Florida's giant public employee pension fund needs a bailout.
Hit by the stock market crash and losses in risky investments, the pension plan faces a big funding gap, according to a study presented Thursday.
That means that the Legislature likely will have to ask financially strapped state and local governments to pony up additional cash to meet their pension promises.
Almost 1 million public employees and retirees — from teachers and firefighters to social workers and police officers — participate in Florida's plan.
Because of the funding hole, their employers could see their pension costs roughly double from 10 to 20 percent of their payrolls in six years, according to the study.
The more local governments put in the fund, the more they will have to compensate by hiking property taxes or reducing services. All Floridians, not just those in the pension plan, could be affected.
The higher bills would be sprinkled across the state, affecting more than 900 towns, school districts, water authorities and other state and local agencies whose employees are covered.
Many of those agencies are already cutting services to close deficits.
Take Hillsborough County, for example. Last year, the county spent $35.1 million to cover pensions for more than 6,000 employees, from sewer workers to librarians. Under the scenario unveiled Thursday, in six years Hillsborough could have to come up with more than $70 million to cover pensions.
How would a county already cutting to the bone deal with that? "We don't have any history of raising taxes, so it would most likely be reducing services,'' said Eric Johnson, Hillsborough assistant county administrator. He said it might be cheaper to outsource some jobs.
A six-member group that advises the State Board of Administration, which manages the pension fund, heard the news at their quarterly meeting in Tallahassee.
As recently as November, in the middle of the market meltdown, the board had been bragging about its surplus. So had its trustees: Gov. Charlie Crist, Chief Financial Officer Alex Sink and Attorney General Bill McCollum.
But with the market collapse, that surplus has disappeared and Florida doesn't have enough assets to cover its estimated long-term liabilities, according to the study by consulting firm Ennis Knupp and Associates.
Ash Williams, the SBA's executive director, put a positive spin on the numbers.
"While our ratio has come down … we continue to be one of the best funded in the country,'' he told the group of advisers Thursday.
Using market values, the pension fund has gone from having $1.04 for every $1 it needs to cover its pension promises last year to 78 cents on the dollar now.
The Legislature allows the SBA to use an accounting method called "smoothing'' that minimizes losses. Accountants average gains and losses over a five-year period.
Using "smoothed values,'' state officials say, the plan has gone from having $1.07 for every $1 it needs to cover its pension promises to 93 cents for every dollar.
Consultants based their funding-gap forecast on a projection of pension fund assets totaling $100.3 billion as of June 30, 2009, the end of the fiscal year.
That's set against a liability of $129.1 billion, for a shortfall of $28.8 billion, or 22 percent.
Since the latest study was completed, pension fund assets have tumbled to about $86.2 billion, meaning an even wider funding gap.
What's more, the problem may be bigger than anyone wants to acknowledge. That's because Ennis Knupp made optimistic assumptions to come up with their funding numbers.
For example, the consultants project investment earnings in the years ahead at about 7.8 percent a year. Public records show Florida's fund had an average annual return of 5.85 percent for the last 10 years.
Every 1 percent less in performance could require as much as an extra 10 percent in annual funding.
State Board of Administration spokesman Dennis MacKee said the 7.8 percent earnings forecast is not unrealistic.
"The assumption is a long-term (15 years),'' he said. "We had performed at 9.9 percent for the last five years and the last 20 years and over 10 percent for the past 25 years.''
Investment earnings provide 69.6 percent of the revenue needed to pay Florida's retirement benefits. Taxpayers, through the government agencies, pay for 30.4 percent.
Florida's pension meltdown highlights a growing nationwide crisis among state employee pension funds. And like other states, Florida is in part in a pickle of its own making.
In the old days, the states invested in safe government securities, such as U.S. Treasury bills. But with their pension liabilities growing, they played the market, putting their money into riskier securities — stocks, foreign investments, real estate and private equity firms.
Williams, the executive director, said there always will be "problematic'' investments. "That comes with the turf.''
Florida has not only taken a hit on stocks but also on risky real estate ventures, private equity deals and securities tied to the subprime mortgage meltdown.
But the people at the pension fund weren't talking about getting safer Thursday. To meet their pension promises, they were discussing shifting into even riskier investments.
No decisions will be made until later this year or early next year, after state actuaries crunch the final numbers.
At its peak in September 2007, the pension fund had $138.4 billion in assets. On Wednesday, it had $86.2 billion, a drop of 38 percent.
Computer-assisted reporting specialist Connie Humburg contributed to this report.