Pensions take toll on tax coffers
As property taxes shot up, much of the revenue went into retirement plans.
By AARON SHAROCKMAN
Published June 10, 2007
Wondering where all those skyrocketing property taxes have gone?
One major drain: the tony retirement pensions of the state's police and firefighters.
In St. Petersburg, the cost to run the city's police pension system has risen 166 percent since 2001, an additional $8-million in 2007 alone.
This year, the Hillsborough County Sheriff's Office will likely spend more than $8,431 in retirement costs for each of it's 3,598 employees -- nearly $30.3-million.
And in Pasco County, a department a third the size, the cost could be slightly more than $9-million.
As the Florida Legislature threatens this week to force dramatic cuts in property tax collections, local governments are struggling to find ways to shrink their budgets. But so far generous government retirement systems have been off-limits.
A lackluster stock market has contributed to rising pension costs in recent years. But benefits also have been increased, and there's no slowdown in sight.
"There's too much political baggage if you were to even suggest cuts," Carol Westmoreland, with the Florida League of Cities, said of the pension systems, of which many elected officials are members. "You'd be wielding your sword at the windmill."
A police officer's retirement plan will make you cringe at your foundering 401(k). Don't save a dime. Retire after 30 years. Receive nearly full paychecks plus cost-of-living bumps for the rest of your life.
That's the setup for police and firefighters that are part of the state's retirement program, called the Florida Retirement System.
Overall, the system serves more than 600,000 current state and local government workers -- from teachers to judges -- and is modeled on a structure that's all rare in the private sector.
Nearly all state workers are part of the plan. All 67 county governments, school districts and sheriffs' departments are required to be part of the system.
While local taxing districts and cities can join the state plan, not all do. St. Petersburg, for example, manages its own plan, as do Clearwater and Tampa. But the bulk of local government workers are part of the state plan.
The state's plan for police, firefighters and other public safety workers, called special risk, is the Cadillac of retirement options, Westmoreland said.
Among the benefits for special risk employees, many of which also affect other state retirees:
- Those who worked 30 years receive 90 percent of their annual salary averaged over the highest five years. They also receive cost-of-living adjustments.
- Employees do not have to contribute to their retirement. Local governments pay all costs.
- On top of their pension, retirees receive a monthly stipend to help defray medical insurance costs.
- Employees can work up to five years past their retirement date and receive a cash payment in lieu of additional benefits.
Most other employees enrolled in the state retirement plan are entitled to about half the benefits.
Teachers, for example, who retire after 30 years, receive an annual pension worth 48 percent of their annual salary.
But that's still far more than most private companies contribute to their employees' 401(k)s or other retirement plan.
Besides police and firefighters, the special risk benefits are paid to medical technicians, forensics specialists, prison guards, dentists and nurses.
Supporters of the program say public safety retirees deserve a higher benefit because of the risk associated with their jobs. It also offsets lower wages, said Matt Puckett, a lobbyist with the Florida Police Benevolent Association.
"Cops are asked to go out there and put their lives on the line," Puckett said. "There needs to be some reward or guarantee. That's what a defined benefit its, it's a guarantee. Our police and firefighters are special people who deserve that much."
State adds to costs
For months the rhetoric from Gov. Charlie Crist and Republican legislative leaders has been the same: Local government spending, fueled by an unprecedented runup in property values, is out of control.
But when it comes to the state's pension fund, the state holds part of the responsibility for rising retirement costs.
Legislators set annual per-employee costs based on actuarial studies that fluctuate each year depending on the pension fund's investment performance. But they have also voted repeatedly in recent years to enhance benefits packages, increasing the cost burden for local governments.
"We've been saying pretty consistently that this is one of the problems that we have in dealing with tax reduction," said Pinellas County Administrator Steve Spratt. "At the county level, there are so many costs that are determined by the state."
Starting in 1999, the Legislature has added emergency medical technicians and paramedics to the special risk class, along with probation and youth custody officers and 24 types of forensic or correction employees.
More enhancements are considered each year.
Public employee unions wield huge influence in the legislative process, most notably the 34, 000-member Police Benevolent Association, which in 2006 spent more than $2-million in state elections. For years the police and prison guard union has won raises for state officers' pay and expanded pension benefits.
Such enhancements contrast sharply with the private sector, where the number of private pensions nationwide have shrunk from 75,000 a decade ago to 28,000 today, said Stephen Tanner, the vice president of human resources for the Florida Farm Bureau Insurance. Instead, companies have increasingly adopted defined-contribution systems, such as the 401(k), passing the risk to employees to invest the money.
"Almost everyone had a pension, but at some point they got so expensive employers could no longer afford it," Tanner said.
When Jeb Bush was governor, he tried to switch new state workers to a 401(k)-style program to lower government costs. But lawmakers approved only an optional plan, and few employees have chosen it.
Better pay a factor
Compounding the pension cost problem is governments' penchant in recent years to dramatically improve employee pay. The extra money in employees' paychecks translates into more money due to the retirement system.
In Hillsborough County, for example, yearly pay raises averaged 7 percent between 2000 and 2005. So if a Hillsborough worker in 2000 was making $30,000 a year, his salary would have been $42, 075 by 2005. Without any other pension change, the required contribution would have risen $1,000 annually.
Pinellas County said its compulsory retirement contributions have gone up 42 percent in four years, from $10.1-million in 2002 to $14.3-million in 2006.
"If you look at the four things that have really stretched our budgets -- it's pensions, it's fuel, it's insurance," said Clearwater Mayor Frank Hibbard. The last included health and property insurance.
But local governments aren't immune to increasing costs themselves. St. Petersburg, which requires some employee contributions to its pension, beefed up police and fire pension benefits in 2004 so that employees who serve 30 years annually receive 90 percent of their salary, instead of 75 percent.
"It was a big change," said the city's human resources director Gary Cornwell. "And expensive."
Staff writers Will Van Sant and Mike Donila contributed to this report.
The costs of retirement
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Source: City of St. Petersburg