Joseph Cranney, email@example.com; 239-213-60356:46 a.m. EDT August 15, 2016
The Naples City Council begins discussing a $144 million budget Monday that includes $19 million in new spending but stops short of a recommendation to increase the city’s annual payments toward the $48 million needed to fully fund pensions for government workers.
Council members are split on whether the city should start setting aside more money — as much as $500,000 a year — that current and former trustees of the city’s three pension funds said should be used to help make up for paltry recession-era returns on the pensions’ investments.
“I think it’s a good idea to put a little bit extra toward that, if they can,” said Gary Price, the former councilman and former chair of the city’s independent joint-pension board. “I’ve been through budgets ... when we had good times and when we had bad times. I would assume this budget would be pretty favorable to considering some sort of extra payment.”
The city's proposed budget for fiscal 2017, with an expected millage rate of 1.18 mills for the eighth consecutive year, is bolstered by a $20.2 billion taxable value for property in Naples, a 10 percent increase from the current year.
But as residents are unlikely to support a tax increase, Mayor Bill Barnett said other spending increases would have to be reconsidered if more is spent on the pension debt.
Still, Councilman Reg Buxton said he will bring the issue up Monday.
“I will be sure the discussion whether to increase the amount paid is had,” Buxton said.
In the proposed budget, the city is required to pay a total contribution of $5.5 million toward its $42.5 million police pension fund, $44.9 million firefighters’ pension fund and $49.8 million pension fund for general employees.
A board of trustees oversees investments for each of the pension plans, which provide defined retirement benefits for city employees. The city, as an employer, each year pays the amount required to stabilize the plans after contributions from employees, investment earnings and some state tax revenues that go toward the police and fire plans.
This year, most of the city's pension payment is going toward its unfunded liabilities, rather than its required employer contribution, or the city's normal cost.
For the $1.5 million the city contributed to the police pension plan this year, about $1 million went to debt cost, or about twice as much as the $513,000 that went to the city's normal annual payment, according to Doug Lozen, an analyst who reviews the city’s pensions each year. For the nearly $2.1 million the city paid into the firefighter pension, the city spent $1.3 million on the debt payment, about 54 percent greater than the $837,000 the city spent on its normal annual contribution.
For the $2.4 million the city contributed to its general pension plan, about $1.1 million covered debt, which was less than the $1.3 million the city paid as its normal annual contribution, according to Lozen
When debt payments are greater than the normal annual required employer contributions by the city, it’s a sign of a funding problem, Lozen told the council in April, and it puts greater pressure on the city to make larger annual payments.
“When your debt payment is twice as much as your normal cost, that’s a clear indication that that’s what’s driving the problem,” Lozen said.
The city’s annual pension payment has more than doubled from just over $2 million in 2006 to $5.7 million this year when adjusting for inflation. During the period, the three pension funds earned well below the expected rate of return for most years.
In 2008, for example, with an expected rate of return of 8 percent, the city’s pension fund for general employees actually lost 2.4 percent.
Each of the pension boards has since changed its expected return rates to 7.5 percent.
Price said the poor investment performance during the recession is attributable to a “terrible” stock market, where the city’s three pensions invest most of their money.
“You had this perfect storm. Right before the market dropped, we paid people very well in order to keep employees,” Price said. “So then all of those costs go up. Then you’ve got the drop of the market.
"We add all those things up, and that kind of paints a pretty good picture of what we were facing.”
Investment returns have been stronger in the past three years because the pension boards expanded their portfolios to include real estate funds, municipal bonds and other securities, trustees said.
Joe Whitehead, chairman of the police pension board, said the diversity of investments will protect the police fund from future market fluctuations.
“The continued restructuring is such that if we had a repeat of the same circumstances today, the actual loss would be much lower,” Whitehead said.
The police pension is 67 percent fully funded, and the firefighters’ and general employees’ pensions are each 77 percent fully funded, and all are below the target of 80 percent funded, which is considered a healthy level to cover future obligations.
Councilman Doug Finlay said the pension liability is not “critical” for this year’s budget talks because the issue “need not be solved soon.”
“The city of Naples is very healthy financially,” Finlay said. “We have a very healthy tax base. People and investors are pouring money into the city and not leaving it. It is highly unlikely — pending sea-level rise — we would fail to ever meet our future pension obligations.”
The city’s $48 million unfunded liability has decreased nearly $20 million from the $65 million peak in 2010 after the city negotiated a decrease in benefits for its employees.
During budget talks, City Manager Bill Moss will ask the council to decide if reducing the pensions' unfunded liability should take priority over other increases in spending this year, like $875,000 in new spending for tree trimming.