Inweekly 2008 Flashback: Beginning of city pension discussion

In April 2008, Inweekly investigated the looming pension problem for the City of Pensacola. The general employee and police pensions were eating up nearly all of the city’s ad valorem tax revenue.

Four years later, Mayor Ashton Hayward–with the help of attorney Rob Larkin, Dave Penzone and John Asmar–would get the general employees and police unions to agree to close their pension plans and move new hires to the state system. The fire pension – the best funded of the three city plans – would stay open.

Feed The Beast

by Duwayne Escobedo, published April 24, 2008

City Workers Gorging on Pension Plans

When he retires sometime before June 2012, Pensacola Police Chief John Mathis will become the city’s highest paid retiree.

The 51-year-old Mathis will collect $10,262 a month or $123,143 a year. That’s more than his annual salary of $110,796 a year.

Changes beginning in 1997 by city officials to make its General Pension plan more lucrative for its employees and the expansion of the Police Pension in the city police officers’ first collective bargaining agreement in 2003, will allow Mathis his cushy retirement in his old age.

But he’s not the only one cashing in.

The changes to the Police Pension in 2003 allow police officers employed before October 2002 to walk away with two pensions, so-called double dipping, unlike city firefighters or other city employees. Police officers hired since then participate only in the police plan.

Mathis’ predecessor as police chief, Jerry Potts, receives $99,312 a year in retirement pay with $4,078 coming from the General Pension each month and $4,198 coming from his Police Pension monthly. The police chief before him, Norm Chapman, gets $4,327 a month from the General Pension and $3,916 a month from the Police Pension for a total retirement check of $98,924 annually.

Mathis will earn $5,253 from his city pension and $5,008 from his police plan.

“It is what it is,” says Mathis, who took over as police chief in March 2002. “I had the option of not going into the police pension. But looking back, it was a wise decision to stay in when I was a 22-year-old and making $12,000 a year. I could have had more money in my pocket by not being in the police pension. But it was a wise decision to stay in it.”

He credits past pension boards for making wise investments. Mathis, who turns 52 next month, says seven police officers are left like him who were employed before 1979 and will capitalize on their retirement pay as he will.

“I’m not breaking new ground by going out higher in retirement than what I’m paid,” he says. “It’s not just chiefs either, it’s any officer who came on prior to 1979.”

The nearly 30-year Pensacola Police Department veteran says he doesn’t expect most taxpayers to jump up and down for joy after learning about his pensions.

“I expect in the climate that we’re in there are some who will not be happy with it,” Mathis says. “Yes, we have a good pension. I was in the right place at the right time. The pension plan has flourished. They’ve made good investments and the benefits have increased over time.”

Unfortunately, similar stories abound around the state and country about taxpayers being on the hook for top-notch pension plans that are guaranteed for life, says Florida TaxWatch Research Institute President and CEO Dominic Calabro. The Tallahassee-based, non-profit, non-partisan research group has been a government watchdog for taxpayers for 25 years.

“This is a story that’s long overdue to be looking into,” he says. “What has happened is local governments created pension benefits that are extremely generous. The benefits are way out of line with what people in Pensacola and Escambia County have to live on. It’s not evil. You can’t blame the city employees for taking advantage of a good thing. But you have to ask, What’s reasonable?'”

You won’t get Pensacola City Finance Director Richard Barker Jr. to admit the city’s pensions are “out of line” or “generous.”

“Anyone can make that assumption, if they want,” says Barker, who will take home $65,335 a year from the city after his retirement sometime before 2012.

The Employee Benefit Research Institute does make that assumption. It reports that total compensation costs for state and local governments were $34.72 per hour worked in September 2004, the latest data available. Meanwhile, total compensation costs for private-sector employers were $23.76 per hour worked.

And while 90 percent of government workers are enrolled in plans that pay monthly benefits for life after retirement, just like for all Pensacola employees, in the private-sector that’s not so. EBRI finds that the private workforce covered by such plans is down from 39 percent in 1980 to 18 percent in 2004.

However, Barker does admit that Pensacola city leaders did recognize in budget workshops as early as 2005 that the city needed to end its General Pension for city employees because of skyrocketing costs to taxpayers.

The city’s contribution to pensions for city employees, police officers and firefighters jumped 416 percent between fiscal year 2001 and fiscal year 2008, rising from about $2.48 million a year to $12.81 million a year.

The changes to the police pension from a small supplemental plan paid for with state money collected from car insurance fees to a full-blown pension in 2003 and other pension plan improvements caused the city’s commitment to pensions to balloon from $2.98 million in 2003 to $7.73 million in 2004, an extraordinary rate that has never happened before or since.

The city approved closing its General Pension last year and requiring all new employees hired after June 18, 2007, to enter the Florida Retirement System. Ironically, many current city employees, such as City Manager Tom Bonfield, could double dip now, retiring with both a General Pension payment and FRS payment.

“In the long run there will be a savings,” Barker insists. “We’re moving in the right direction. It’s the right decision to be made and helps the city and helps the employees.”

Mike Wiggins, an at-large city councilman since 1995 and aspiring mayor, agrees with Barker on switching to the state retirement plan. In the short-term, though, a consulting firm hired by the city projects the city’s retirement contributions to increase about 6.5 percent.

“The budget situation the way it is any shot at savings is the right thing to do,” he says. “I understand in the longer term, this really is going to make a big difference.”

The Florida Retirement System does not require employees to contribute to earn the benefit. Calabro says what is reasonable is for the city to offer only a defined contribution benefit. The 457 plan for public employees is like a 401K plan in the private sector. Employees can chip in a percentage of their pay to an investment account and sometimes the employer adds matching money, too.

“The state plan is excessively generous,” Calabro says. “We keep putting multi-millions of unfunded liability on the backs of taxpayers. The costs keep going up and will cost not only our children but our children’s children. They have the ability to stymie, if not thwart, services that taxpayers should rightfully expect.”

But Pensacola did offer just a defined contribution plan from 1980 to 1997. It reopened its General Pension in 1997 because city employees were investing too conservatively and would not have enough money for retirement, Barker claims.

“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.”

But Richard Grover, a lieutenant in the fire department, knows perhaps as much about the city pensions as Barker.

“They were looking out for a lot of their higher-ups,” Grover says.

Grover has sat on the pension board since 1995 and keeps boxes and boxes of records in his fire station locker, GMC pickup truck, office and home.

His father, George Grover, who’s now 75, spent 28 years on the pension board. The elder Grover is the one who found out city forefathers lied about investing firefighters money in bonds for their pension plan. The city is now paying $9.94 million over the next eight years to make up for that misappropriation.

However, according to a 2005 study prepared by Cavanaugh MacDonald Consulting of Woodstock, Ga., the reason the re-opening of the 1997 General Pension took a big bite out of the city’s budget was because: “The main drivers have been the benefit improvements made over the period, particularly the re-opening of the [General Pension] with past service credit granted for less than full actuarial cost, and the poor investment performance during the 2000-2002 market correction.”

Information relied on by city leaders to re-open its pension in 1997 turned out to be wrong on just how much the city’s unfunded liability would increase. A Dec. 20, 1996 document obtained by the Independent News, which was completed by Garbiel, Roeader, Smith & Company Consultants & Actuaries Senior Consultant Thomas Cavanaugh, shows the city’s unfunded liability at the time was $2.9 million and that it would increase to $8.6 million.

In fact, it jumped to $28.7 million and the city’s unfunded liability for its pension plans stands near $50 million today. And before 1997, the city was paying on average about 96 percent of its share for pension plans but that has dropped to about 74 percent today.

The city employee who capitalized the most on the 1997 change? Former City Manager Ed Hinkle whose General Pension payment since his retirement in October 1998 is $7,856 a month or $94,275 annually.

Despite the lessons of 1997, the city did the same thing for police officers in 2003. The city assumed at least $2.4 million of the $4.2 million cost of putting 3 percent a year into the Police Pension for each year of the police officers’ service. Meanwhile, the city also dropped the police officers’ contribution to their pension from 8.5 percent to 0.5 percent.

Both Barker and Mathis justify the move, saying it was crucial to helping the police department recruit and retain better police officers.

Grover says taxpayers can expect to continue paying millions and millions for general and police pensions for the next couple of decades.

“I don’t see them going down anytime soon,” the pension expert says. “They did pay something but actuaries say it isn’t enough. But I don’t begrudge them getting the benefit.”