JACKSONVILLE, Fla. - Many local governments in Florida face escalating contribution rates for their pension and other-post employment benefit plans that are unsustainable, an actuary said here yesterday.
"This can't go on. We can't keep doing this," said James Rizzo, senior consultant and actuary with Gabriel, Roeder, Smith& Co., at the Florida Government Finance Officers Association annual conference.
Rizzo said he obtained statistics on the funded ratios of pensions for local governments participating in the Florida Division of Retirement, and combined those with the approximately 140 municipal clients his firm represents.
The result showed that in 1987, 95% of all plans had to come up with 17% or less of the annual required contribution for benefits. Today, however, 95% of all plans have contribution rates that amount to 42% or less of the required contribution.
"The funded ratios of pension plans have been deteriorating," Rizzo said. "This is serious."
Poor investment performance and repeated benefit improvements are the top two culprits for rising contribution rates. And OPEBs are showing large, long-terms costs associated with promised benefits, he said.
"Actuarial evaluations in some jurisdictions are showing the need to cut the subsidies or pre-fund the subsidies," Rizzo said. However, he advised: "Don't rush to do an OPEB bond until you deal with the matter of cutting benefits before obligating yourself with large liabilities like an OPEB bond."
Rizzo recommended adopting a formal investment policy, changing actuarial assumptions and methods, adopting a benefits policy setting cost-level goals in advance of collective bargaining, identifying conflicts of interest among elected officials and the bargaining team, and adopting conservative assumptions.
In another session yesterday, experts on public-private partnerships suggested P3s are tools Florida governments can use as they deal with tax reform, tighter budgets, and plummeting real estate values.
"Whose budget has excess cash flow these days?" asked Jeff Larson, senior vice president at D.A. Davidson & Co., during a presentation on using P3s. There are "a lot of different ways as governments you can react and partner with the private sector."
Larson said Florida offers a tremendous number of financing methods, including the ability through state law to do P3s. "I think the power is in your hands," he said.
In an organizational business meeting yesterday, Linda Davidson was inducted as the new president of the Florida GFOA. She is deputy director of the financial services department for Boca Raton.
The conference concludes today with sessions that will include a review of bond insurers and rating agencies, as well as hot topics facing Florida finance directors such as the implementation of mandated tax reform measures.
Following the conference today, the state's Local Government Investment Pool Advisory Committee will meet to receive a detailed update on the status of the pool that was beset by a run late last year. The run was sparked by fears that investments were in subprime mortgages after some securities were downgraded or defaulted shortly after purchase.
The committee will also hear the results of an audit and get an update on potential litigation against brokerage houses that sold troubled investments to the pool and other funds managed by the State Board of Administration.