Council's next task: pensions
After the sale of Big Blue and the city’s electric system closes, Vero will have a once-in-a-lifetime chance to do what governments all over the country drowning in black holes of pension debt dream of – to pay off all of its retirement liabilities and start fresh.
Taxpayers will need to trust the judgment of City Council members to be disciplined enough to use the cash proceeds, plus the estimated $30 million in utility reserves, to fully fund and close out the employee pension plans.
At that time, Vero Beach could complete a switch to a 401(k)-type plan that gives city leaders control over expenses and shifts the investment risk from the taxpayer to the individual municipal employee.
According to Vero Beach Finance Director Cindy Lawson, as of the most recent valuation in March, “the unfunded actuarial liability for the General Employee Pension Plan was $39,381,158. As of the actuarial valuation done in April 2013 for the Police Pension plan, the underfunded actuarial liability is $7,692,461.”
That’s a total of slightly more than $47 million in underfunded pension liability. This year, taxpayers and ratepayers will sink a total of $5.4 million into employee pension plans. To put this into perspective, the city plans to collect about $4.1 million in property taxes over the same period. Direct and indirect transfers from the electric utility to the city’s general fund amount to more than $7 million annually.
The city’s actuary, Rocky Joyner, estimated that as of February, the portion of the pension debt that Florida Power and Light would take on for the city’s 100-or-so electric employees would be about $13.5 million, leaving the taxpayers with $33.5 million.
There had been talk of investing the proceeds from the sale to offset budget deficits, but Joyner and Vero Finance Commission Chair Peter Gorry both offered up the idea of using the proceeds to wipe out that pension debt.
Paying off pension debt the year in which it’s incurred has been a mantra of former councilman Brian Heady, a challenger in Tuesday’s election. Heady said he wholeheartedly supports using the sale proceeds to do this and that “nothing else” would be a more important use of the funds.
“Converting to a defined contribution plan is currently being negotiated with the labor union,” Heady added.
Councilwoman Pilar Turner explained that seated council members must tread very delicately on the topic of restructuring the pension plan, because employee pensions are one of several items being actively negotiated with the labor unions “and the city must continue to negotiate in good faith,” Turner said.
Councilman Dick Winger said yes, he would use the proceeds from the sale plus the utility reserves to fully fund the city’s employee pension plans. When asked about converting to a defined contribution or 401(k)-type plan, Winger said it “would avoid the possibility of again getting in a deficit position.”
Vice Mayor Tracy Carroll called the pension debt, “the largest financial burden to our City, besides the aging electrical system and the electric contracts signed by past councils. Mr. Joyner has suggested a strategy which could bring the city out of this unprecedented debt, which we all agree is necessary,” Carroll said.
Though limited as to how she can comment due to ongoing union negotiations, Carroll said she would agree philosophically with the conversion to a defined contribution plan because it fits economic reality.
“In regards to a 401(k) plan, historically, wages for government and education employees have been lower than for the private industry. In return, retirement benefits have usually been higher,” Carroll said. “During the housing bubble, prior to 2007, wages increased significantly for municipal employees as property taxes flowed in to municipalities, and long-term plans did not foresee the crash which occurred to city finances.”
Governments that try to keep up with generous benefits doled out during the good times can get into trouble, she said.
“Most corporate employees today, if available, are offered portable 401(k)-type plans, where employees choose among options in order to have control over their investment choices,” she said. “This plan seems to give more choices to the employee, while allowing them to be responsible for their own risk.”
First-time candidate but long-time city critic Joseph Guffanti agreed with Carroll. “I most certainly appreciate the work that these people (city employees) do, but there’s a limit,” Guffanti said. “Why should we give them a pension plan and then be responsible for the losses. We should tell them we’re not going to do that anymore.”
Guffanti cautioned the city to pay off the pension debt in a smart way – doing it at the height of the market might not be the best possible time.
“But we should definitely use the proceeds from the sale to pay off the city’s debt, some kind of debt, whatever kind of debt the city has.”
When asked if he would have a problem being unpopular with the city employees and unions to tackle the pension situation, Heady said. “Judging from the election results over the last 20 years, I think it is a safe bet that I am unpopular. Why do you think the Teamsters and PBA have never supported me? Think maybe it has to do with my determination to mess with their pension plans?”
Amelia Graves, through her attorney Adam Chrzan, declined to respond to questions posed to her by email about the pension issue because she is suing Vero Beach 32963.
Fiscal conservatives have said that the sale of Vero electric to FPL is the first step toward bringing the size and scope of local government spending under control.
Glenn Heran, president of the Taxpayers Association of Indian River County and staunch proponent of the sale, said FPL taking the pension liability for the electric employees, plus having the cash to pay down what remains, is one of the benefits of the sale that go beyond the $26 million per year in lower electric rates .
“The remaining $30-plus million in sale proceeds will go a long way to paying off the underfunded pensions. This will avoid tragic tax increases in the future that will be required if the utility is not sold,” Heran said. “I don’t think the public truly understands the serious nature of this liability to pay for the generous compensation promises made to government employees and why the electric sale is so important.”
Heran said he supports conversion to a defined contribution or 401(k)-type plan. “The reason for this is fairness to the public who do not have these ‘taxpayer-guaranteed’ defined benefit plans. Government workers have essentially become a separate class who have benefits that do not exist in the private sector yet are burdens on that same private sector who pays the taxes,” he said.