When it comes to local pension plans experts say the numbers don’t add up. Now some lawmakers are trying to promote some “truth in advertising” as they say, but the effort has raised concerns about how to strike a balance between fulfilling obligations while not further harming an already shaky situation.
According to researchers at the LeRoy Collins Institute, more employees are retiring and claiming benefits, fewer contributions are coming in and the rate of return on investments is lower than expected. The 2012 report says the decline in pension funding began around 2000, and that by 2004, a majority of the state’s 492 pension plans were underfunded and continue to be in that position.
“They’re actually freezing the cost of living or reducing cost of living increases in a number of municipalities. They’re reducing the ability to get a lot of overtime before you retire, so you’re seeing those kinds of things, many of which we’ve recommended, said the institute’s Dr. Carol Weissert back in September when the report was released.
The pensions haven’t always been in such rough shape. In a paper published in the Journal of the James Madison Institute, a free-market think tank, the Florida League of Cities legislative council Kraig Conn places the blame on a 1999 state law that required cities to use insurance tax revenues to give extra benefits.
"There’s a whole long list of ways to make the pensions better and the legislature put handcuffs on us and said, if you’re going to use this money then you’re going to have to provide these benefits,” said the League's legislative director Scott Dudley. :
The League estimates those extra benefits have cost cities $500 million since 1999 and are unsustainable. The group has been trying for years to get the legislature to allow cities to use that insurance tax money to pay for regular benefits and even help reduce liabilities. But the move has long been opposed by Police and firefighters, who are the largest groups in the local pensions. Now lawmakers are looking to address another problem in a move Republican Senator Jeff Brandes of St. Petersberg says would bring quote “truth in advertising” to local pensions:
“What we’re asking cities to do is difficult and that is to stress-test their portfolios and to really look at them in a different light," Brandes said Thursday before the Senate Community Affairs Committee.
Brandes’ bill addresses the way cities estimate their pension returns. For example: cities may estimate their pensions will have a 7.75 percent rate of return over the next few years, while the actual growth was more like 2, 3 or 4 percent. That gap becomes a shortfall. And it’s sent many local pensions into the red. Brandes wants cities to use rates that are closer to the actual rate of returns. A federal version of this will be coming down in the next few years.
The proposal also requires public pension plans to use the same kind of rating system private companies use. Under the bill, liabilities would be higher and funding levels lower than they appear now. Cities would also have to disclose the information to the public. But Republican Senator Jack Latvala is worried.
“It could have...I think...do you disagree that this could have an adverse effect on local government bond ratings?” He said.
That issue was raised during the bill’s previous committee stop by the Firefighters Association and other lawmakers. Cities sell bonds to raise money for things like schools, sewer systems and hospitals. And their bond ratings are used to determine how much they’ll have to pay. The Senate Committee didn’t pass Brandes’ proposal, instead, members intend to keep studying it at their next meeting.
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