The audit reinforces what we have been saying all along.  The promises made by the advocates of corporate welfare in the form of the Jacksonville Economic Development Commission are often not delivered.  With over a decade long track record of corporate giveaways, handouts and bailouts, taxpayers have little to nothing to show for millions of dollars that have been “invested” .

We applaud the new mayoral administration’s proposed elimination of the JEDC but are skeptical of the dubious effort to re-brand corporate welfare as “public private partnerships” or P3s or PPPs.  Unfortunately the P3s being touted bear no resemblance to the Navy aircraft flying over the city.  Instead, P3s are just another euphemism for corporate welfare schemes where taxpayers bear all the risk of capital financing for a project and private individuals benefit when there (rarely) is a profit.

Now Mayor Brown has promised to reform the concept and focus on Downtown.   Haven’t we heard the broken promises before? Lavilla Redevelopment?  ? Lavilla BistroRiver City Renaissance?  Courthouse?  Genovar Hall?  Shipyards?  Skyway People Mover? Our own John Winkler has performed his own investigation to summarize the just a few of the failed promises of the sages at city hall.  The investigation is featured on our November show.

We do not doubt the sincerity of those who would like to see the urban core thrive.  In fact, we would like to see downtown turn into a prosperous area where people actually enjoy going.   Unfortunately, taxpayers can not afford to lose any more money on risky giveaways disguised as “investments” for some unquantifiable and intangible public good.

We urge Mayor Brown to reconsider the public dollar giveaway to the aspiring robber barons camouflaged as philanthropists.

The Concerned Taxpayers of Duval Co. (CTDC) and Curtis Lee, one of its directors and Chair of the Public Employee Compensation Committee, filed an amended complaint on August 23, against the City of Jacksonville, and the Jacksonville Police & Fire Pension Fund (PFPF).

The lawsuit and amended complaint, among other things, allege that all existing agreements between the City and the PFPF, as well as proposed legislation that was presented by former Mayor Peyton and which is still pending before City Council, were negotiated in violation of state labor law, and state Sunshine Law, and are therefore void. The Lawsuit also seeks to enjoin future violations. The agreements at issue provide generous pension benefits to persons employed and formerly employed by the Jacksonville Sheriffs’ Office and the Jacksonville Fire & Rescue Department. These pension benefits have been in the news in recent years, as they are very costly to taxpayers, and because the PFPF has approximately a $1 billion funding deficit.

Mr. Lee stated as follows: “The City and PFPF are badly mismanaging the public pensions resulting in huge costs to City taxpayers. Currently, public pensions cost each Jacksonville resident more than $150 per year, and this cost keeps escalating. It is our goal that this lawsuit will assist in causing a fundamental reconsideration of a broken pension system.”

Joe Andrews, Vice President of CTDC adds, “For years the PFPF and City engaged in clandestine negotiations in violation of State Sunshine and Labor laws. The consequence of these illegal agreements is an unsustainable liability to Taxpayers. Had these negotiations been conducted in accordance to the law, it is doubtless that the results would have been more favorable to Taxpayers.”

More information is available from Curtis Lee (594 – 6192) or Robert Dees (357-3660). Additional information is also available on the CTDC website at www.jaxtaxpayers.org

The Concerned Taxpayers of Duval County, Inc. is a not for profit corporation dedicated to serving the community as a watchdog group, to oppose corruption, waste, and tomfoolery in government.

Paid for by the Concerned Taxpayers of Duval County, Inc., P. O. Box 2307, Jacksonville, FL 32202

904-351-8126

www.jaxtaxpayers.org

Concerned Taxpayers of Duval County, Inc.,

P. O. Box 2307, Jacksonville, FL 32202

-XXX-

904-351-8126
www.jaxtaxpayers.org
Concerned Taxpayers of Duval County, Inc.,
P. O. Box 2307, Jacksonville, FL 32202
FOR IMMEDIATE RELEASE

The Concerned Taxpayers of Duval County Inc. (CTDC) filed a lawsuit against the City of Jacksonville and the Jacksonville Police and Fire Pension Fund (PFPF) on June 3rd 2011.  The lawsuit was filed in Circuit Court, Duval County and is docketed at 2011-CA-004348.   For a copy of the complaint, please go here.

Curtis Lee, Chairman of the Public Employees Compensation Committee (PECC) and Director of CTDC, is also a plaintiff in the lawsuit, which seeks declaratory judgment and injunctive relief concerning contract negotiations conducted in violation of state labor laws and the Florida Sunshine Law.

Mr. Lee says that “for more than 10 years, the PFPF and the City have collectively bargained retirement benefits on behalf of PFPF members and future members, in violation of Florida labor law.  Additionally, these negotiations were conducted in secret without public notice or opportunity for the public to observe, as required by the Sunshine Law.  The City’s pension system is broken.  Unless serious pension reform occurs, where pension benefits are negotiated in a transparent fashion as required by state law, the pension crisis will only cost taxpayers more in the future.”

Victor Wilhelm Jr., President of CTDC, adds: “Mr. Lee and CTDC have been attempting to educate the mayor, the administration and the City Council about the unsustainable nature of the public pension status quo, how this harms taxpayers, and what can be done to reduce costs.  Unfortunately, we have what appears to be a pattern and practice of violations of the Sunshine and labor laws, all for the benefit of insiders.”

Mr. Lee and CTDC have retained the services of Robert Dees, Esq., of Milam Howard Nicandri Dees and Gillam to pursue this lawsuit.  Mr. Dees has more than 25 years of experience in Sunshine Law litigation.

Additional information about the suit is available from Mr. Lee at 904-594-6192 or Mr. Dees at 904-357-3660, or at www.jaxtaxpayers.org

The Concerned Taxpayers of Duval County, Inc. is a not for profit corporation dedicated to serving the community as a watchdog group, to oppose corruption, waste, and tomfoolery in government.

-XXX

I am a retired attorney, and first started working on private sector pension matters 30 years ago. I have researched Jacksonville’s three public employee pension plans, and am dismayed about the mistakes and fiscal irresponsibility that occurred. Jacksonville is now in the midst of a pension crisis. For example, these public employee pension plans have unfunded liabilities (deficits) totaling about $1.7 billion – about $2,000 per resident. And, in fiscal 2012, more than $140 million will be paid into these plans (over $150 per resident – more than a tripling of costs in about 6 years). About 90% of this payment will come from taxes. The rest will be paid by City residents via JEA bills.

Public pension costs will represent about 14% of Jacksonville’s General Fund budget.

How did things get so bad? There are many reasons, which boil down to the usual suspects – politics, greed, and mediocre investment returns. Let’s now delve deeper.

We’ll start in 1935. The Social Security Act of 1935 (SSA), which has been amended many times, has permitted state and local governments not to pay Social Security (FICA) taxes, and not to have their employees pay FICA taxes or be covered by Social Security. However, many state and local governments then instituted defined benefit pension plans, i.e., traditional pension plans, for their employees. My understanding is that Jacksonville first adopted such a plan in 1937. Jacksonville thus opted out of Social Security and instead provided pension benefits for public employees.

A defined benefit pension plan (DBP) provides benefits that are normally payable under this type of formula: multiply years of credited employment times a stated percentage times final average salary. For long-service employees, DBP plans provide retirement benefits that replace percentages of salary. In Jacksonville, the maximum salary replacement for public employees is 80%, and many public employees retiring in their early to mid 50s get this 80%. Some Jacksonville employees (police, fire and corrections) can and do retire in their 40s at 60% or greater salary replacement levels. Plus, Jacksonville’s retired employees receive what are called cost-of-living adjustments (COLAs). These are, in reality, 3% annual increases, regardless of actual inflation.

And so, in broad brush, this is what Jacksonville’s more than 8,000 public employees get in lieu of Social Security. I will now briefly explain how they greatly benefited because Jacksonville long ago opted out of Social Security.

Persons receiving Social Security benefits – mostly, private sector employees – usually only get two types of retirement benefits: Social Security plus defined contribution plan benefits. Private sector employers seldom offer DBPs any more (costs are too high and variable), and they are not required to offer defined contribution plans. But, if they offer defined contribution plans, the employer contributes set percentages of pay (or, sometimes, nothing) for the benefit of employees, and employees may contribute portions of their pay. Those contributions are invested. Employer contributions are set; ultimate benefits are not. The most common type of defined contribution plan is the 401(k).

The highest paid private sector worker who retires in 2011 at 66 receives about $28,000 per year in Social Security benefits. Most workers get less; the average annual Social Security retirement benefit in 2011 is about $14,000. Workers cannot receive Social Security retirement benefits before 62, and benefits are reduced if one retires before normal (full) retirement at 65 – 67. (Disability benefits are the exception.)

Employers get cost stability via Social Security. It has, for many years, cost employers 6.2% of payroll, up to a ceiling known as the employee wage base – currently $106,800 annual salary.

Now contrast Social Security with Jacksonville’s public employee pension situation. Thousands of City public employees have retired, and will retire, with pensions that far exceed $28,000 per year. Most of them retire before age 62. One recently retired City official (Richard Mullaney) retired at 55 with a full pension of $152,737.32 per year. His pension was not reduced for early retirement. Almost 1,000 retired City employees (many of them policemen) receive pensions of more than $50,000 per year. Most Jacksonville public employees retired before age 62; most policemen and firemen retired before age 50.

In short, Jacksonville’s public employees get much greater retirement benefits, for far longer periods, than private sector employees get. Because of both factors, Jacksonville’s public employees get up to 10 times more from City pension plans, than they would have gotten via Social Security, if the City had not opted out. And yet, on average, City employees do not contribute more for these significantly better benefits. This mismatch is unsustainable, as the deficits, zooming costs and other data show.

And so, how badly has Jacksonville been harmed because of its decision to opt out of Social Security and sponsor public employee pensions? Oddly enough, before 2000, Jacksonville sometimes saved money (versus what it would have spent in FICA taxes). There were two main reasons. First, the 1980’s and 1990’s were abnormally good decades for investors, and the pension funds enjoyed the ride. Second, one aspect of (and problem with) DBPs is that their costs tend to be backloaded. However, both reasons no longer apply – investment returns are now mediocre, and the City’s DBP’s are older. Result: the City contributes almost 50% of police and fire payroll to the Police and Fire Pension Fund (PFPF), its most troubled DBP. The City will contribute about 35% of payroll respecting corrections officers’ pensions, and about 17% of payroll respecting other public employees’ pensions. If only Jacksonville had utilized Social Security – 6.2% of payroll is a lot less – about $100 million less annually.

Who lost? Obviously, taxpayers. Who won? Public employees. Who won the most? Policemen and firemen. I will now focus on the biggest winners.

Over the years, Florida police and fire unions used their political clout to obtain state legislation concerning separate police and fire pension DBPs. This legislation basically insured, as a practical matter, that unions would control police and fire DBPs. It also provided for minimum DBP benefits, and will have to be repealed or substantially modified to restore local governments to fiscal health.

Jacksonville’s police and fire DBP – the Jacksonville Police and Fire Pension Fund (PFPF), has been frequently “improved” at taxpayers’ expense. Here is a summary of some important changes:

(1)Under Mayor Austin, Ordinances 91-1017-605 and 93-229-329 established or affirmed use of 2-year final average pay (FAP) for the PFPF, and a 2.8% per year crediting formula for the first 20 years of employment (now 3.0%). They allowed retirement at 80% salary replacement at 32 years’ service (now 30), regardless of age. Also, the City committed to COLAs for retirees.

(2)Ordinance 93-1983 approved COLAs in 1996. Then, the COLA was the lower of 3% or inflation, and began 5 years after retirement. (Now it is 3% regardless of whether there is any inflation, and there is no 5-year wait.) Plus, before the COLAs began, certain monthly supplements were implemented. Mayor Delaney signed this on 4/1/96.

(3)Ordinance 97-1103 implemented a Deferred Retirement Option Program (DROP), with a guaranteed 8.4% return. Mayor Delaney signed this on 8/17/98. Two irresponsible decisions were made. First, a DROP is inherently unwise. Such a program allows employees to receive salary and pension simultaneously, except that the pension payment is invested and earns 8.4%. The result: when the employee actually retires, he or she often has a sizable 6-figure lump sum in hand, plus a sizable subsequent stream of pension payments. Second, guaranteeing participants 8.4% under the DROP was irresponsible. No mechanism was provided for two easily foreseeable events – that interest rates would decline, and that PFPF investment returns would decline. [In my years of experience with corporate DBPs, a dying breed, I never heard of any that had a DROP feature.]

(4)Ordinance 2000–1164 represents the biggest pension mistake in recent City history. The ordinance was introduced on 11/14/00, and includes a restated agreement between the City and the PFPF. At the time of introduction, the ordinance’s fiscal impact was “undetermined” according to the legislative summary. Not true – see below. Mayor Delaney signed the ordinance on 2/22/01. The ordinance has several irresponsible features.

It entails the adoption of a 30-year agreement between the City and the PFPF board of trustees. Yet the City’s Office of General Counsel admitted to me over a year ago that the City believed the 30-year term was unenforceable (illegal). The idea that attorneys approved a contract that they believed to have unlawful terms is disturbing. The PFPF has used this lengthy term, and some mutual cooperation language, to contend that PFPF benefits cannot be reduced before 2030.

PFPF members’ contribution requirements declined from 8 to 7% of pay. And, the crediting formula was enhanced from 2.8% to 3% for the first 20 years of employees’ service, with 2% for the next 10 years – an overall cap of 80%. This encouraged retirement by employees in their 40s, with pensions at 60% salary replacement or higher. Many employees later could and did retire in their early or mid 40s with lifetime pensions of $40,000 per year or more. Plus, the 3% COLA was made immediate – no more 5-year wait.

Also, the process was strange. The City and PFPF engaged in collective bargaining; yet the PFPF lacked the legal right to do so. The PFPF always was a pension fund, and a City agency – not a labor union. The City bargained with a City agency. Odd!

According to the 2000 actuarial valuation concerning these changes, this ordinance boosted the unfunded PFPF liability by $21 million. This extra cost was concealed by “assuming” that the PFPF’s assets would earn higher returns, by increasing the discount rate, by amortizing (spreading) the cost of existing liabilities over longer periods, and by making several other changes in assumptions.

In other words, Mayor Delaney, his staff, and the City Council gave a huge gift to policemen and firemen, while disguising the cost. Sadly, most taxpayers did not, in 2000 or 2001, understand how badly they were harmed.

There have been some further pension related changes since 2001 – all harmful to taxpayers. I will only discuss the worst – Ordinance 2008-983.

This ordinance allowed corrections officers to retire at any age with 20 years of service – just like PFPF members – instead of 25 years. The actuarial report determined that the cost of the changes (present value cost/increase in plan liability) was about $29 million. This was especially irresponsible, because the combined City pension deficit at the time was known to be close to $800 million, and was really much higher, because stock markets worldwide fell drastically in 2008. Further, the ordinance also allowed employees to participate in a DROP program, and to get 3% immediate annual COLAs.

Mayor Peyton bears primary blame. In 2006, he agreed with the Fraternal Order of Police (which represents corrections officers), to boost such benefits effective in 2008. The combined City public employee pension plan deficit was also close to $800 million in 2006. Why did Mayor Peyton do this? To get union support for his 2007 reelection. Conveniently, the costs of Mayor Peyton’s irresponsibility would not be felt until after his 2007 re-election.

What can be done? Jacksonville residents must support serious pension reform, or be prepared to suffer many more tax increases. Tinkering won’t suffice. I recommend treating new public employees on par with private sector employees – they should get Social Security and defined contribution plan benefits only. As for existing employees, they should keep what they have accrued to date, but should only participate in Social Security and a defined contribution plan regarding future service. Many changes will be required, at the state and local level, and it will require great effort and determination. But, the savings to taxpayers could exceed $60 million per year, even after reflecting the costs of the new defined contribution plan, and transition costs. Or, even if compromises result in lower annual savings, the upside of serious pension reform, as opposed to tinkering, is stunning.

Serious pension reform is possible. Private enterprises have implemented similar changes over the last few decades. My recommended changes would cause about 8,000 public employees to complain, but would benefit about 860,000 people. If public employees don’t like the new arrangements, they are welcome to find other jobs. If they do, they will be hard-pressed to replace the excessive pension benefits they now have.

Curtis Lee is a retired attorney who first began working on pension matters – legal, investment and administrative – 30 years ago.  He is also a director of Concerned Taxpayers of Duval County.

Copyright 2011 by Curtis Lee. All rights reserved

11/4/10

Dear Members of the TRUE Commission,

Thank you for this opportunity to speak to you concerning the problems associated with Jacksonville’s public employee pension plans. Some of you know me or have heard me speak on similar topics before. I am a retired attorney who worked in the private sector since 1980 and spent a great deal of time working on many aspects of corporate pension plans – legal work, administrative work, and investment work. When I worked in the private sector, I managed for many years a corporate pension plan.

I first started getting involved with Jacksonville’s pension problems more than a year ago and since then have done a great deal of research and have attempted to help publicize and hopefully help fix the city’s horrendous pension plan related problems. As part of my efforts, I have spoken to the City Council, its committees, and on television and have had several articles and letters published in the Florida Times Union and several smaller newspapers.

Let’s start with definitions and an overview. There are two broad types of pension plans – defined benefit plans (DBP) and defined contribution plans (DCP). DBPs are traditional pension plans. An employee earns a benefit expressed as an annual benefit, and that benefit is based on years of credited service times final average salary times a formula. There are many varieties of DBPs, but they all have a big problem – they are hard to budget for. Costs to employers bounce around, but usually increase. Employer costs especially are prone to increase when the assets that they invest to back their promises – the pension plan’s assets – perform poorly as they have done for most of the last decade.

DCPs include 401 (K) plans and are fundamentally different. The employer contributes a known amount or rate to an employee’s account and therefore the employer’s costs are much more stable and much easier to budget. The contributions are invested and the benefit to the employee depends on what his or her account is worth at a later date. There are numerous other differences between DBPs and DCPs that I will not discuss now.

Because of the high and highly variable costs of DBPs, the private sector has largely stopped using them. The public sector, however, still overwhelmingly uses DBPs. In recent years, these public sector DBPs have caused many problems for taxpayers – costs have zoomed due to mediocre investment returns, politicians and public employees have resisted reform (benefit formula reductions), and scandals periodically emerge – you may have read about “pay to play” scandals where public pension plan managers get gifts or campaign contributions from investment firms that they hire to manage public pension plan assets.

I. Jacksonville’s financial crisis & problems relating to pension plans.

In the rest of this speech, I use official city figures. I round to nearest million or nearest $100 million where apropos. Generally, the figures I use are fiscal 2009 figures; fiscal 2010 figures have not yet generally been made available.

Jacksonville faces the “perfect storm” – declining property values combined with zooming pension costs. Jacksonville is bankrupt on balance sheet basis – its unfunded liabilities are about $5 billion versus assets of about $4 billion. And most city assets are not readily salable (most of the city’s book assets represent infrastructure).

Indeed, if Jacksonville were an individual, it would consider filing for bankruptcy!

Of the approximately $5 billion in city unfunded liabilities, about $3.2 billion represents long and short term municipal debt. The remaining approximately $1.8 billion represents unfunded debt (deficit) attributable to the city’s approximately 8,000 public employees – policemen and firemen, general city employees, and corrections officers. (Note – I do not discuss teachers – they are part of a different system.)

Thus, over 1/3 of the city’s net unfunded indebtedness is attributable to the city’s public employees. Yet these public employees are fewer than 1% of city residents. Quite a tilt in priorities!

These public employees are covered under either the PFPF, COPP or GEPP, all of which are DBPs. (See top of this article for definitions.)

These three city public employee pension plans held about $2.3 billion in assets vs. about $4 billion in liabilities as of 9/30/09. More current estimates suggest that the plans assets are now about $2.5 billion in total, but the liabilities probably also increased similarly. (The liabilities inexorably increase because employee’s salaries generally increase and other relevant factors, such as age and years of service, tend to increase.) The gap between assets and liabilities – the deficit – thus continues at about the same level.

You may have seen some of my past writings where I discussed the fact that the city’s official UAAL (deficit) as of 9/30/09 for the three city public pension plans was $1.467 billion. This does not tie out to the $1.7 billion funding gap above. The missing piece is the result of an actuarial convention called actuarial smoothing that understated the gap by $234 million. Add the 2 figures – now you tie out to the $1.7 billion funding gap.  Then, add $137 million, which is city’s official 9/30/09 estimate of its liability for unfunded other post employment benefits for these approx 8,000 public employees, and you get a greater than $1.8 billion total of unfunded debt attributable to those public employees.

This $1.8 billion total unfunded debt = $2,000 per city resident, and at least $5,000 per average household.

These bad statistics show no sign of going away. In fact, my back of the envelope math shows that even if the Dow Jones index jumped to 30,000 next month – almost a tripling from current levels – the $1.8 billion deficit declines to “only” about $500 million. Of course, the odds of this happening are minimal. Thus the city can’t really just “do nothing” and hope or expect to be “saved”.  Sticking one’s head in the sand is not a realistic option.

Further, the official pension plan statistics assume very high rates of return (8.5% and 8.4% net of costs) for the three city pension plans’ assets, which makes it very hard for the city to EVER emerge from the deep hole it is now in. Huge deficits, once established, are hard to overcome.

Plus, the annual costs of the plans (the minimum required contributions thereto) are high – $110 million per year – 11% of General Fund budget and trending higher. (This represents an increase from about $40 million per year about 5 years ago.) This cost is about $125 per city resident and over $300 per household per annum.   All this cost per family per year just for pensions for 8,000 public employees!  And it gets worse.

The city projects that the $110 million in annual contributions to the three city pension plans will more than double in the next 10 years unless major reductions in pension benefits are implemented. This could mean that public employee pension costs will represent 20% of General Fund budgets by the end of the decade.

The $110 million annual cost of the public employee pension plans is likely to increase for another reason – the applicable accounting and regulatory authorities are likely to force public pension plans to stop using overly optimistic rate of return assumptions such as the currently used 8.4% and 8.5%. The city has projected that contributions to the three city pension plans will jump about $24 million if the city must use a more conservative 7.75% assumed rate of return.

Why are these figures so scary for taxpayers?  The answer is simple.  City pay levels and pension benefit formulas are outrageous! Retiring at 80 % salary replacement for long service employees is unheard of in private sector. Yet the city’s pension plans provide for such lucrative retirements. Also, the city’s pension plans have provisions for annual 3% COLA (i.e. annual increases in benefits that occur regardless of inflation). This largesse likewise is unheard of in the private sector. Has anyone heard of any private company that allows full retirements with COLAs as early as age 40? Of course not. Yet, in Jacksonville, the policemen and firemen, members of the PFPF, who earn on average over $60,000/year can retire as early as age 40 assuming they started work at age 20. In fact, the average Jacksonville police and fire employee retires with a pension of over $46,000/year and retires at 49. (And these are 2008 figures! No more recent figures have been published.) Policemen and firemen in Jacksonville get at least 4 times what private sector people get via Social Security despite contributing less.

The bottom line – The city’s leaders made unwise decisions regarding public employee compensation, including public pensions, for decades and now the chickens have come home to roost. (For example, city leaders in 2008 boosted COPP benefits at a present cost then of about $29 million.)

II. Jacksonville’s other problems related to pension plans.

Mayor Peyton, Mickey Miller (Jacksonville city CFO), the Office of General Counsel and others fail to fully understand the problems.  All suffer from “not invented here” syndrome.  They are too insular; they are part of the problem.  The result has been that current attempts at pension and wage cutbacks are inadequate and will have to be repeated if the city is to avoid endless tax increases.

Plus, the city should not be negotiating with the PFPF regarding pension benefits. This is properly a union function.

The sad fact is that all three city pension plans are in fact unaccountable to taxpayers. This is by design. No elected representatives are or can be on the pension plans’ boards of trustees. Pension board members and staffers are all insiders.  Many are long term officials.  The beneficiaries of the city’s public pension plans do in fact run the plans.  In the case of the PFPF, the public employee unions run that plan – I have attended their monthly meetings and this is obvious.

Thus, conflicts of interest abound and taint plan administration.  These should be eliminated.  So far the Mayor has made no efforts in this regard, but he should.

Remember that the three city public pension plans collectively had assets of $2.3 billion (9/30/09) and $2.5 billion (estimate for 9/30/10).  Their liabilities were $4 billion or more.   Yet they receive very little attention when it comes to administrative and oversight issues and problems.  These are huge sums – they deserve greater attention.

Perhaps scariest of all – the oversight of the PFPF is minimal and it resists independent audits.  Plus, its auditor is a small accounting firm located in Boca Raton – 300 miles away.  This fact makes me very suspicious and I continually suggest, so far without result, that the PFPF must be forced to undergo a forensic audit by a major credible local accounting firm.

III. What Jacksonville needs to do.

First, audit the three plans.   A city audit plus a forensic audit is greatly needed for the PFPF.

Second, get serious about pension reform.  Cut public employee pay and pension benefits substantially.  No more piddly 2% cuts.  Ask for more and force the issue.  The city has strong leverage if it cares to use it – mass layoffs, replacing personnel, etc.

The city’s long term goal should be this.  Replace DBPs with DCPs and enroll all public employees in the Social Security system.  In the shorter term, the city can stop future DBP accruals for non-union public employees and negotiate firmly with unions.

If my proposal – DCP plus Social Security for public employees – were in place now, there would be up to about $60 million per year in savings to taxpayers. That is a huge figure and it would take a while to get there.  But, that is certainly a worthwhile goal.

Other possible alternative could save substantial but lesser sums, e.g., cutting DBP formulas going forward could be achieved.

The law gives the city some helpful flexibility. Under federal law, there is something often called the “accrued benefit rule”, which means that employers can, going forward, reduce or eliminate future accruals of pension benefits. Unionized employers have to negotiate said reductions respecting their unionized employees, but there is no law against employers engaging in hard bargaining with public employee unions.

Third, wholly reform the PFPF.  The PFPF is a total failure.  It has essentially no money to cover its liabilities for its active employees. Its 49% funded ratio is shockingly bad.   That figure is worse than similar figures for all 50 states (See the Pew Center for the States’ study of February 2010, called “The Trillion Dollar Gap”).  The PFPF has high operating costs, mediocre investment performance, and has implemented golden parachutes for John Keane and Richard Cohee, its two top executives, which could cost taxpayers up to $3 million. For these and other reasons, the PFPF is tainted with scandal, insularity and mismanagement.

The city must take more interest and take active control of all plans, especially the PFPF.  The city should seek and implement necessary legislative changes to remove any barriers to taking control.  “He who pays the piper” should call the tune.  The city needs especially to clean house at the PFPF.

The city contributes about $76 million/year to the PFPF and about $34 million/year to the other 2 public employee pension plans.  The city should use its power of the purse to get the changes that taxpayers need.

Structural reforms are needed.  The goal should be twofold.  Since the city pays most pension costs, it should in some form appoint most board members, at least three quarters of them.  And these board members should not be conflicted persons – i.e. pension plan beneficiaries.   In the ideal world, no one benefiting or potentially benefiting from the plans would run the plans.

One example of the problem of unaccountable insider control is that the three public employee pension plans’ combined operating costs (investment fees, consultant and legal costs, salaries, other administrative costs) exceed $13 million per year, which is about twice what they should be.

Further, the city should listen to outsiders, such as me and other city residents who have some background or interest in the current problems.  So far, city leaders have been unimaginative and too passive.  Mayor Peyton and his staff are locked into an inadequate strategy and need to be pushed into doing more, if possible.

Without substantial changes, city will suffer numerous tax increases as a result of the city’s many public pension plan problems.   The status quo is expensive and unsustainable.  Doing nothing will harm local businesses and residents and will tend to depress property values.

Thank you.

Curtis Lee is a retired attorney and member of the Concerned Taxpayers of Duval County

Not so fast! A recent study appearing in the Harvard Business Review suggests that the secret to job growth is not in doling out tax breaks to big employers in an attempt to entice them to move to your city. If anything, cities with a lot of smaller firms tend to have higher job growth than cities with only a few large firms. Having a business environment that promotes entrepreneurship by reducing business startup and other small business costs imposed by the government is a far better way to improve the job situation in a city than tax incentives to larger established firms.

The benefits are not only in job creation, but also in product innovation. In the book From Poverty to Prosperity written by Arnold Kling and Nick Shulz, the authors argue that innovation does not tend to originate from established firms, but from entrepreneurs risking everything on a novel idea.  Established firms tend to be more conservative in their risk taking than entrepreneurs, but risk taking is essential for innovation.  So lots of entrepreneurs with big dreams lead to a lot more great ideas for goods and services that improve our lives.

I am sure that some government official is reading this and saying to himself “Maybe, we should increase the corporate welfare that is going to small businesses and entrepreneurs!”.  And he would be missing the point!  The best thing that the government can do is to provide the essential government services that cannot be provided by the free market and then get out of the way!

Here is one way for government to get out of the way of entrepreneurs.  When monks tried to sell simple coffins in Louisiana, the State Board of Embalmers and Funeral Directors threatened them with fines and jail time.  Their crime?  Not being part of the funeral parlor cartel that uses the government to protect itself from competition.  The free market does not need government help to weed out the entrepreneurs who do not provide anything of value to their customers that they cannot already find cheaper and better elsewhere.

Specifically, they have amended the complaint filed last year against the City of Jacksonville and the City Council to request that the Court declare the passage of Ordinance 2010-217 to be both illegal and void. The several grounds asserted include multiple City and Council violations of Florida’s open government meeting (“Sunshine”) law.

The lawsuit further seeks to protect the public interest by asking the Court to force the City to correct violations of the public records law, which require government and officials to make records available to every citizen for review and copying. The City has failed to create and provide minutes of a public meeting (related to Trail Ridge), and refused to make a Council member’s records of the official business use of his cell phone available to the public.

A press conference will be held at 12:00 noon on Thursday, June 3, 2010, in front of the Jacksonville City Hall, 117 West Duval Street, Jacksonville, Florida, by Victor Wilhelm, President of the CTDC, and John Winkler, lead attorney for the Plaintiffs.

The Concerned Taxpayers of Duval County, Inc. is a not for profit corporation and nonpartisan political committee dedicated to serving the community as a watchdog group, using public information to oppose corruption, waste, and “Sunshine Law” violations in government. Additional information is available from the author of this press release, immediate past president John Winkler, who can be reached at 904-384-9918.

Below is a summary of the amended complaint. You can view the entire complaint here.

Paragraphs 1 to 5 briefly explain why the suit exists and the relief requested

Paragraphs 6 to 11 are jurisdictional and standing allegations

Paragraphs 12 to 20 are the early history of the City’s dealings with WM and Trail Ridge

Paragraphs 21 to 39 are the history of the Mayor’s attempted deal with Waste Management, the subsequent Waste Management vs. the City litigation, and the 2010-217 “settlement”

There are 15 individual counts:

COUNT ONE

Violation of Sunshine Law F.S. §286.011(2)and/or F.S. §119.07 for Failure to Record Minutes of Trail Ridge Oversight Special Committee Meeting of November 4, 2009

COUNT TWO

Violation of Sunshine Law (F.S. §286.011(8)(a)) – SHADE MEETING of November 24, 2009 — exceeding permissible scope of meeting [transcript attached as Exh. 17]

COUNT THREE

Violation of Sunshine Law (F.S. § 286.011(8)(a)) – SHADE MEETING OF MARCH 9, 2010 — exceeding permissible scope of meeting [transcript attached as Exh. 18]

COUNT FOUR

Violation of Sunshine Law (F.S. §286.011(8)(a)) – SHADE MEETING OF MARCH 15, 2010 — exceeding permissible scope of meeting[transcript attached as Exh. 19]

COUNT FIVE

Violation of Sunshine Law – unlawful shade consideration of $486,000 in noise abatement actions in lawsuits against third party, and subsequent incorporation into “litigation settlement”

COUNT SIX

Violation of Sunshine Law – unlawful shade consideration of $7.2 million in City claims against non-party, not in litigation, and subsequent incorporation into “litigation settlement”

COUNT SEVEN

Violation of Sunshine Law – use of shade meetings to evade open meetings law and improper incorporation of extraneous matters into “litigation settlement”

COUNT EIGHT

Violation of Sunshine Law and voting conflicts statutes (F.S. §286.012, F.S.§112.311, §112.313; F.A. §112.3143(3)(a)) by Councilman Ray Holt and Councilman Dr. Johnny Gaffney

COUNT NINE

Violation of Sunshine Law (F.S.§286.012) by Councilman Art Graham on Ordinance 2010-217 (failure to vote on bill)

COUNT TEN

Failure to waive Ordinance Code §126.105- failure to submit to the Planning and Development Department

COUNT ELEVEN

Failure to comply with Ordinance Code § 106.215 (2/3 vote of Council needed)

COUNT TWELVE

Public records law violation –refusal to provide Holt’s cell phone records

COUNT THIRTEEN

Violation of Sunshine Law (F.S. §286.011) ILLEGAL MEETING(S) of May 24-25, 2010 – C/M Clark and C/M Joost in re: Council president’s election

COUNT FOURTEEN

Declaratory judgment as to scope of 1990 RFP and application to 2010-217

COUNT FIFTEEN

Application of OGC Opinion of December 18, 2008 to Procurement of landfill operations “services” and to Procurement of services in general

Exhibit list:

Exhibit 1 – 1990 Request for Proposals [attached separately]

Exhibit 2 – City of Jacksonville Ordinance 2010-217

Exhibit 3 – City of Jacksonville Ordinance Code Chapter 126 [attached separately]

Exhibit 4 – Jacksonville Office of General Counsel letter dated December 18, 2008 [attached separately]

Exhibit 5 – Jacksonville Office of General Counsel letter dated February 27, 2009

Exhibit 6 — Memorandum of April 14, 2010 from Cindy Laquidara

Exhibit 7 – City Council Auditor’s report, April 15, 2010

Exhibit 8 – Memorandum of April 16, 2010 from Cindy Laquidara

Exhibit 9 – March 11, 2010 notice of Shade meeting of City Council

Exhibit 10 – March 12, 2010 notice of Shade meeting of City Council

Exhibit 11 – Letter to Waste Management from City Solid Waste director Fred Forbes dated January 22, 2010

Exhibit 12 – Letter form City Council of May 25, 2010

Exhibit 13 – Communications Allowance Request of Ray Holt dated June 26, 2009

Exhibit 14 – Jacksonville City Council Communications Allowance Policy, July 1, 2005

Exhibit 15 – Council Auditor Report dated March 10, 2008

Exhibit 16 – Docket Trail Ridge Landfill, Inc. and Waste Management Holdings, Inc. v. City of Jacksonville

Exhibit 17 – Shade Meeting Transcript of November 24, 2009

Exhibit 18 – Shade Meeting Transcript of March 9, 2010

Exhibit 19 – Shade Meeting Transcript of March 15, 2010

Exhibit 20 – Ordinance 2009-362-E

Exhibit 21 – Ordinance 2010–170-E

Exhibit 22 – Trail Ridge Oversight Committee Meeting Notice (for meeting 11/4/09)

Exhibit 23 – Screen shot of Jacksonville City Council Trail Ridge Oversight Committee available documents as of May 30, 2010

Here are some interesting news items concerning the landfill contract controversy. Clay County is doing what Jacksonville should do – bidding the landfill contract!  I guess that Waste Management did not have previous contracts with Clay County government that it could twist to its advantage and keep its competitors at bay.

The Florida Times Union editorial board complained that the committee-as-a-whole meeting mentioned above did not provide adequate time for discussion concerning the proposed settlement. We could hardly disagree with the Florida Times Union’s assertion that a contract worth more than $400 million over 26 years merits more than two hours of discussion. Let’s hope that Council President Richard Clark listens to this wise advice.

Finally, Concerned Taxpayers of Duval County (CTDC) President Victor Wilhelm had a letter to the editor concerning the landfill contract controversy published in the Florida Times Union. The CTDC has never wavered from its initial position that the contract must be bid and Wilhelm’s letter reflects this position.

What can you do? Let your City Councilperson know that competitive bidding of this contract not only makes good economic sense but assures an open and transparent process free of corruption.

See below past President John Winkler’s commentary on the landfill question.

It doesn’t take knowledge of rocket science to operate a landfill. Whatever Waste Management (WM), Republic/Southland, or anyone else in the garbage disposal industry may want the people of Jacksonville and their City Council to believe, spreading out household trash and covering it with dirt really is something that anyone able to operate a dump truck and bulldozer can do. While it may or may not be the kind of civic duty Jacksonville cares to perform using its own employees, there is nothing so special about the creation of a thousand-layer trash pile that it can only be done by giving exclusive rights to do so to one outfit, without competitive bidding, for the next thirty-five years.

Wait, you say, is this a rerun column? The whole “bid the landfill” vs. “Waste Management Forever” debate was fought out last year, you remember, and won by the forces of light when City Council rejected the Mayor’s no-bid, 35 year, $750 million contract extension on running the Trail Ridge dump, right? Didn’t the City then leap at the chance to litigate with Waste Management if need be in order to establish our right to either build our own trash mound or have the low bidder do it? Yes, that happened, but suddenly there’s a new deal proposed by the Jacksonville General Counsel that is a whole lot like the Mayor’s old deal. Call it landfill redux, deja vu all over again, or lipstick on a pig – no matter how you slice the new proposed landfill contract, it’s still (at best) last year’s baloney. Unlike last year, however, there is no time for a deliberative process at City Council. The new proposed contract (Ordinance 2010-217) demands City Council accept it by April 30, 2010, as presented, with no changes allowed.

When a group of us at the Concerned Taxpayers of Duval County (www.jaxtaxpayers.org) sued the City last year to get a ruling that Jacksonville had to either bid out a contract this huge or do the work themselves, we pointed out several legal problems in the Mayor’s tentative agreement. One provision of that proposal (still available for review at www.coj.net under Ordinance 2008-538) was an illegal clause which could have, under certain circumstances, forced the sale of the entire thousand acre Trail Ridge landfill site, and an adjacent “borrow pit” (dirt mine) site, from the City to Waste Management without any competition. Another illegal aspect of the earlier version of the no-bid contract under state law was that it could have gone on for an indefinite period of years, since it defined WM’s right to spread garbage in terms of tons (42 million) rather than time. Interestingly, the proposed contract now thrown in front of City Council avoids these two problems by leaving out the bargain land sale provision and defining a maximum number of years that Waste Management will have the exclusive right to run the City’s landfill(s). The new proposal essentially allows no more than ten years as the period WM would have been running the existing landfill before it would have been full, another 19 years for WM to operate any expansions or new landfill, with another possible six year extension “upon mutual agreement.” Not, in my opinion, coincidentally, this potentially 35 year agreement is the same length of time as the estimates on how long the Mayor’s earlier proposal would have run.

While the Concerned Taxpayer suit has been in abeyance since the Mayor’s proposal was withdrawn, the very serious issue of whether City Council has the right to waive the requirements of the City Procurement Code and proceed to give WM the exclusive right to operate any City dumps far beyond the scope of the 1990 bidding process remains undetermined. We had hoped that City Council would retain the spine it grew last spring, see the WM litigation through trial, and obtain a judicial confirmation that the City does, in fact, have the right to seek competitive bids for landfill operations once WM buries another 5 to 7 million tons at Trail Ridge. Unfortunately, City Council President Richard Clark, without waiting for either a financial or careful outside legal analysis of the new proposal, has already opined that it “makes good business sense” to avoid further litigation; this was one of the Mayor’s old arguments, unanimously rejected by the City Council less than a year ago. Perhaps the less impulsive members of City Council will take note of the following flaws in the new proposal and reject (or ignore) Ordinance 2010-217 as a poorly conceived, badly executed plan to deprive the taxpayers of the benefits of fair and free market competition.

For example, I question what this language, in section 5.2 of the new “take it or leave it” proposed contract means: “Annual Adjustment of Fee. On July 1 of each year, the then current rates shall be adjusted by a factor which shall be the product of one (unity) and a decimal fraction equal to 0.70 times the preceding twelve-month change in the Consumer Price Index (CPI), said change being expressed as a decimal fraction.Adjusted rates shall be the product of the then current rates and the modifier and shall be expressed correct to the nearest whole cent ($0.01).” The CPI required by the contract is the CPI-W, which currently stands at 212.544 using 1982-4 as a base of 100.

To explain, let’s say inflation is three percent in the first year of the contract. On July 1, 2011, the new CPI-W is 218.920, or a change of 6.376 when “expressed as a decimal fraction.” If that is what the proposal means, then 0.70 times 6.376 is 4.4632 and the “product” of “one (unity)” and 4.4632 is 4.4632. On the other hand, is the change supposed to be the percentage, to be expressed as “.03,” which leads to an adjustment factor of .021? In either case, if “the modifier” (not otherwise defined) is the same as the “factor,” the result is absurd. The “product of the then current rates and the modifier” is either $10.58 per ton of regular trash in year one times 4.4632, or $47.22 per ton in year two, or $10.58 times .021, or $0.22 per ton. If there is no change in the CPI-W, then WM works the next year for free, under either interpretation of the adjustment factor. If prices go down in year one, the second year price becomes negative; does anyone seriously believe that Waste Management will pay the City for the privilege of burying our garbage?

Obviously the drafters of the new proposed contract, in their haste, used the word “product” when they meant “sum” and the word “modifier” when they meant “annual adjustment factor,” and they should have spelled out that the annual adjustment is going to be 70% of the annual percentage change in the CPI-W (assuming that is what they meant). This is the same kind of incredible sloppiness in drafting contract language back in 1991 that created the present litigation between the City and Waste Management over what that contract really means. Is this really the best that a battery of well-paid lawyers can do? Disclosure: although I am a lawyer, no one has paid me a dime for any of the work I’ve done or am doing in connection with the landfill.

One more example of the lurking disasters in the proposed contract should suffice. Section 5.6 calls for the City and Waste Management to “use reasonable efforts” to come to an agreement on using Waste Management to recover recyclables from the “current waste stream,” but if they can’t agree, “CITY shall be entitled to competitively bid the establishment and operation of such an operation.” [Yes, it really is written that way] The very next sentence says Waste Management “shall have the exclusive right to operate any such new technology requested by the City.” So the City can bid out the recycling operation but only Waste Management can run the equipment. Is it so hard to envision another lawsuit brought by WM against our town if it tries to actually use a different company to pull recyclables? Count I: failure of City to use reasonable efforts to negotiate in good faith. Count II: request for injunction against the City,violating WM’s exclusive right to operate new technology at Site.

Alas, while I am confident that this exposure of the gross ineptitude displayed by the City’s lawyers in drafting the second “no-bid landfill contract” will result in more changes, I am not so sanguine about the City Council just doing the right thing, letting the 1991 landfill contract run out in five to seven years, and then either running Trail Ridge with our own local employees or bidding out operations on shorter contracts.

Last year WM’s competitors made lots of noise about how they could beat the Mayor’s deal if allowed to bid; this year they are (so-far) strangely silent. But the citizenry needn’t be silent. Call and email all 19 City Council members. Sign the petition at http://www.ipetitions.com/petition/bidtrailridge . Attend the City Council meetings April 12 and 26 to encourage your elected officials to do the right thing. Already the City’s solid waste disposal “fee” is being raised because it is less than the cost of collection. If the public doesn’t make the City restrain those costs by preserving competitive bidding, all of us and our descendants will be paying the price for decades to come.

John Winkler, Attorney

Videos sponsored by the Jacksonville Young Democrats on the landfill question:

Video 1
Video 2

A RESOLUTION OF THE CONCERNED TAXPAYERS OF DUVAL COUNTY IN OPPOSITION TO CITY COUNCIL BILL 2009-0940

Whereas City Council Bill 2009-0940 exempts the Gerdau Ameristeel steel plant located near Baldwin from paying the public service tax on electricity for five years; and

Whereas the Concerned Taxpayers of Duval County supports low taxes but only when they are applied equally to all businesses and individuals subject to the tax; and

Whereas the Concerned Taxpayers of Duval County opposes City Council legislation that is clearly tailored to providing a benefit to an individual business thereby ensuring city government a role in determining the winners and losers in the local economy;

Now therefore be it resolved that the Concerned Taxpayers of Duval County opposes City Council Bill 2009-0940.

The resolution was read to City Council members at their January 12th meeting.