BRADENTON, Fla. – In Florida's largest city, unfunded pensions are an annual millstone.
Now, with Jacksonville's pension liability approaching $3 billion, a plan has emerged to tackle the debt after years of legal battles and inaction.
"The risk that pension debt poses for our city is one of the greatest threats to our future," said Mayor Lenny Curry, a Republican who took office a year ago. "We can solve this."
But a recent lawsuit threatens to derail the plan.
Over the past half-dozen years, Jacksonville fought lawsuits and its public safety unions, spent millions on legal expenses and a forensic audit. At the same time, city was set back by the recession and officials rejected various retirement solutions, including using pension obligation bonds.
During those struggles, analysts warned that the city's ratings were at risk under the weight of its unfunded obligations.
Last year, a plan emerged that would enable the city to implement a long-term pension payment plan. It gained wide support from the Florida Legislature this year.
On March 25, Gov. Rick Scott signed legislation championed by Curry that would allow the city to extend an existing half-cent sales tax to help pay down the pension liability over three decades.
Voters are scheduled to vote on the tax extension in a referendum scheduled for Aug. 30.
There are opponents. A group of five local voters
The complaint, filed in Duval County Circuit Court, said the Jacksonville City Council jumped the gun and improperly approved an ordinance extending the half-cent sales tax before the governor signed the bill.
Additionally, the language on the ballot is confusing and misleading, and fails to comply with Florida law, according to the suit filed by Jacksonville attorney John Winkler.
Winkler, who also opposes the tax plan, has also scheduled an anti-tax rally on Aug. 9.
A hearing on the suit has not been scheduled.
The city said in a statement Tuesday that it has not received the complaint.
The mayor, the city council, the city attorney and others invested "significant" time, effort, and resources to craft the Aug. 30 referendum language, the statement said.
"Through this collaborative effort, the city created an accurate, clear, and concise question that meets all legal requirements," the city said. "We are confident that any court which reviews this ballot language will agree."
The sales tax extension would help the city make future annual required contributions to its three underfunded plans.
The Police & Fire Pension Fund, which is currently 46% funded, has a liability of $1.6 billion.
The General Employee Pension Fund, funded at 60%, has an unfunded liability of $910 million.
The Corrections Officers' Pension Fund is 48% funded, and has an unfunded liability of more than $120 million.
The latest legal hiccup emerges as Jacksonville prepares to issue $147.4 million of revenue refunding bonds.
The bonds, expected to price as early as next week, are rated AA-minus by Fitch Ratings and S&P Global Ratings, and Aa2 by Moody's Investors Service. The outlook is stable.
The city's issuer ratings were also affirmed at AA by Fitch and S&P, and Aa2 by Moody's.
Jacksonville has about $2.66 billion of outstanding long-term bonds and notes, in addition to what Moody's calculates as an adjusted net pension liability of $4.8 billion.
"The city's direct debt burden is almost three times higher than the U.S. city median and its pension liability has escalated exponentially over the last decade," Moody's analyst Ted Damutz said in a report Monday.
Jacksonville, in northeast Florida, has a population of 868,000. The unemployment rate was 4.5% in April.
The region is anchored by jobs in the financial and insurance sectors with the presence of Bank of America, Florida Blue, and Citi. Deutsche Bank has announced new jobs.
Amazon and IKEA are launching new building plans.
JAXPORT, a mid-sized container and cruise port, serves the nation's largest automobile processing center, according to Moody's. There are three naval bases.
While analysts agreed that Jacksonville's strong credit features include a broad-based economy and improving finances, they had a lot to say about the city's pension problems.
Pension costs as a percent of general fund expenditures increased from 10.1% in fiscal 2011 to 15.4% in fiscal 2015, in part due to changes in assumptions, Moody's said. Pension costs are projected to increase to 17.5% in fiscal 2017.
"This is significant given that debt service consumed 16.3% of operating expenditures in fiscal 2015, making fixed costs over 30% of the budget and rising," Damutz said.
Fitch analyst Michael Rinaldi said Jacksonville's issuer-default rating likely will remain constrained "by the high cost of servicing long-term debt and pension liabilities despite recent some recent favorable developments that may alleviate the pension burden over time."
In addition to the upcoming referendum, the city reached an agreement last year with the city's Police and Fire Pension Fund – the largest pension fund – to make annually required actuarial contributions to accelerate the amortization of the net pension liability.
"The dedication of a revenue stream to amortize the NPL would be viewed by Fitch as a positive, as the actuarial recognition of this revenue stream would have the effect of lowering the city's actuarially determined contribution," Rinaldi said.
The city's pension costs were $254 million in fiscal 2015 compared to $125 million in 2011. The estimated cost for fiscal 2017 is $280 million, according to Fitch.
"Credit concerns center on Jacksonville's very high cost of funding debt service and annual contributions for pension and retiree health benefits, which generally diminish financial flexibility and the availability of resources for other spending needs," Rinaldi said.
In fiscal 2015 the city paid about $450 million in debt service and benefit costs - the equivalent of 32% of total governmental fund spending, he said.
The city's pension funding plan is based on extending a half-cent local option sales tax enacted in 2000 to fund the Better Jacksonville Plan, a pay-as-you-go and bond financed infrastructure program.
The BJP tax is scheduled to expire in December 2030.
If the Aug. 30 referendum passes, the half-cent tax would automatically continue in 2031 and remain in effect for up to 30 years or until the city's pension plans are fully funded, whichever comes first.
The extended sales tax would generate an estimated $1.8 billion in savings to the city "significantly improving the reported funded ratio to 80% by 2030," Moody's said.
In addition to voter approval, the pension surtax is further subject to the closure of at least one of the city's three current defined benefit pension plans and a requirement that each employee who is a member of a closed plan contributes 10% of salary to the plan, all of which must still be collectively bargained, according to Fitch,
"There is no pension reform plan to go with the tax!" opponent Winkler says on
While the half-cent tax reform plan "represents progress toward addressing the city's pension exposure, we believe there remains uncertainty given the upcoming voter referendum and required union support," S&P analyst Hilary Sutton said Monday in a rating report for the upcoming issue.
"We believe the city's high fixed charges - including a 13.8% debt service carrying charge and pension and OPEB costs totaling 18.9% of governmental fund expenditures - could pressure flexibility and performance and result in a lower rating," Sutton said.
According to city officials, the annual contribution to its three pension funds is nearly 20% of the city's operating budget.
Jacksonville's pension problem is the result of improper funding in the past, according to Mayor Curry, who has argued that if voters enact the half-cent sales tax its revenues can only be used to pay pension debt.
