"California, here we come." Unless it's vacation you're talking about, you don't want to hear that and you don't want to go there.
Florida cities and counties are traveling down a dangerous road, according to a report released Wednesday by the nonprofit LeRoy Collins Institute. It leads to a failed pension system like California's -- mired in a $24.5 billion deficit -- if they don't soon do something to lessen retirement obligations they plain can't afford to pay.
Florida's counties went from an average $12 million in pension contributions in 2003 to a sharp uptick of $21 million in 2009. Figures show costs have risen from 3.5 cents on every dollar to nearly 5 cents -- a 42 percent increase in the pensions' share of county governmental expenses.
In the 50 Florida cities sampled, figures were even more dramatic. Pension contributions accounted for more than 5.6 percent of governmental expenditures compared to 4.2 percent in 2003.
Why such a steep increase in six years? In the good times leading up to the bank failures and the stock market slide, cities and counties were more generous to their employees -- more amenable to allowing over-market-value health-care benefits. They opened up new staff positions. Baby boomers reached benefit-collection age.
Called "Trouble Ahead: Florida Local Governments and Retirement Obligations," the LeRoy Collins Institute report reveals that inflated local government retirement plans "are a bigger, more complex ticking time bomb than previously recognized."
Findings show pension costs combined with the costs of health insurance benefits promised to retirees make up an average of about 8.1 percent of county spending and about 8.3 percent of the Institute's sample 50 cities' spending.
Carol S. Weissert, Ph.D., director of the Tallahassee-based center and political science professor at Florida State University, said the Institute spent the last year compiling its five-year database. "We have the most comprehensive data on Florida local governmental retirement benefits that exists," she said.
She said some of the most dramatic examples of excessive and unnecessary benefits include cities offering public employees the option of retiring at age 55 with inflated six-digit salaries and fully-subsized health-care coverage.
David Matkin, assistant professor in FSU's Askew School of Public Administration and Policy and the lead researcher on "Trouble Ahead," said, "It's worrisome that neither cities nor counties are investing much money to fund the promises made to their retiring employees.
"Counties are only investing approximately 40 percent of what they need to and large cities only 31 percent," he said.
The LeRoy Collins Institute ranks cities in terms of the six highest and six lowest unfunded OPEB (other post-employment benefit) obligations as a percentage of covered payroll in 2009:
- Bradenton: unfunded obligation, 476 percent.
- Hollywood: unfunded obligation, 432 percent.
- Hialeah: unfunded obligation, 380 percent.
- Miami: unfunded obligation, 256 percent.
- Cape Coral: unfunded obligation, 246 percent.
- Titusville: unfunded obligation, 221 percent.
- Coral Springs: unfunded obligation, 3.3 percent.
- Royal Palm Beach: unfunded obligation, 3.2 percent.
- Lauderhill: unfunded obligation, 2.6 percent.
- Palm Coast: unfunded obligation, 2.2 percent.
- Cutler Bay: 1.8 percent.
- Wellington: (1.7) percent.
Weissert said cities and counties get socked twice -- by collecting less revenue during these lean times and by having to pay out more in pensions and health-care contributions to catch up. The problem, she said, if left unchecked, can only get worse and will end in disaster.
She said the Collins study will continue. How current policy should be changed to reach a balance of revenue and expenditures has not yet been dealt with. But the report does suggest high-priority changes for cities and counties to stop the bleeding:
- For new hires, raise the eligibility age for collecting benefits to at least 60.
- Stop pension spiking, a practice that allows employees to accumulate and include overtime the closer they get to retirement.
- Make cities pay a minimum annually into their retirement accounts so money will be available if times get even worse down the road.
- Make transparency mandatory; public access to pension obligations should be readily available. The public needs to know how to assess decisions its counties and cities are making.
Ignoring the warning signs in the report, says the Collins team, will only make Florida's journey to economic recovery longer and more difficult.
Many organizations and state leaders support -- even cheer -- the LeRoy Collins Institute's "Trouble Ahead." Here's what some of them said:
Barney Bishop III, president and CEO of Associated Industries of Florida: In recent years, cities and counties have seen obligations to their employees retirement benefits swell dramatically; at the same time, funding requirements for public services have increased. If this continues, we can expect to see inevitable tax increases to ensure basic services are met, and those tax increases will have a negative impact on the business community. ..."
Dominic M. Calabro, president and CEO of Florida TaxWatch: As it stands now, taxpayers are fronting the bill for growing, often law-bound, local retirement plans no matter the state of the economy. This new report by LCI is on point to advise for more transparency and governmental and actuarial oversight, without increased mandates, to ensure Floridians dollars are utilized appropriately and efficiently. ..."
Rebecca O'Hara, legislative director at Florida League of Cities: ... Their (LeRoy
Collins Institute's) newest report, "Trouble Ahead," touches on our biggest 2011 legislative priority dealing with municipal police officer and firefighter pension plans. We support LCIs recommendation to remove or reduce the statutory restrictions on the use of premium tax dollars that are currently only available if dollars are used to enhance benefits of firefighters and
police officers. We estimate this provision has forced local governments to dole out $400 million in new or extra pension benefits to these special risk groups in the past decade. ..."
Reach Nancy Smith at email@example.com or at (850) 727-0859.