ST. PETE BEACH — The city's three employee pension funds are short by $16.5 million, a situation the mayor, the city manager and the chairman of the Police Pension Board agree could threaten the city's financial stability.
The pension funds accumulate money that eventually will be paid to former and present employees when they retire.
If the funds continue to be underfunded, the state could force the city to cover pension obligations. Other cities in similar situations have ended up in bankruptcy, City Manager Mike Bonfield said Monday.
The police pension fund is underfunded by $5.748 million. The fire pension fund is short $6.09 million, and the general employee fund is short by $4.692 million.
"We are digging a hole that will be tough to invest our way out of," Bonfield said. "We are about 40 percent underfunded, and it isn't good."
Bonfield said the city's pension funds are among the worst performing of comparable cities.
The reason, he said, is a combination of years' of over-estimating returns on investments, insufficient contributions by the city and the recent economic downturn.
Robert Miller Rogers, chairman of the city's Police Pension Board, in a recent letter to Mayor Steve McFarlin cited "serious flaws" in the city's pension system, saying it is "a rigid and expensive structure which does not lend itself to thoughtful decisionmaking."
Rogers threatened to resign if the city does not address the problem.
"Mr. Rogers is not going to resign," McFarlin said Monday. "He has worked very hard for the city and is frustrated and upset."
Rogers could not be reached for comment.
In his letter Rogers criticized the composition of the city's three employee pension boards — police, fire and general employee.
Each board is independent and hires its own legal, actuarial and investment advisers. Each includes two members of the affected employee union, two residents appointed by the City Commission and a fifth member appointed by the pension board.
"The outcome of this mandated structure combined with Pension Board incompetence or negligence is a very significant underfunding of our pension obligations," Rogers wrote.
"It has taken years to get to this level of underfunding and it will take years to recover but we must start now," Rogers said, suggesting that "professional management by a large institutional firm" would be cheaper and more effective.
If the city can't get the pension programs under control, Rogers said the city should eliminate the Police Department by contracting with the Sheriff's Office and/or converting to a 401(k) defined contribution plan.
City police officers reacted immediately.
"The letter is very disturbing to me as well as others," Sgt. Ray Anthony said in an e-mail to McFarlin.
McFarlin said the city has no intention of disbanding the Police Department.
Bonfield, who is negotiating a new contract with the police union, said Monday he is proposing a reduction in pension benefits and other changes to reduce costs.
The money saved, possibly up to $400,000 a year, would be used to pay off the police pension plan shortfall, Bonfield said.
However, a reduction in pension benefits could result in a loss of state contributions to city pension funds.
The state now contributes about $60,000 a year to the police pension fund, a policy that was established in the late 1990s when that amount equaled the city's share.
The state also contributes to the other two city pension funds.
Today, the city contributes about $600,000 each year to the police pension fund, so the loss of state funds is not as significant, Bonfield said.
"We can't retroactively change the pension plan, but we can make changes going forward," Bonfield said.