BRADENTON, Fla. — Steps to reform Jacksonville, Fla.'s public safety pension plans are a credit positive, Moody's Investors Service said in a special comment.
After seven years of debate, the City Council earlier this month adopted legislation overhauling the Police and Fire Pension Fund.
"The legislation is credit positive because it will substantially curtail growing unfunded liabilities and save an estimated $1.5 billion over the next 30 years," Moody's analyst Tom Aaron said in a June 29 special comment.
Aaron said the reform pact will provide the city with savings by increasing employee and city contributions to the plan, and reducing future benefit accruals for current and new public safety workers.
The approval of public safety pension reform is a "particularly significant credit event" for Florida's largest city as it will ease costs that have increasingly pressured Jacksonville's budget, growing to $154 million, or approximately 13% of the city's 2015 operating budget, from just $9.7 million in 2003, Aaron said.
"Without the changes, public safety pension costs would have further crowded out other budget priorities because the city's contribution requirements were projected to grow at a fast average annual rate of nearly 5% for the next 20 years," he said.
In comparison, the city's operating revenues grew at a compound annual average rate of less than 2% from 2001 to 2014.
The city's action, which took some seven years to accomplish, is also significant because it "ends political gridlock among different branches of the city government, public safety labor unions, and the police and fire pension board," Aaron said.
The city's historical contributions to the Police and Fire Pension Fund have been at or near the annual required contribution, but the unfunded liabilities grew substantially due to worse-than-expected investment performance, benefit increases and actuarial factors such as the deferred recognition of asset losses when calculating funding requirements, according to Moody's.
In the 2014 actuarial study, the plan's reported net liability stood at about $1.6 billion, up from $400 million in 2003.
The reform deal commits Jacksonville to paying a total of $350 million over 13 years — payments over the annual required contributions — to address the unfunded liability. A source for that payment has not been identified.
The inability of Jacksonville to achieve measurable pension reform has taken a toll on the city's credit rating. After the City Council rejected a reform plan in 2013, Moody's downgraded the city's issuer rating to Aa2 from Aa1.