In spite of all this, Taxpayers only have a 40% say in how the Police and Fire Pension Fund is managed.  Of the five members who oversee  Police and Fire Pension Fund (PFPF), only two are appointed by City Council on behalf of the Taxpayer.  The  PFPF is poorly managed.  Administrative costs are high and the funds under perform relative to similar pension funds.

It is no coincidence that the PFPF fights every attempt at transparency as they collect high salaries and enjoy lucrative benefits.

At the very least, Taxpayers deserve to have a proportional representation on the PFPF board of trustees.  To that end, the Concerned Taxpayers of Duval County has adopted the following resolution.

Resolution adopted by Concerned Taxpayers of Duval Co. on January 9, 2012

To the Mayor and City Council ofJacksonvilleFL:

WHEREAS, the City of Jacksonville (“City”) provides about 80% of the funds that are contributed from all sources to the Jacksonville Police & Fire Pension Fund (“PFPF”), and this percentage is projected to increase; and

WHEREAS, the employees participating in the PFPF provide about 10% of the funds that are contributed from all sources to the PFPF, and this percentage is likely to decrease; and

WHEREAS, the remaining contributions to the PFPF principally come from premium taxes collected by the State respecting Duval County properties, and this percentage is also likely to decrease; and

WHEREAS, the PFPF is administered by a 5 member board of trustees, which invests assets, incurs liabilities, hires staff, and makes various expenditures, which in recent years have exceeded $7 million per year, exclusive of benefit payments; and

WHEREAS, employees participating in (benefiting from) the PFPF elect 2 of the trustees of the PFPF, while the City Council, on behalf of the City, appoints 2 of the trustees of the PFPF; and

WHEREAS, those 4 trustees of the PFPF choose a 5th trustee, who the City Council must by law appoint (ratify) as a ministerial matter; and

WHEREAS, the City thus directly appoints only 2 out of 5 trustees of the PFPF, and thereby lacks the power to control the operations of the PFPF; and

WHEREAS, the City needs to have, and deserves to have, the chance to exercise control over PFPF operations, because the City provides 80% of all contributions to the PFPF, and thus all decisions by the PFPF trustees principally affect the City and its taxpayers; and

WHEREAS, State legislation adopted in 2011 empowers the City to modify local law to directly appoint 3 of 5 PFPF trustees (see Curtis Lee’s letter to City Council et al dated Dec. 7, 2011); and

WHEREAS, such a change is not only fair, but proper because the PFPF has very high operating costs, substantial waste and abuse, and poor investment results; i.e., it has a poor track record;

WHEREAS, all existing PFPF trustees and executives have served at least 5 years, and many have served more than 20 years, with the result being that all such incumbents are implicated in the waste, abuse and poor financial results that afflict the PFPF; and

WHEREAS, a failure by the City to take advantage of the opportunity presented by the 2011 State legislation will result in continued harm to City taxpayers, because the PFPF has a poor track record, and is very costly to taxpayers – the PFPF costs the City and its taxpayers over 8% of the City’s General Fund Budget currently, and such percentage is projected to increase;

NOW, THEREFORE, BE IT RESOLVED, that the City Council and administration should obtain legal opinions and take all necessary action to effectuate such changes in local law, and then should appoint 3 new trustees of the PFPF, with the objective of replacing current management of the PFPF, reducing costs, waste and abuse, and reforming the PFPF.

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 Candidate Committee headed by John Winkler interviewed several dozen candidates as well as obtaining their input from our questionnaire. This information was used by the committee to formulate recommended endorsements for the organization.

• The video interviews of the Candidate Committee were placed on the internet for any and all people to view and form their own opinions. This resource was praised by those in the community was being valuable and informative making voting decisions.

• We printed and distributed a combined 150,000 voter’s guide for this year’s local elections. This was a monumental effort never done by any organization. Although everyone did not agree with our endorsements, his literature was well received by nearly everyone who I spoke with.

• As part of the funding and distribution effort, we reached out and built coalitions with many members in the community that share our values in protecting the interests of Taxpayers. This has allowed us to share our message to a larger audience.

• CTDC has joined as a plaintiff to a lawsuit filed by our own pension expert and member Curt Lee. The suit seeks to stop the Police and Fire Pension Board and the City from continuing to illegally conduct negotiations in violation of state labor and open meeting laws. Recently a favorable ruling to allow the suit to continue forward was rendered by the judge in this case. This project is in need of generous member contributions to see it move forward effectively.

• The Trail Ridge lawsuit is still in the court system. With the new mayoral administration in place, we expect to have some movement in this case when the timing is most advantageous. Other groups have expressed interest in joining this cause as well. Please consider a donation to see that the Taxpayers can have their day in court to avert the injustice of this over $400 million no bid contract.

• Our website has been redesigned and streamlined with web analytics to track traffic to monitor effectiveness in getting people to read our position and educate the Taxpayers of Duval County.

• The focus on new media outreach on Facebook and Meetup has allowed us exposure into new markets that were previously unexploited. Several new members have joined through these venues. We are researching other means such as Twitter and Linked In to leverage new media most effectively.

• The new “hotline” phone number to report waste, fraud, abuse and tomfoolery is being actively used by the public and media to contact us to report issues and obtain our own in depth analysis.

• The JEDC audit is being conducted by the City Council Auditor Kirk Sherman is nearing its conclusion. This would not have happened without the hard work and dedication of our members lobbying council members Clay Yarborough and Glorious Johnson. This effort is being spearheaded by long time member Odile Gracey.

• This year our outreach to the media was the most aggressive and responsive. In many instances, members of the press contacted CTDC members of their own initiative to find out our position on the issues and to learn more about intricate legislation without spin from City Hall.

• We continue to air our cable access program on Thursdays at 7:30 PM on Comcast channel 25 with fresh content and engaging hosts and guests. Our Youtube channel is viewed frequently and we are researching ideas to bring the show to new venues. If you have any suggestions for topics or guests, please feel free to share them with us.

• Our membership continues to attend key meetings to make your voice heard. One of the high priorities has been an ethics reform with the restoration of an ethics code back into the City Charter.

• We are developing new marketing and outreach material, particularly large poster boards or displays for public outreach at civic events, trade shows and political gatherings.

WE CAN NOT DO THIS ALONE! Now more than ever your help is desperately needed. Please consider attending the annual General Membership meeting on Monday January 9th 2011 beginning at 6:00 PM at the Piccadilly at Lane and Ramona. This is the annual meeting of the general members where the leadership team is selected. Even if you cannot attend, please consider sending in an updated membership application with the minimum dues renewal of $15 so that we can continue to work for you.

Your organization is hard at work. With your help, next year will be our most productive. Two of our major goals will be the successful litigation of the Trail Ridge and Pension lawsuit. These projects are in desperate need of financial contributions to see them move forward. Any contribution toward this effort will go a long way. We are also looking for groups to partner with to sponsor either case financially.

This year I am challenging those who can afford it for a commitment to renew at a higher level so that we can more effectively fight for the Taxpayer. Your generous contribution of $20, $50 or $100 will help us to continue to fight on your behalf.

Please also remember that CTDC is a volunteer organization. We have no paid staff and rely on the spirit of community service of our volunteers. Your help is needed today for challenges that are too numerous to name in this letter. Please consider attending our next meeting and seeing how you can renew or strengthen your involvement or by using your financial resources to volunteer for you. Information on our meeting locations as well as directions can be found on the website at:

www.jaxtaxpayers.com

and

www.meetup.com/ConcernedTaxpayersDuvalCounty/

The bureaucrats and career politicians know that the Concerned Taxpayers of Duval County are always watching their every move standing ready to call attention to their tomfoolery and chicanery. We will relentlessly pursue and prosecute the interests of the Taxpayer in this county with every fiber of our being and every resource at our disposal. Join the fight today with your generous contribution and membership renewal.

If you have any suggestions or input on how we should proceed as an organization, please feel free to contact me personally or attend the next meeting.

Best regards,

Victor Wilhelm Jr.
Immediate Past President
Concerned Taxpayers of Duval County
904-351-8126

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

President Victor Wilhelm and board member John Winkler analyze the March elections in Jacksonville.

This is the 4/2/2011 candidate committee’s interview of Greg Anderson, candidate for City Council At Large Group 4, Jacksonville, Florida. For more information, please visit our website at www.jaxtaxpayers.org

This is the 4/2/2011 candidate committee’s interview of Jim Love, candidate for City Council District 14, Jacksonville, Florida. For more information, please visit our website at www.jaxtaxpayers.org

President Victor Wilhelm and board Members Tony Bates and John Winkler present the results of a questionnaire recently sent to Jacksonville City Council candidates by Concerned Taxpayers of Duval County.

Board member John Winkler, Vice President Dave Smith and Secretary Conrad Markle talk about the upcoming municipal elections.

Board member John Winkler, Vice President Dave Smith and Secretary Conrad Markle talk about the upcoming municipal elections.