The City pensions have puzzled me. How did the City end up with such a huge jump in pension costs?
The City’s contributions to the pension plans are eating up a sizable chunk of the City’s revenue. The unfunded portion of each of the three plans continues to mount, even though the City closed the general pension, the one for all employees other than fire and police, in 2007 and moved new hires to the Florida Retirement System.
The City’s unfunded pension liabilities total $77.5 million, according to the 2008 Comprehensive Annual Financial Report (CAFR): General $50.3 million, Fire $15 million, Police $12.2 million. The unfunded liabilities have doubled in the last 10 years, even though the City has increased its contributions nearly 400 percent.
In 2008, the IN published a story on the pension fiasco (“Feed the Beast”). Our research showed that Pensacola offered a defined contribution plan from 1980 to 1997. Employees had 457 plans, which are like a 401K plan in the private sector. Employees chipped in a percentage of their pay to an investment account
In 1996, the city had an unfunded pension liability of only $2.9 million, according a 1996 report by Garbiel, Roeader, Smith & Company Consultants & Actuaries Senior Consultant Thomas Cavanaugh.
WHAT CHANGED?
City staff recommended in 1997 that the City Council make the General Pension plan a defined benefit plan. The Fire and Police would stay the same, but the one that covered the rest of the staff, including the city manager and the senior leaders, would be changed.
A Dec. 20, 1996 report by the Senior Consultant Cavanaugh shows the city’s unfunded liability at the time was $2.9 million. Cavanaugh estimated that the new plan would only increase the unfunded liability to $8.6. He was only off by $19 million. The 2001 CAFR shows the actual unfunded liability for the new General Pension plan was $28.7 million by 9/30/97. Oops
For “Feed the Beast,” the City Finance Director Richard Barker defended the reopening of the General Pension.
“Government employees tend to be conservative in their investments and they’re not investors,” Barker says. “They were putting their money in fixed-income or money market accounts.”
Mark O’Brien wrote about this change in April 2009 and described then-City Manager Ed Hinkle as a “Champion of the Workforce” who helped convince the City Council to revive the pension plan.
I found the City Financial reports for the fiscal year ended 9/30/97. At that time the City contributions for the city employees into the General Pension and Retirement Fund were only $431,038. Two years later, the City contribution to the General Pension jumped to $1,613,059 –374 percent increase for FY 9/30/99.
According to the 2008 CAFR, General Pension costs were $6,268,750 – up 1455% from FY 1997, up 389% from FY 1999.
The Cavanaugh memo begs the question: Did the city staff and its consultants give the City Council faulty financial advice to convince them to reopen the General Pension? The answer appears to be yes.
In searching the city archives I came across a memo, dated 10/15/98, that proposed a rewrite of the General Pension Plan. The memo negates any financial impact of the changes: “Only one of the proposed changes to the general pension plan has an actuarial impact on the plan valuation. The health insurance assistance benefit will have an approximate two percent impact. However, the two percent contribution the City currently makes to the Insurance Retention Fund to pay for this benefit will no longer be required and thus will offset the actuarial impact.”
The Staff contacts for the memo are Richard Barker, Don Caton, Joyce Williams and Wayne Etheredge. It’s signed by City Manager Ed Hinkle.
The unfunded liabilities instead continued to increase. By 9/30/00, they were $36.2 million.
Before 1997, the city was covering on average about 96 percent of its share for General Pension plan but that dropped to about 74 percent.
WHO BENEFITED FROM THE PLAN CHANGE?
Those who were being paid the most, benefited the most. Some took advantage of the change almost immediately. Ed Hinkle announced his retirement in November 1998, months after the changes were approved by the City Council.
“The Champion of the Workforce” even got a sweetheart deal from the Pension Board. I came across another memo, dated 10/5/99, that was from new City Manager Tom Bonfield about questions from the city auditors over how Ed Hinkle’s retirement was calculated.
Hinkle was allowed to have included in his pension calculation all his deferred compensation – about $77,000. This increased his pension checks from $65,212.56 in 1999 to $81,421.20. By the time we published “Feed the Beast, ” Hinkle’s pension had grown to $94,275.
That little inside perk alone has given Hinkle over the past 10 years between $162,000 to $185,000 more than he should have gotten–at least $85,000 more than if we had paid him off his deferred compensation when he retired.
Read Hinkle pension
WAS THIS A BACKROOM DEAL?
The City Manager and senior City staff recommend a comprehensive, complicated set of changes to the general pension plan. They tell the City Council that there will be no financial impact or, at best, minimize its impact.
A year later the general pension contribution goes from $431,038 to $1,613,059. The unfunded liability increases by $19 million. The City Manager retires early. In the same year, the auditor questions why the former city manager, who recommended the pension changes, is given special preference on his pension.
Fortunately, the City Council quickly passed a law forbidding the other employees from doing the same. Too little, too late.
And where is the “Champion of the Workforce”? Living in east Tennessee, giving real meaning to the phrase “Take the Money & Run.”
Here is how the General Pension contributions have continued to escalate:
2001 $1,854,302
2002 $2,235,823
2003 $1,779,518
2004 $4,628,189
2005 $5,594,011
2006 $6,300,951
2007 $7,622,500
2008 $6,268,750
Note: The only City Council member still serving who voted for reopening the General Pension plan is Mayor Mike Wiggins.
Popularity: 30% [?]
[...] biggest backroom deal in the history of Pensacola—the reopening of the General Pension (Read General Pension Fiasco) have now manipulated the campaign finance laws to hide their biggest contributors. Mike Wiggins, [...]
Rick don’t forget that of the $15 million owed the fire plan about 8-9 million is money that another city manager and staff from the past (1939-1955) stole from the fire plan and are still re-paying the plan.
Bill Cummings has been preaching to the council- deer in the headlights for years.
Bet he was called a naysayer too.
Based on the babble from this council every single time an issue comes up that might affect employees, I’d agree with Anon that we the taxpayers will have to suck up the debt so that beloved employees working for the city get to retire in their 50′s while the rest of us work until 65 and continue to pay for their retirement.
What a deal.
So good, the council added themselves to the pension before DeSorbo was canned.
How dare they now talk about cuts to basic services!
Rick, thank you for finally doing the investigative reporting that proves what we have been saying all along…that this deal was done to benefit management and then closed down quickly after that. And one wonders how Richard Barker get to keep his job?
My New favorite slogan;
Privatize the profits and – Socialize the debt!
America, where the friendly lethargic taxpayer will blindly pay up every time. God Bless America.
How can we eliminate pensions for all city employees? I know we can’t do anything to those in the general pension who switched to the Florida retirement system 2 1/2 years ago. But what about those who didn’t switch? If they aren’t vested, can we refund the money those employees contributed to their pensions & eliminate any future costs? And for those who are vested, can we freeze their pensions and eliminate any future contributions? Ditto for police & fire. Can we refund those who aren’t vested & freeze those who are vested & eliminate any future costs?
This isn’t my preferred solution — particularly since every other government entity provides a pension to their employees. But just as I am in the minority in regards to a strong mayor, I understand that I am also in the minority in regards to this issue.
[...] Breakdown of pension situation. Rick’s Blog has an excellent post up detailing how the City’s unfunded pension liability developed. As we’ve said, the problem stems from a 1997 decision in which City staff convince City Council to reopen the general pension plan. The financial impact of that decision was grossly understated. [...]
WE haven’t had great luck with so called affordable housing.
Either the architects are lousy or they build the cheapest ugliest thing they can.
I don’t want to see any more of those ugly octagonal shaped rental housing units around town unless they build them in Aragont first.
Imagine, they claimed the design would like a historic house.
Granite Head,
It was actually worse. I have copy of the FY CAFR, it shows the City contributed only $431,038.
I agree with Anony- A crook is a crook be it city manager or strong mayor.
Ed had a plan and upper staff got to go along for the ride too
The plan was reopened and they all jumped in
Ed retired and moved away to enjoy his big pension
Some of those same staff members are still giving financial advice to the council.
Anonymous: The consolidation commission discussed the city debt issue last night. Article VIII Section 3 of the Florida Constitution doesn’t give any leeway. We voted 19-1 to recommend sticking the present city taxpayers, myself included, with the entire city pension debt burden at the moment of consolidation. That could be a “poison pill” for city voters all expected to then find themselves in the highest taxed “Urban Service District 1.” $8 million ESP “profits” (overcharges to all ESP customers) are now being diverted by the council to the city general fund. None of this revenue stream will be available to service this pension fund shortfall. Article XII Section 12.03 of the draft consolidated city charter also ensures all employees keep their existing benefits to include pensions. So all consolidated city taxpayers will feel the lingering impact to some extent. If anyone has a better solution, show up at our next meeting 12/8 at 5:30 PM in J.E. Hall Center, 30 East Texar Drive and tell us what it is.
Goose, it’s not the council-manager system that’s the problem, it’s the individuals who wedged an opportunity into that system and exploited it for personal gain. I call ‘em crooks. Were any of those people required to carry professional liability insurance?
half a million to SEVEN plus MILLION? Talk about the foxes watching the hen-house!!!
And how about this DIB housing trip? The last time this happened locally, millions were made in fees and not one cent was spent on housing. Google Pastor Willie Williams and see these deals unfold.
These ‘consultants” come into a city, (or some other entity, such as an “Economic Development Commission or Board” and pitch building dreams and a the wow factor of your name in history. They pitch it hard as a long-range vision to cure all ills, and milk it till the cows come home. It takes many years and millions of dollars spent before the city fathers realize they’ve been taken. The payback is always “just around the corner”. With few exceptions, these scams generally aren’t ever good for local economies. Economic Development receives a tremendous amount of attention in municipal government now that it is legal to leverage the taxpayers with the whims of a few who never use their own funds. The best place is an area where there is taxpayer apathy, then these guys can build anything and guess who pays? They get the local government, or a local administration, who steps in with a lot more intention than ability, and not to forget the free use of the public’s tax base, with this universal result; DISASTER, all paid for by your friendly taxpayer who will go to jail if he doesn’t pay up! God Bless America!!!!
Go check the older financial reports and you will see that in 1997 the city only had to pay $551,000 total into the general plan.
What? No one defending the city council and city manager? Bad decisions and backroom deals can happen in any government. This deal stinks and costs us millions, tens of millions. Maybe No Boss could get Ed Hinkle to make a campaign appearance for them. I can testify about how council-manager system worked so well for him.
And the committee looking at consolidation, thinks that oounty voters will vote YES on a proposal that combines the city and the county? I dont think so
Rick, you finally started to put out the information that I have been telling you about for a couple of years. Don’t forget that in this re-opening that the general employees benefit went from about 42% of pay for 30yrs to 63% of pay for 30yrs and employees added nothing to the pot, only tax payers.