Submitted by
Suanne Z. Thamm, Reporter-News Analyst
The Fernandina Beach City Commission (FBCC) came together in a workshop session just before their regular meeting on November 7, 2012, to consider future strategies for dealing with municipal pension plans. At the invitation of City Manager Joe Gerrity, Ed Stull of First Southwest Company (the city’s bond counsel) provided a presentation regarding the pension plan situation for the City of Fernandina Beach. During the last 5 years, according to Stull, the city’s pension funds had a negative return leading to an unfunded liability higher than the city’s general fund budget.
Due to changes in government reporting standards on pension funds, what has always been considered a hidden liability will become more transparent for all Florida cities, not just Fernandina Beach. The Florida League of Cities (FLC) has been in the forefront in trying to prepare cities for the coming change. Last year the FLC put out a study entitled Tough Choices Facing Florida’s Government. The Florida League of Cities report (Click Here) provides greater detail on the pension difficulties facing Florida municipalities.
Pension funding issues, according to Stull, received less attention during the latter half of the 1990’s due to the tremendous rate of return on investments in the US equity markets. But the decline in public pension fund assets that began in FY 2008 is now contributing to significant budget challenges for cities. Significant increases in pension expense will further challenge local governments in Florida reeling from revenue reductions as a result of tax reform, he noted.
Stull reported that the City of Fernandina Beach’s pension funds have a total unfunded actuarial accrued liability (UAAL) of $20.3M as of October 1, 2011. Based upon the market value of the assets in the pensions, the Market Value UAAL is $22.8M as of October 1, 2011. [Figures for 2012 are not yet available.] The actuarial funded ratio for both the Firefighters’ and Police Officers’ Pension Plan and the General Employees’ Pension Plan is below 58%. The city’s UAAL is amortized over a 30 year period at an interest rate equal to the assumed rate of return on the investments (currently 8%).
While according to City Manager Gerrity the city’s situation is not currently cause for panic, it is a cause for future concern. There are a variety of strategies that can be considered to adjust the pension plans while ensuring that they are fair to both employees and the taxpayers. Stull recommended that as first steps the city hire both an actuary and pension fund legal counsel to work with stakeholders to determine the current state of the city’s pension funds and liabilities. He said that assumptions must be re-examined in light of recent experience. He stressed the importance of involving employees in considering future strategies.
By consensus the FBCC decided to move forward immediately on the recommendation of City Attorney Tammi Bach to engage the services of specialized outside counsel to assist in this regard. However, Vice Mayor Jeffrey Bunch objected to engaging an actuary without first bidding the work (RFP). It is anticipated that the study will be completed before pension liabilities must legally appear on the city’s balance sheet for FY2013-14.
November 8, 2012 12:25 p.m.