Former Jacksonville Mayor John Delaney spoke out last week about several issues facing the City of Jacksonville, including its longstanding pension crisis. Since discussing the debt crisis with him two years ago, I’ve not had a chance to follow-up. While a lot has changed in those two years, sadly, a lot has also not changed. So at 4:00pm last Friday afternoon, I caught up with Jacksonville’s former mayor for an update. Delaney is very open-door and gracious to people around him, and he is also of course my boss here at the University of North Florida. That said, I determined all of the questions asked in the interview. Delaney answered every question and we explored issues including: the DROP program for public employees; the so-called “30 year agreement”; JEA as a solution to the Police and Fire pension crisis; the virtues of Defined Benefits plans for public safety employees, which he supports; “pension holidays”; Jacksonville’s millage rate; governance of the Police and Fire Pension Fund Board; the role of the General Counsel’s Office; the myth of “$5 million dollar cops;” and more. Delaney identifies 4 key “myths” about the pension crisis: that the City took “pension holidays”; that there is a “30 year agreement”; that “$5million cops” caused the pension crisis; and that there is such a thing as a “20 year” retiree. Listen to the full interview here (find parts 1-4).
Pension Holidays: “One Pot of Money”
A frequent refrain of Jacksonville public employees is that city government took irresponsible “holidays” from paying down its pension debt, resulting in “settlement agreements” that complicated the process of collective bargaining. In other words, from the perspective of employees, as the city fell deeper into debt by way of making increasingly complex arrangements to cover its mounting pension debt, two things happened: first, routine bargaining for employee benefits (say every three years), got lumped into much higher-stakes game of negotiating full resolution of longer-term outstanding debt to the fund. As the cost of this outstanding debt came to dwarf the terms of short-term contracts, “collective bargaining” morphed into the production of “settlement agreements,” addressing both long-term debt and routine collective bargaining. This helps explain the evolution of what has become a murky distinction between the City’s negotiations with the Union (FOP) versus its negotiations with the Pension Fund. Says Delaney: “The pension fund and the Union are alter egos–they’re one and the same. Now the Pension Fund would often say they don’t want to talk about benefits at the “bargaining table,” but you take a break and step out in the hall and they’d say this is what we’d like to see happen with the pension.” Along the way, PFPF leadership took over negotiation with a focus on the outstanding debt, while union officials were of course still concerned about collective bargaining. In a series of modifications within the parameters of what became known as a “settlement agreement,” the City has repeatedly signed off on both short term benefits and long-term debt issues.
While Delaney doesn’t deny that the City owed money to the PFPF going back to the 1980s, by 2001 the Pension was fully funded–with the Police and Fire Pension Fund not only being thoroughly solvent, but also swimming in additional “Chapter Funds.” From Delaney’s perspective, these funds could and should be used to pay for benefits and offset other costs as well. The City’s use of Chapter Funds to help pay debt and benefits is not “borrowing against the fund,” so much as enabling the City to use its rightful assembly of all assets to pay costs. While advocates for PFPF often present a multi-page document titled “Exhibit A,” which they offer as evidence of the “pension holidays,” Delaney calls the document inaccurate and incomplete. Under Delaney’s tenure, and working cooperatively with John Keane, the City both increased benefits and managed costs. In that process, it became functional to work with John Keane and the PFPF rather than head of the FOP, since membership of the two groups is virtually identical. About the “evidence” for pension holidays:
“Well, number one, I’ve never understood this chart. Number two, it doesn’t take into account all of the money that’s deposited into the funds. What we did do, during Ed’s years and my years, we had to put a substantial amount of payroll into the pension fund, because it was way out of whack from the 1980s. And so, by the year 2000, we finally had the pension funds funded. And so what we did do in ‘01, ‘02, and ‘03 is we didn’t use City general fund money to deposit into the pension fund, we had a deal with the pension fund where we used their reserve monies or “chapter monies” to go into the fund. And we did some swaps and some concessions–and the concessions never get talked about either–but there really was no pension holiday. It’s just a question of the sourcing of funds. …It really doesn’t matter the source of the money, if you get it off earnings, if you have a deal to use Chapter monies in exchange for something else, or if you use City general fund money, it doesn’t really matter. The question is, money was put into the fund in the years that some people are trying to say there was a holiday taken. It’s just not true. That statement is not true.”
“30 Year Agreement”
Delaney expressed frustration over the ongoing failure to resolve the pension crisis in a timely manner and rejects the notion of a “30 year contract.” That was not a 30 year contract, Delaney says, but a simple ‘statement of intention’ inserted into the body of a longer document(Restated Agreement). If you read the signed agreement, paragraphs 31 and 32 specifically mandate a renegotiation in the event of “changing economic conditions.” And the Great Recession certainly comprised “changing economic conditions.” City Hall could negotiate and if necessary impose a new contract on employees, Delaney insists. When queried as to why he thinks this hasn’t happened, he states: “Well, that’s a great question.” Delaney believes threat of a lawsuit by PFPF against the City was overplayed and that the City can and should just impose lowered benefits if compromise cannot be reached:
JD: “What the Fund did was to say, ‘Well, we think that this paragraph that has the words ‘30 year’ is binding and we’re going to sue you.’ And the City has basically been frozen now for five years over that particular component.”
MH: “So the City got spooked by an agreement that it signed but failed to understand?”
Oversight of Police & Fire Pension Fund
Despite concerns about the governance structure of the PFPF, Delaney has great respect for John Keane and believes he has done a good job managing the fund. He believes Keane has been unjustly attacked in the media. At the same time, Delaney characterizes PFPF’s current governance structure as contrary to the interests of the City. As Delaney explains, however, it was the Florida legislature that took the PFPF out of the direct control of City Hall, rendering it “too independent.” Given Tallahassee intransigence on the issue, it has been difficult for the City to govern the fund, both in terms of investments made and internal operations. While getting “some kind of reasonable leverage” over the Pension Fund at the Board level would be ideal, Delaney sees that as a “fight for another day.” Right now, the City needs to shore up its debt to the PFPF and broaden its attention to other mounting crises as well. In Delaney’s view, the City should still seek to gain more control over the governance and internal operations of the PFPF and he supports amending the structure of the Board, but doing so will require a public referendum.
DROP & Defined Benefits for Public Employees
Delaney sees the DROP program as good for the City. While employees are enrolled in DROP, the City stops making pension contributions for enrolled employees during a 5 year period just prior to retirement. “So it basically saves 10% per employee in DROP. So DROP is a winner for the Administration, and employees like it because they walk with a lump sum five years later.” During that five year period, the employee’s money is in an escrow account with an expected rate of return on pension fund investments (8.5% annually). That rate, in the context in which it was established when Delaney was mayor, was “really reasonable” given the much higher returns made by the City at the time. “Now what needed to change when the recession hit, was that that expected payout should have been reduced. Because it’s an unreasonable interest rate over the last five years. Over a 50 year period, it’s completely reasonable.” Delaney would not shift to 401k style pension plans for public employees, believing Defined Benefits are critical for retention of good employees and the market itself for public safety is dominated by such plans. Moreover, because employees are technically already drawing a pension while in DROP, the City saves on making pension payments for its senior-most employees five years before they stop working.
General Counsel’s Office
I queried former mayor Delaney about the arguably tautological status of Jacksonville’s General Counsel’s office in the pension process, serving as both the City’s own lawyer and simultaneously its de facto internal “Supreme Court.” The General Counsel’s authority within the consolidated government enables it to both render binding legal opinions on City agencies and then to subsequently render its own opinions legal and binding when agencies appeal. Within the broad framework of Jacksonville’s consolidated government, however, the “independent” authorities, the co-executive elected sheriff, JTA, JEA, etc, often find themselves often feeling not so independent, living under the thumb of the General Counsel’s office. Delaney thinks that tension is just fine, preventing independent authorities from trying to sue the City. “Sometimes the General Counsel is viewed as the ‘mayor’s lawyer,’” Delaney says, “so these other entities sometimes feel like they’re not getting a fair shake.” Delaney believes the system has “worked really well until the last few years,” but agrees there should be added input into the process of selecting the person who becomes General Counsel. He did not identify any mechanisms that might limit the authority of the General Counsel.
Should JEA Help Solve the City’s Pension Crisis?
After discussing some of the complexities and history of JEA and its role in the City budget, and noting that JEA also has its own pension liability as part of the General Employees Pension Plan, Delaney flat rejected a proposal for tapping JEA resources for solving the Police and Fire Pension Crisis. The proposed deal leveraging $120 million in the short term to save $300 million for JEA later, is simply not in the City’s best interest. “In other words, to save $300 million for JEA, they only have to give us $120 million? I’d like part of that action myself.”
State of Consolidated Government: “It Always Depends on Leadership”
Despite his frustration with the lengthy, mired, and unnecessarily belabored pension crisis, Delaney sees Jacksonville’s Consolidated government as basically sound. Despite some internal contradictions regarding the “political science” of appointed vs. elected officials, Jacksonville has achieved amazing economies of scale and has been blessed with outstanding leaders “almost to a person.” According to Delaney, however, the City must absolutely now get serious about its mounting debt. This debt extends beyond its unfunded pension liabilities to include a growing fiscal crisis at UF Health Hospital (formerly known as “SHANDS Jacksonville”), the need to support what he sees as a “huge economic opportunity with the port, ” and an alarming increase in the prominence of basic crumbling infrastructure in the form of potholes and street collapses.
Conclusion: Headed for a Train Wreck
While to his credit Delaney wrested control of pension debt by 2001, he did so with the benefit of a growing economy that facilitated tax cuts while sustaining a good quality of life. He took a systematic look at an over-built employee base and cut the number of employees by one third while raising pay. Delaney is proud he was able to cut taxes 10% during his administration and deserves credit for building faith-enough in local government to win robust voter support for the Better Jacksonville Plan. The JCCI Report on city debt, however, clearly demonstrates that underfunding of pensions has been a chronic problem for the consolidated government of Jacksonville since the 1970s. While a high-energy mayor in good times can manage low taxes and high quality of life, conditions obviously change administration to administration. Delaney wrested control of City pension debt through large-scale restructuring and achieving economies of scale in the context of good times. Good times, of course, come and go. Delaney earned the mantle of “tax cutter” through different means than any previous mayor–and did so in a way that preserved quality of life. Cutting taxes in a down economy–or worse–grandstanding with “no new tax” pledges, while the City bleeds from wounds not of its own making, is irresponsible. Moreover, for the past 12 years, the City has not paid its rightful amount into the PFPF, adequately maintained civic infrastructure, and lost focus on the future. As Delaney argued recently, the City needs to raise taxes and those running for office must do their homework and define the appropriate millage rate. At one point in the interview, Delaney agreed that Jacksonville’s widespread poverty should also inform deliberations about its millage rate. Stated Delaney: “Jesus said ‘the poor will always be with us.’ He didn’t say that means you can just ignore them.”