If you want to critique the source, question the methods, question the raw data and question the analysis of subject matter experts, you can join climate change deniers and creationists and go pound sand. Those of us who want to keep the boat afloat will take these numbers and come up with what we see as a solution you probably won't like because you weren't a constructive participant from step one (framing the issue, determining problem, identifying the scope of the problem). Your contribution so far is to say "you're wrong, I'm right".

[JFman00]

Still no numbers, no math, no sources, no quotes.

When the city is choosing between paying the cops we have now, and paying ones that are retired, your priority is the ones that are retired. OF COURSE, everyone wishes there was more money to go around and that the choice didn't have to be made. PLEASE ask for a tax increase, I'd support one (to a point). But you give me a number, any number for how much tax rates would have to go up for the city to both pay it's existing obligations and maintain city services. I'd wager that increase would be so high it'd take someone holding an axe over people/politicians heads to pass it. If you're not willing to consider any other options besides a tax increase, please show me how much more I need to pay.

I'm from Illinois. My best friend works in the Democratic governor's office as a budget analyst. I can tell you that at both the state level the choice has been to raise taxes and cut services. It is not enough. The State increased income tax by 66% in 2011, yet the "problem" is not fixed. Illinois is struggling with a nearly $100 billion unfunded liability for its five retirement funds. Lawmakers ended the spring legislative session on May 31 at an impasse on pension reform. Pension payments are squeezing spending for core state services, such as education and healthcare. Gov. Quinn called a special session of the legislature in June and is trying to suspend their pay, legislature suing to get their pay reinstated, no progress on pensions.

If I understand your argument correctly, the State's number one priority should be to fund pensions. Whether they do that by tax increases, or reducing services, oh well.

[JFman00]

I also want to add that NO ONE benefits from exaggerating the issue. Every possible choice is politically unpopular and more money gets taken out of pockets that weren't expecting it regardless of whose pocket it is. Please, blame whoever you want, point fingers. Whoever you're pointing at was probably complicit at some point. Deny that there's a problem at all? Prepare to be making even more difficult choices in the future. It's precisely this optimistic "oh, the markets will turn around and the problem will solve itself in the future" that got us here in the first place.

[JFman00]

I wish I had that attitude. I'd order every credit card in the book, max them out, make minimum payments, but say "I should've been earning more money. Don't worry, I'll make more money in the future and be able to pay it off then".

This is like a phone tree except there's no "press zero for more options". You just have the same replies over and over no matter what's said.

[JFman00]

What I'm saying is "I need a car to get to work in order to make the money to pay you. Sure, I could pay you everything I have, but if I lose my job, good luck getting what you're owed." What's the point of government if they don't provide services to citizens? Again, when the city is laying off police officers to pay retired cops, it's hard to make the claim that you care about public safety or even about public-sector workers. You're saying you value former public-sector workers against everything else.

At no point have I argued we should stop paying pensions, but it's evident to everyone but you that paying them 100% of what they've been promised and maintaining the system that made this even an issue isn't going to be politically possible.

I can't help but appreciate the irony that you found this a "great article", yet it begins references the study I "haven't seen, hasn't been printed" from the group I "incorrectly identify" as JCCI. The article details the ways in which the Mayor's proposal was insufficiently radical. It states in clear language what I've been attempting to prove all along:

"Ultimately, the fallacy of this situation is that is that new employees will contribute to a comfortable retirement for current city employees with no 'shared sacrifice' being incurred by tenured employees as pre-tax contributions will increase from 7 to 10%. And with proposed cuts to essential city services likely, coupled with the likelihood of less hiring being done by the city, means that unfunded liabilities will, at some point, call for more taxes which the Mayor stands firm on not doing."

"Also, we need to understand that the problems of the past can be addressed if we as a community embrace the idea of 'shared sacrifice'. We can't get back the money squandered yesteryear, but we can contribute to creating a better city tomorrow. As well city employees who have tenure can contribute to a better situation for future city employees by understanding that an austere plan for them will not only deprive our city of being able to entice the best and brightest into government service, but that their future security in retirement depends on fiscally stable Jacksonville as well."

How is any of this different from what I've been saying? You can keep trying to poke holes in what I'm saying without supporting anything of your own, but what are you really accomplishing? When I discuss things with people I disagree with, I usually learn something new. So far all I've learned is that I can just safely assume that whatever I say will be considered wrong no matter what it is.

[JFman00]

Does it matter? You'll just disagree.

[SunKing]

Thats the weakest argument ive ever heard.

What is 'broken' is not the Pension.  Its the looter mentality of our local taxation.  We leech off the state and the feds in order to not pay local taxes, and there is this unrealistic expectation that we can continue to do this in a national economic downturn.

Well we cant, and its time to pay the piper.

However this whole idea of "fuck the cops, I don't want to pay them what we agreed to pay' is not only not an option legally, its immoral.

The city needs and deserves protection more than a handful of politicians need to look like they are magically going to feed the multitude with five loaves of bread and two fishes.

I believe that I have supported that mentality from the beginning.  That's why I support privatizing non public safety privatization. Please provide math that supports your proposal to expand the city's workforce by 500 employees with money that we do not have as well as other major cities that have successfully implemented this "Greek Plan."  You can start with Detroit and work your way down the list.