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Pension Reform and Implications for Palm Beach County


Highlights

  • Governor’s FRS reform worth close to $100M / year to Palm Beach County (with schools included)
  • Senate bill SB1130 implements only portions – reducing savings to about $30M
  • Any change in special risk accruals are strongly opposed by the police and fire unions
  • The legislature lacks the political courage to support the governor in these changes

With the legislative session about to open, a battle is brewing over the Governor’s budget. (See “Budget Brawl set to get under way Tuesday” in the Sun Sentinel)

Extremely piqued over Scott’s rejection of the federal rail grants, which will likely stand now that the Supreme Court has rejected the legal challenge brought by Senators Altman and Joyner, the Senate is ready to rumble. How will the Governor’s budget fare? “Dead on Arrival” is how Budget and Tax Subcommittee Chair Ellyn Bogdanoff describes it.

The state budget affects those of the cities and counties in Florida, as grant money for things like transportation infrastructure and community services is cut. The most dramatic effect for Palm Beach County though would be in the area of pension reform. Unlike the cities, which mostly have their own pension plans, county employees, including PBSO, Fire/Rescue, as well as the employees of the school system participate in FRS – the state run Florida Retirement System.

Currently, FRS enrollees pay nothing to participate, accrue benefits at a rate of 1.6% for each year worked (3% for special risk classes such as police and fire), receive 3% cost of living increases every year they are retired, and can start collecting benefits after 30 years (25 years for special risk). The Governor has proposed requiring a 5% contribution, ending the cost of living adjustments, and reducing special risk accruals to 2% / year (for benefits accrued after July of this year).

When Governor Scott rolled out his template for FRS changes, we at TAB mapped them against the Palm Beach County workforce makeup (number of special risk enrollees, size of payroll, etc.) to estimate the financial impact to the county budget. Our estimate of approximately $55M (plus another $43M in the schools) assumed a 5% contribution by all employees, and a reduction in the special risk accrual rate from 3% to 2% for the approximately 2,100 PBSO and 1,300 Fire/Rescue employees in that class. Since any county savings from FRS changes may be offset by reductions in revenue sharing, it is not clear at this time what the net effect would be, but the budgeted appropriations for personal services would be significantly reduced. (See chart below)

Let’s put that number in perspective. In the coming fiscal year 2012, property valuations are expected to decline about 5%, while personal services costs are rising and federal and state grants are declining. The county estimates that the shortfall, if the millage were held flat (4.75 for the county-wide millage), will be in the $50-60M range – approximately the size of the savings that Scott’s FRS changes would bring.

Since that time, the county folks who track this stuff told us that the changes were unlikely to happen. They predicted (accurately as it has turned out so far) that the legislature will lack the political will to stand by the governor in such a radical change.

The Senate bill taking up FRS reform, introduced on February 15 by Senator Jeremy Ring (Democrat, Broward District 32), who chairs the Governmental Oversight and Accountability Committee, is SB1130, “Retirement”. A companion bill that addresses municipal pensions not covered by FRS is SB1128, “Public Retirement Plans” The companion house bill H0303 was withdrawn prior to introduction.

It should be noted that as of today the session has not begun and there are already 8 amendments to SB1130. It will remain a moving target and could possibly be improved as it moves through the committees.

SB1130 introduces an employee contribution component, but currently does not specify the percentage. (Several media reports have listed it at 2% but the bill is silent at this time.) COLA, special risk accruals, elimination of the DROP program and other aspects of the Governor’s proposals are noticeably absent from the bill. The bill does adopt the Governor’s proposal to close the defined benefit plan to new participants (in favor of a 401(a) type plan) after July of this year. The Sun Sentinel reported it thus: “Public employee unions, especially politically powerful police and firefighter groups, have strongly protested — and lawmakers seem to be listening”.

This table illustrates the differences between the Scott proposal and SB-1130

Current FRS Rick Scott Proposal SB-1130
Accrual Rates 1.6% general
3% special risk
1.6% general
2% special risk
NO CHANGES to current plan
Participant Contributions None 5% across the board 2% across the board
Defined Contribution Plan Offered, with few takers Only option for new hires Only option for new hires
COLA fixed 3% / year Eliminated for accruals past July 2011 (protects current retirees and accumulated benefits) NO CHANGES to current plan
DROP Program Continue working for 5 years while pension accumulates, then lump sum Eliminated after July, 2011 NO CHANGES to current plan

On Saturday, Senate President Mike Haridopolis visited a meeting of the grassroots group “DC Works for Us” in Coral Springs. During the Q&A, we asked him about this seemingly tepid response to the Governor’s reform proposals. In response, he said that the legislature does intend to pass FRS reform this year, with an employee contribution of “maybe 2-3%”, but when asked about the special risk accrual he replied that it was “not fair to cut back on something that was promised to our employees”.

We feel this answer is disingenuous, since the proposal is not a takeaway of existing benefits that have accrued, only a change to future accruals. Furthermore, since the original intent of special risk class was to allow employees in physically demanding jobs to retire at 25 years with equivalent pensions to 30 year normal retirees, a 2% accrual already exceeds that measure.

Since special risk applies mostly to police and fire, both of which have strong unions who operate very effectively in Tallahassee, it is clear that Florida is not Wisconsin – at least as far as the Senate is concerned. Since Senator Haridopolis has announced a bid for the US Senate, I guess it is not surprising that he doesn’t want to take on the PBA and IAFF.

The following chart illustrates the effect the Scott proposal would have on the county budget, and how very little of those savings have made it into the Senate bill. Maybe it is time for the taxpayers to remind our legislators why they were elected.

NOTE: Assumptions are: 1) contribution savings = total payroll x contribution rate, 2) special risk accrual going from 3% to 2% would drop employer contribution from 23.25% to 15.5% over time (2/3). 3. Payroll is projected from 2009 data.

Group Number of employees Average Salary Governor 5% contribution SB1130 2% contribution
County Staff 5,731 $45.9K $13.2M $5.3M
PBSO 3,919 $66.3K $13.0M $5.2M
Fire/Rescue 1,511 $88.1K $6.7M $2.7M
Schools 20,986 $41.3K $43M $17.3M
TOTAL (contr.) 32,147 $75.9M $30.5M
Governor 2% accrual SB1130 no change
PBSO special risk 2111 $77.7K $12.6M 0
F/R special risk 1303 $88.6M 8.9M 0
TOTAL (accr.) 3414 $21.5M 0
TOTAL (both) $97.4M $30.5

Comments

4 Responses to “Pension Reform and Implications for Palm Beach County”
  1. POOR TAXPAYER says:

    Huge Pensions are destroying the quality of life for all the honest hard working taxpayers. Want a fireman call Publix. EMS work should be done by a private ambulance company. The firemen are the biggest con men of all time when it comes to “risky jobs”.

  2. Pensions—something has to be done –doing nothing in these difficult economic times dealing with government budgets will be a big mistake. Start at some point and go from there…we have to balance the budget and that means raising revenues or cutting costs or a combination of both…

  3. Jon Nicholas says:

    Pension reform is a must for every city and county in the country. Why should average taxpayers who will never have a pension, continue paying for public servants to get rich in their retirement? The problem is that the senate and house will not have the muster to do the right thing and eliminate these rediculous pensions that are UNSUSTAINABLE. Why should a sheriff or firefighter be able to retire after 25 years and get 3% raises every year after that? If a sheriff retires at age 50 and lives for another 30 years, you do the math. We cannot continue paying for this fleecing of America. Stand up to the unions and do what is right by the taxpayers. By the way, are the members of the florida house and senate not covered by the same pensions? Hmmn, makes you think, doesn’t it?

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  1. […] last we looked at the House and Senate bills for FRS reform (Pension Reform and Implications for Palm Beach County), the House bill had not yet been introduced and the Senate bill, though a pale shadow of what the […]



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