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Florida cities face underfunded pension benefits

TALLAHASSEE — From Hialeah to St. Petersburg, Florida's cities and counties face a "ticking time bomb" of debt because they do not have enough money to pay future pensions and health care benefits already promised to current employees, according to a report released Wednesday from the LeRoy Collins Institute.

The worst offenders — Bradenton, Hollywood, Hialeah, Miami, Cape Coral and Titusville — owe retirees between one and four times in health care benefits than the money they now spend on their total budgets.

Miami, for example, owed about $100 million a year in retiree health care and pension payments in 2009, but set aside only $74 million, or 74 percent of what they owed. St. Petersburg owed $51 million that same year, but had set aside about $40 million. The shortfall forces cities to find other funding sources.

Similar scenarios are playing out in virtually every large city in Florida, where a baby boomer work force is reaching retirement age. The report found that cities and counties had negotiated generous pension and health care benefits during the last two decades, but failed to set aside enough cash to fund them.

"Florida's been served a warning," said Carol Weissert, a Florida State University political science professor and director of the institute.

For years, cities and counties relied on handsome investment returns to pay for retirement obligations, But, with the stock market crash and the down economy, they no longer have that luxury, said the report's author, David Matkin, an assistant professor at the Askew School of Public Administration.

"When you have that backlog of not fully funding your obligation, you have to increase how much you pay each year to try to catch up," he said.

The increased costs are now squeezing local governments "at the very time they're having their revenues constrained, so it's a double-whammy," Weissert said.

Counties spent an average of 5 cents on retirement for every dollar they spent on other costs in 2009, compared to 3.5 cents six years ago, the report found. Cities also watched their average retirement costs rise as a percentage of their budget from 4.2 percent in 2003 to 5.6 percent in 2009.

While Floridians like to say that the Sunshine State's fiscal problems pale in comparison to California — where the unfunded pension liabilities of state and local governments exceeds $700 billion — Florida is "headed in the same direction," Weissert said. "It's clear to us that Florida must work to alter its course or California here we come."

The report, "Trouble Ahead, Florida Local Governments and Retirement Obligations," is the first in a series on public pension systems in Florida by the Collins Institute, a nonprofit public policy think tank.

The findings come in the midst of a debate by Gov. Rick Scott and the Florida Legislature over whether to require state and local workers in the Florida Retirement System to pay into their pension accounts for the first time in 36 years.

Scott's $65.9 billion budget plan includes a 5 percent employee contribution rate. He said the change is needed to bring public employees in line with the private sector.

The $1.4 billion savings is also seen by the governor and legislators as a way to close the $3.62 billion budget deficit. By freeing money the state, counties and school districts spend on employee benefits, lawmakers can budget less money for them for revenue sharing and school budgets than they would otherwise get from the state's general revenue account.

The Collins Institute report does not dispute the fiscal health of the Florida Retirement System, to which some cities and all counties belong. The system is considered one of the most fiscally strong pension funds in the nation.

Instead, the report scoured city and county financial reports to determine how well they have prepared to pay into the retirement system to fund their employee pensions.

The report documents for the first time the unfunded obligations cities and counties face as a result of providing health care subsidies to retirees. While cities and counties are required to report on the fiscal health of their retirement accounts, nobody is collecting information on their health care obligations, Weissert said.

To halt the damage, the report recommends the following changes for newly hired local government employees:

• Raise the age at which someone who retires from government can collect benefits to at least age 60.

• Require cities to contribute a minimum amount into their retirement accounts each year.

• End pension spiking, which allows workers to enhance their pension rates by including overtime and additional earnings in their salary rates.

• Change the state law to encourage local governments to enhance their benefits programs to draw down more state money.

• Require local governments to make information about their pension obligations more easily accessible to the public.

Mary Ellen Klas can be reached at meklas@MiamiHerald.com.

>>Fast facts

Counties and cities in trouble

A new report by the LeRoy Collins Institute warns that cities and counties owe more in retirement obligations to workers than they can afford to pay. Below are the worst offenders and the best examples, with their unfunded obligations as a percentage of payroll:

Worst offenders

Bradenton 476 %

Hollywood 432 %

Hialeah 380 %

Miami 256 %

Cape Coral 246 %

Titusville 221 %

Best examples

Coral Springs 3.3 %

Royal Palm Beach 3.2 %

Lauderhill 2.6 %

Palm Coast 2.2 %

Cutler Bay 1.8 %

Wellington 1.7 %

Florida cities face underfunded pension benefits 02/09/11 [Last modified: Wednesday, February 9, 2011 10:32pm]
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