BRADENTON, Fla. — JEA, north Florida's largest combined public utility, cannot divert revenue to help solve Jacksonville's pension liabilities without raising rates and jeopardizing its credit ratings, according to its financial advisors.
Jacksonville Mayor Alvin Brown has suggested JEA make a $40 million a year contribution for 10 years to tackle a portion of the city's $1.65 billion police and fire pension liability.
Brown said the contribution by JEA would not require utility rates to be increased.
Such an extra pension payment from JEA would be in addition to the utility's own pension costs and its annual contribution to the city's general fund, which analysts say is already higher than the industry average.
"It would not be possible for JEA to make a multi-year, $40 million annual payment without triggering the need for a JEA rate increase and/or causing considerable deterioration in the key financial metrics that are watched closely by credit rating agencies and bond investors," said a
Such a payment likely "would trigger a clear and quick negative response from the credit rating agencies," he said.
The JEA-commissioned report, which included input from legal and actuarial consultants, also examined the utility's own challenges associated with falling sales revenues and rising costs for its own pension obligations, environmental regulations, and repayment of more than $5 billion in outstanding bonds.
The board of the city owned utility voted Tuesday to accept the report, which concludes such a contribution would be detrimental.
Members also voted to negotiate an alternative plan outlined by board member Peter Bower, chairman of JEA's Finance and Audit Committee.
Over the last few weeks, Bower said JEA staff and "leaders in the community with the support of the mayor's office" began exploring a range of options that would enable JEA to make a smaller upfront contribution to the city's pension liabilities without raising rates.
Bower said the deal would also allow JEA to begin negotiations with the City Council for a new agreement that would provide other benefits to the utility, including a slight reduction in its annual general fund contribution versus the current agreement, which expires in 2016.
Generally, the proposal would require JEA to issue $120 million of taxable pension obligation bonds, which would be matched by a like amount by the city. Bond proceeds would be invested to reduce a significant portion of the city's liability.
Negotiators would also consider allowing JEA to withdraw from the city plan, and manage the pension fund for its own employees.
Other details about the plan were not made available at Tuesday's meeting, but utility board members said that any agreement would be well vetted and subject to due diligence.
Jacksonville has studied pension reform for several years with plans forwarded by the mayor, and ultimately rejected by the City Council. A pension task force rejected a $1 billion pension bond proposal last year.
Moody's Investors Service cited high fixed costs from pension liabilities and debt service when it downgraded Jacksonville's issuer credit rating to Aa2 from Aa1 in June.
Moody's also recognized that the city has strengthened its reserves and reduced expenditures, which contributed to a $24 million surplus in fiscal 2013 and a 21% increase in reserves to total $175.2 million.
At 18.2% of revenues, Jacksonville's reserve level still trails the national median of 25.9% for municipalities with similar financial profiles, Moody's said.
