State of the City March 2015

The City of Naples and Pension Reform

Mayor John Sorey

The City of Naples is opposed to Senate Bill 172 and does not view this proposed legislation as “pension reform.” This proposed legislation does not meet the needs of taxpayers and local governments, does not promote sustainable retirement benefits for public safety professionals, and is essentially the same as SB 246 considered last year.

The City of Naples views this legislation as a step backwards from the current interpretation of the Department of Management Services as stated in the “Naples Letter,” and does not view the legislation as advantageous to governments participating in Chapter 175/185 pension plans, nor to taxpayers in these jurisdictions.

Naples is an excellent example of how cities have been able to address pension funding problems at the local level. The City of Naples has reduced the cost of pension benefits for all employees. Pension costs payable by City taxpayers have been substantially reduced and it has been estimated that the City of Naples’ taxpayers will save over $162 million in total pension costs over the next 30 years.

OUR SPECIFIC OBJECTIONS TO SB172 INCLUDE:

1. The bill is a step backwards from the current interpretation of the Department of Management Services as stated in the “Naples Letter”
2. The bill raises the required minimum benefit by increasing the minimum multiplier from 2 percent to 2.75 percent. While many plans offer a multiplier greater than the minimum, this eliminates the flexibility of local governments in the collective bargaining process, and reduces the bargaining power of the public employer.
3. The default distribution of premium tax revenuesfavors the union position. Failure to reach “mutual consent”will result in extra benefits above the new higher minimumfor employees in the plan.
4. The proposed legislation is difficult to understand and quantify. An accurate determination of bargaining alternatives may result in additional expenses to fund actuarial studies.
5. The consequences of failing to reach an agreement with a union prior to expiration of a labor contract are unclear. When “mutual consent,” as provided in the proposedlegislation, has not been achieved by the expiration date of a labor contract, does the default distribution of premium tax funds occur, or does the “status quo” in the existing labor contract prevail? The uncertainty may lead to expensive litigation.
6. The proposed legislation, and “mutual consent” provision, limits the options of a local governing body when imposing a resolution to an impasse in labor negotiations.
7. The proposed legislation does not provide sufficient benefits for local governments that have relied on the “Naples Letter” interpretation to bargain pension benefits.
8. The proposed legislation does not adequately address the unfunded liability of plans.
9. The proposed legislation places a burden on a participating government whose employees are not represented by a union by requiring the government to obtain the consent of a majority of the “members of the fund.” It is unclear if “members of the fund” include active employees, retired employees, or both.

The City of Naples has drafted proposed legislation to amend Chapters 175 and 185 of the Florida Statutes regarding Firefighter and Police Officer pensions. Do not be misled by this uncomplicated proposal, as it maintains home rule of local governments, simplifies the statute, and allows the parties to negotiate based on their needs and desires. Please consider this legislation as an alternative to SB172. To summarize our proposal:

• Eliminates the concept of “extra” benefits (extra cost).
• Maintains the current minimum benefit requirements.
• Allows premium tax revenues to be used to provide benefits in a defined contribution plan and permits thecreation of a hybrid retirement plan.
• Clearly indicates that retirement benefits, employee contributions, and the use of premium tax are subject to negotiations between the parties during the collective bargaining process.

These proposed changes simplify the statute, allow the parties to negotiate based on the needs and desires of the parties, maintain the minimum benefit protection that has previously been provided to firefighters and police officers, and promotes establishment of sustainable retirement benefits for public safety professionals.

Included is a June 2013 pie chart from the Department of Management Services depicting the benefit accrual rates of local police and fire pension plans. This chart visually represents the fact that 36 percent of local police and fire plans in Florida have benefit accrual multipliers greater than the 3 percent FRS accrual rate. This may be attributable to the extra benefit requirement applicable to local fire and police pensions and to the previous interpretation of the State (prior to the Naples Letter) on how premium taxes must be used. Taxpayers may be correct in arguing that this level of benefits is unsustainable, and perhaps unconscionable. Even the 3 percent accrual rate is generous, as a January 2010 report from State Office of Program Policy Analysis and Government Accountability (OPPAGA) notes, the median accrual rate for public safety (special risk) employees across the nation is 2.5 percent. Only 10 states, including Florida, have a special risk accrual rate that averages 3 percent or more. While not included in our draft legislation, another pension reform concept that may be a viable alternative to control local fire and police pension costs and provide sustainable retirement benefits is as follows:

• Restrict the use of state premium tax revenues to fund only benefits that are equal to or less than Florida Retirement System benefit levels.
• Local governments may negotiate higher retirement benefits; however, these must be paid for by member contributions and other funding sources.

If you have any ideas, suggestions, or comments, please call me at 239.248.1550 or email me at mayor@naplesgov.com.