Pension Talk
The latest report on local pension plans in Florida makes clear what is at stake for Boca Raton and Delray Beach.
Since 2011, the Leroy Collins Institute at Florida State University has rated the financial condition of cities’ pension funds. The new update came out last week, just in time for today’s executive session meeting of the Delray Beach City Commission to discuss police and fire pensions.
Before we get to the grades, we should discuss how the institute calculates them. Five categories go into the ratings, which apply to 2012, the most recent year for which complete information is available.
1) How well the plan is funded: It’s simple—how much money does a city have to pay benefits compared to the projected cost of those benefits? Financial experts generally believe that a plan is well-funded at 80 percent. The Collins Institute gives this category the most weight; nearly half toward the grade, with the next four given roughly equal importance. In 2012, only 26 percent of plans statewide were at 80 percent or better.
2) Unfunded liabilities compared to payroll: In shirtsleeve English, is a city facing pensions costs based on higher salaries or lower salaries? Not surprisingly, most cities face pensions based on relatively higher salaries.
3) How much cities contribute to pensions compared to payroll: Obviously, the lower the percentage, the better. If pension costs rise too much, cities must cut services or raise taxes. In 83 percent of cities, pensions consume more than 30 percent of payroll, up from 78 percent in 2011. Bad trend line. That means taxpayers are spending increasingly more on those who aren’t working, compared to those who are working.
4) Assumed rate of return on investments: As the institute acknowledges, this one is tricky. If a pension fund’s holdings do well, as they should have done in 2013, that’s less for the city to pay. If those investments tank, the city must make up the difference. No one really knows what a city should use as a reasonable assumed rate, so the institute uses the 7.75 percent adopted by the state retirement system. Roughly half of the cities use a higher rate, but in 2011 about 72 percent were betting big on the markets. More conservative assumptions is a good trend.
5) How much employees contribute: If employees pay more, that’s less for the city to pay. Here, most cities do well. More than three-fourths of them require employees to contribute between 5 percent and 8 percent.
On to the grades.
Let’s start with the good news. The Collins Institute lists Boca Raton and Delray Beach among the few “top performers” in the state. The bad news? Those ratings are for the general employees pensions funds, those for everyone who isn’t a police officer or a firefighter. Those plans tend to have lower benefits. Getting an A—as Boca Raton does from 2008 through 2012 and Delray Beach does from 2010 through 2012—is helpful (Boynton Beach gets only a C), but the real problems are elsewhere, as we can see with grades for the police and fire pensions.
The police/fire pension plan in Boca Raton gets a D from 2010 through 2012. Delray Beach is in even worst shape. The police/fire pension got an F in 2011 and 2012, and the institute lists it among the state’s “worst performers.” Elected officials in both cities say pension reform is necessary to head off long-term financial problems. Boca Raton is at impasse in negotiations with the public safety unions. Delray Beach may determine as early as today’s meeting which approach to take on reform.
Union leaders could argue that the grades don’t take into account last year’s big market gains, which for now could have left the plans in better shape. Even there, though, the cities have a legitimate response, noting that boards weighted in favor of the unions decide what those investments will be. If the cities ultimately must pay, why shouldn’t the cities have more say in those investments?
None of this is to criticize the work of police officers and firefighter/paramedics in Boca, Delray and all other cities. But their retirement benefits are unsustainable by any objective measure. The grades reflect reality.
To view the full report, click here.
Delray seeks bids for the first time in more than a decade
On Friday, something will happen in Delray Beach that hasn’t happened in 13 years: The city will seek bids for trash collection.
The chain of events that has led to this moment began 25 months ago. To appreciate how Delray has changed, let’s compare.
In August 2012, the city commission got an opinion from the city attorney that the city did not need to seek competitive bidding, even though the contract is the largest that Delray Beach issues. The reasoning was silly, and the Office of Inspector General disagreed with the city attorney, but the attitude within Delray Beach at that time was, “We don’t need no stinking inspector general.” The commission extended the agreement with Waste Management, Inc., for five years and $65 million because, as then-Mayor Nelson McDuffie basically said, Waste Management had been just swell.
And swell Waste Management might have been, though the commission could have confirmed that by asking what other companies might offer. Backlash from that decision helped to change the faces on the commission, and in 2013 Delray Beach pretty much decided to sue itself, claiming that the city had violated its own purchasing rules. The city won.
With a new mayor and city attorney, Delray is doing things much differently this time. Almost two weeks ago, the city released draft copies of the Request for Proposal and the Franchise Agreement. Delray thus gives every potential bidder a chance to ask questions or find problems before the formal request for bids.
That action will make it harder for a losing company to challenge the award. Delray had to act now, because once the Request for Proposal goes out, the city observes a “Cone of Silence,” meaning no official communication except between the bidders and the purchasing manager.
It’s all very complicated (the package contains roughly 200 pages) and very detailed (all proposals must be signed in blue ink). Interim City Manager Terry Stewart will compile a selection committee to rank the bidders, and the commission will make the final choice.
The goal, of course, is to get a better deal. Waste Management has continued to provide the service, and it will be interesting to see if the company makes a bid. Whatever the result, Delray Beach at least is starting to operate like a responsibly run city.
“It’s Boca”
What a perfect story.
I’m walking to my car in the parking lot of the Fresh Market on Camino Real. I see a Porsche Cayenne, with the motor running and the windows down. The car is empty.
This is a $70,000 car we’re talking about. While some people in Boca might regard such a loss as a rounding error, the scene strikes me and others in the lot as bizarre. One woman says the Cayenne has an immobilizing device, but that might work only if someone tries to steal the car. This one was there for the taking.
I looked at a woman. We shrugged. As she walked toward the store, she turned and called out, “It’s Boca!”
••••••••
You can email Randy Schultz at randy@bocamag.com
For more City Watch blogs, click here.About the Author
Randy Schultz was born in Hartford, Conn., and graduated from the University of Tennessee in 1974. He has lived in South Florida since then, and in Boca Raton since 1985. Schultz spent nearly 40 years in daily journalism at the Miami Herald and Palm Beach Post, most recently as editorial page editor at the Post. His wife, Shelley, is director of The Learning Network at Pine Crest School. His son, an attorney, and daughter-in-law and three grandchildren also live in Boca Raton. His daughter is a veterinarian who lives in Baltimore.
