The LeRoy Collins Institute (LCI), a Tallahassee-based independent, nonpartisan organization recently released its report, Trouble Ahead: Florida Local Governments and Retirement Obligations, which reveals that local government employee retirement obligations are a bigger, more complex ticking time bomb than previously recognized. Findings show pension costs combined with the costs for health insurance benefits promised to retirees make up an average of approximately 8.1 percent of county spending and an average of approximately 8.3 percent of the sample 50 cities governmental spending.
“Our goal with this research was to look objectively into the local public retirement system in Florida and make recommendations,” said Carol Weissert, Florida State University (FSU) political science professor and LCI director.
LCI researchers identified a major, but largely overlooked, component of local retirement obligations involved health insurance benefits, otherwise known as other post-employment benefits (OPEBs). In FY 2009, a typical Florida county had an outstanding liability of nearly $30 million to cover health insurance and other non-pension benefits. Although these health insurance expenses are significant and growing, OPEB obligations are currently not reported to or overseen by any state agency. In contrast, pension funding is reported to the Florida Department of Management Services (DMS) and reviewed by state actuaries at least every three years.
The report points out that while most people are becoming aware that public pensions need reform, they have no idea about these growing OPEB agreements. Cities nor counties are investing funds to meet the promises made to their retiring employees. Counties are only investing approximately 40 percent of what they need to and large cities only 31 percent, the report states.
Trouble Ahead also reports in FY 2009, Florida county pension contributions alone averaged more than $21 million, a sharp uptick from contributions made only six years earlier of nearly $12 million. Figures in the report show costs have risen from 3.5 cents on every dollar to nearly 5 cents – a 42 percent increase in pension’s share of county governmental expenditures. Similarly, a reviewed representative sample of 50 Florida cities found pension contributions averaged $2.28 million in 2009 – up from $800,000 in 2003, accounting for more than 5.6 percent of governmental expenditures compared to 4.2 percent in 2003.
Several recommendations on retiree benefits are made for local governments. These are:
- The minimum age before a retiree qualifies for benefits should be gradually raised. A reasonable age to begin receiving benefits could be approximately 60.
- Localities should not include overtime or additional earnings/bonus pay in the base salary used to calculate pension benefits.
Recommendations for state government on health benefits:
- Among other options, Florida lawmakers should give much consideration to repealing current Florida law requiring the implicit subsidization of healthcare benefits for Florida local governmental retirees.
- State oversight by a relevant state agency should be provided in statute to manage local retiree health benefit obligations. This agency should establish standards and provide technical assistance, if desired, to local government staff and local officials.
Recommendations for state and local governments on administration and transparency:
- Municipalities should set a minimum contribution rate to ensure minimal contribution levels during good years and reduce the need to significantly increase contributions during periods of fiscal stress.
- The statutory restrictions on the use of premium tax dollars that link increases in tax premium funds to the provision of additional benefits should be reduced or removed. Municipalities and counties should be able to use premium tax dollars to cover their current pension obligations.
- Localities should improve the accessibility of funding, actuarial reporting and liabilities information to its taxpayers.
“Since abolishing the State Legislative Committee on Intergovernmental Relations, policy makers have less access to data, expert analysis and policy recommendations on these matters. We hope to fill that void in some part,” said Allison DeFoor, LCI board chair and managing partner at Go Green Strategies. “Changes need to be made now to ensure Florida’s local governments can get back on a path toward sustainability. LCI’s recommendations map out the high-priority issues that should be considered as we work toward that goal.”
