Report: Florida ranks 9th best in debt load as a percent of personal income, so what does that mean?

Florida taxpayers today are on the hook for less unpaid state debt than taxpayers in a majority of other states, according to a new report by the Pew Charitable Trust.

The report on state debt and unfunded retirement costs, released Tuesday, measures the state’s total outstanding debt between 2003 and 2013, including its health care and pension obligations to retirees. According to data provided the Herald/Times Tallahassee bureau, Florida ranks ninth best in the nation in total outstanding bills and debt as a share of personal income is 7.2 percent, compared to the national average of 14.8 percent.

But that is only one piece of the equation on Florida’s fiscal health. Data collected by theU.S. Department of Commerce’s Bureau of Economic Analysis show that during that same decade, as the state’s total debt as a share of personal income dropped, so did the value of all the goods and services produced in Florida. The state’s gross domestic product per person, the monetary value of its economy, was declining more than $10,000 below the national average. Story here. 

More data here:

Florida Per Capita Gross Domestic Product

Area	2003	2004	2005	2006	2007	2008	2009	2010	2011	2012	2013	2014
Florida	40368	41623	43333	44038	43729	41579	38771	38396	37627	37790	38197	38664
United States	45858	47037	48090	48909	49126	48401	46680	47287	47586	48160	48397	49110
Difference	-5490	-5414	-4757	4871	-5397	-6822	-7909	-8891	-9959	-10370	-10200	-10446

Source: U.S. Department of Commerce Bureau of Economic Analysis

 

 

Florida's Outstanding Retirement and State Debt as a Percent of Personal income

	National Rank*	National Average	Florida
Debt % of Personal Income 2013	24	3.7	2.4
Unfunded Pension % of Personal Income 2013	11	6.9	3.9
Retiree Health Care % of Personal Income 2013	17	4.2	0.9
Total Debt % of Personal Income 2013	7	14.8	7.2
	*lowest to highest

Source: Pew Charitable Trust

 

UPDATED Teachers' union to lawmakers: Back off FRS

Leaders of the state teachers' union held a press conference Thursday morning to blast proposed changes to the Florida Retirement System.

Standing beside a basket of colorful plastic Easter eggs, Florida Education Association President Andy Ford and Vice President Joanne McCall said the pension proposals would deprive teachers of their nest egg. 

"Because of the actions of our political leaders, teachers have no expectation of continuing employment, no due process and a performance-based pay system that is not funded and based on bad or irrelevant data," McCall said. "Now they want changes to the pension system that guarantee retirement insecurity. These proposals make it more difficult to recruit and retain high-quality teachers."

The House is considering a proposal that would prohibit new hires from enrolling in the state pension plan; they would instead enroll in the defined-contribution system. The Senate bill would give employees a pension option, but would make the defined-contribution plan the default choice.

The teachers' union considers the Senate proposal "the more palatable plan," but doesn't see the logic in either.

Said Ford: "It's all about politics. Part of the ALEC legislative agenda is to change defined-benefit plans into defined-contribution plans."

Later in the morning, House Speaker Will Weatherford responded, saying the union was using "scare tactics."

"They have to ask themselves the questions: Should we keep spending $500 million a year to bail out a broken system? Or should we take that $500 million a year and invest it in things like teacher pay and investing in our education system and investing in our children?" Weatherford said. "I don’t think the unions want to have that conversation.”

Brandes vs. Latvala heats up in Senate

There was a little political grudge match this week at the Capitol.

On Thursday, the Senate’s Community Affairs Committee heard SB 534, a bill that would subject the state’s 492 municipal pensions to tougher actuarial scrutiny.

Boring stuff, right? Well, not for political junkies in Pinellas County.

You see, the bill’s sponsor is Sen. Jeff Brandes, R-St. Petersburg. The bill already cleared one committee, by a 7-2 vote. Brandes has been a tireless champion of it, doing things like sitting in House committee meetings and tweeting his support for the sponsor of the companion bill.

But the bill didn’t get a particularly warm reception at its second Senate committee, especially from one member in particular – Sen. Jack Latvala, R-Clearwater.

When Brandes ran for the senate last year, Latvala backed his opponent, Jim Frishe. Then a state representative, Frishe backed Latvala in his bid for senate president in 2016. Brandes said he was neutral, but won heavy financial backing from another senator vying for the presidency in 2016, Sen. Joe Negron, R-Stuart.

Latvala brought up some concerns about the bill and even convinced one senator who voted for it last week, Sen. Rob Bradley, R-Orange Park, to hold off on his support.

Latvala told Brandes that he had questions about it.

“This really is not hazing,” Latvala told Brandes.

He then shared his concerns about the bill’s new reporting method for pensions, which would make them more in line with corporate bonds with more conservative rates of return.

Latvala said that could greatly exaggerate their liabilities and could shake investor confidence.

“Do you disagree that this could have a potentially adverse affect on local governments’ bond ratings?” Latvala asked.

At another point, Latvala advised Brandes that he should compare the performance of pensions to at least 10 years. 

“Don’t you think when we make decisions up here we ought to use numbers that are more than a year at a time?” Latvala asked Brandes.

As Brandes continued to defend the bill, he was interrupted by the chair of the committee, Wilton Simpson, R-New Port Richey. Save it for next week. His bill had been delayed. He had a week to sit down with Bradley and Latvala to work out any issues.

 

Senate moves away from Weatherford pension overhaul

One of Florida House Speaker Will Weatherford’s top priorities appears to be troubled two weeks into session.

Weatherford wants to close the Florida Retirement System’s pension plan to new employees after Jan. 1, 2014. He wants to steer employees away from the guaranteed benefit system, which he says will require a major taxpayer bailout in the future, and toward 401(k)-style plans instead.

But the Florida Senate, at least so far, is going in another direction. SB 1392, sponsored by Sen. Wilton Simpson, R-New Port Richey, would make such a shift to 401(k)s voluntary for most new employees.

Only the highest paid employees such as senior managers and department heads would be forced to enroll. But other employees, from teachers to bus drivers to police and secretaries, could remain in the system as long as they choose to stay (it does include a new default to the 401(k)-plans). The bill provides for an enticement: all employees in the investment plan will contribute 2 percent of their salary towards retirement. Employees participating in the pension plan will continue to pay 3 percent.

Weatherford's pension bill passes committee, but questions remain

For the past 43 years, it’s been the primary retirement plan in Florida for employees of the state and county government agencies, school boards, community colleges and universities.

And it could be closed to new employees by next year.

A bill that would prevent new employees from enrolling in the plan passed the House Appropriations Committee on Friday, providing a boost to one of the top priorities for Speaker Will Weatherford but defying the warnings of union groups and and the former director of the Florida Division of Retirement, Sarabeth Snuggs.

HB 7011 requires employees hired after Jan. 1, 2014 to enroll in 401(k)-style plans that don’t provide a guaranteed benefit. The 623,011 current workers enrolled in the program, and the 332,682 retired members who receive benefits from it now, would be allowed to remain in the pension,.

Weatherford says the bill is necessary to salvage state finances, which he says are subject to the risk of a future bailout that other states like Illinois are facing.

It passed along strict party lines, Republicans for and Democrats against.

“If we address our pension structure now, and make minimal changes, we can avoid having to deal with potential massive shortfalls in the later,” said the bill’s main sponsor, Rep. Jason Brodeur, R-Sanford.

But Democrats said there was no reason for an overhaul. The fourth largest pension plan in the nation, it’s funded at about 86.9 percent, which is above the national average of 75 percent.

“Clearly this is a situation where we have a solution looking for a problem,” said House Minority Leader Rep. Perry Thurston, D-Fort Lauderdale. “When you have a system that’s top 10 in the nation, top five in being funded, we’re tinkering with a problem that does not exist.”

Aside from ideological differences between Democrats and Republicans, part of the disagreement about a need for an overhaul of the pension centers around the confusion swirling about a study that was supposed to provide objective numbers.

The Florida Division of Management Services hired Milliman, a Vienna, VA. actuarial firm to estimate the projected costs of the changes. Upon its initial release last month, the study didn’t include important assumptions, like the fact that employees contribute 3 percent of their salaries into the pension. It also didn’t compare the proposed plan to keeping the pension plan as is.

So Milliman had to redo the study and the second version came out last week. It was supposed to be an “apples-and-apples” study that compared the costs of the pension plan with those of a 401(k)-system.

The actuary who did the studies, Robert Dezube, told the committee on Friday he was sorry for the confusion.

“I apologize for that (first) study,” Dezube said. “It was not up to our standards. When I found the mistake it was one of the hardest phone calls I ever had to make.

“If you play football and you’re a running back, you are occasionally going to fumble the ball,” he said. “What’s important is what you do after the fumble. Fumble it too many times and you’re not going to be in the game.”

Weatherford’s office touted the revised Milliman study, saying it showed that the state could enjoy significant savings -- climbing as high nearly $10 billion by 2043.

Dezube, however, said he wouldn’t depict the study as being positive or negative. He said the projections were far from precise and were based more on trends. If they were accurate projections, he’d be doing something else, he joked.

But Snuggs, who served as director of the state’s division of retirement from 2003 to 2012, said she found problems with the existing Milliman study.

“This was not an apples-to-apples comparison,” Snuggs said. “The investment plan has no disability benefits. It has no death-in-the-line of duty benefits. The benefits the proposed investment plan provides are not comparable for a career employee...The investment plan does not provide an equal benefit for a career employee in the pension plan.”

Snuggs said there was no fiscal reason for Weatherford’s proposed overhaul.

“It’s strictly a political decision,” Snuggs said.

Democrats pounced on Milliman’s acknowledged mistakes to raise questions about the latest study.

“I’m not willing to make a decision based on a report that has been admittedly filled with errors, and that had to be done two to three times over,” Thurston said. “There’s a lot bigger consequences to fumbling. The sad part is we’re not talking about a game. We’re talking about
our residents who will be at their most critical stage of their lives when they feel the impact of the decision that we’re making here today. With the information we have, I cannot in good conscience vote for this bill.”

Questions about the study left the bill’s supporters back at square one. Rather than point to concrete savings, they relied on pointing to other states that have had issues with pensions.

“It’s a good thing that our pension plan is considered technically healthy now, but in my mind, that’s only technically, we’re still underfunded,” said Rep. Stephen Precourt, R-Orlando. “Those other states who are now struggling to keep their pension in place, they thought they were healthy at one point, too. They thought, just like we did, ok, we’re close enough, let’s trust it and have a little faith, but something happened in those states. Now they’re making painful cuts, they’re raising taxes, they’re throwing good money after bad.”

Brandes gets bill passed for tougher pension accountability

He had to scramble to do it, but Sen. Jeff Brandes, R-St. Petersburg, got his bill for more pension scrutiny passed in a senate committee.

The Senate’s Governmental Oversight and Accountability Committee approved SB 534 by a 7-2 vote Thursday. It requires the state’s 492 publicly funded defined benefit pension plans to report a different type of information to the Florida Department of Management Services then they do now.

Sounds harmless enough, but it’s actually one of the more hotly contested pension bills this year in a year that’s filled with them.

Brandes said his bill is only adding another set of eyes to Florida’s pensions, about 300 of which are below an 80 percent level of funding that is generally considered healthy. Brandes said this new reporting method would use more conservative rates of return, more in line with those used in private companies, of about 4 percent.

Many pension plans use rates of return of more than 8 percent, and Florida’s $136 billion pension plan uses a return of 7.75 percent.

Brandes said his proposed bill is a better model than what’s currently used and would more accurately portray the solvency of plans.

But opponents to the measure, which include groups like the Florida Professional Firefighters and the Fraternal Order of Police, say the method would provide bad information that would only exaggerate the instability of the funds.

“We want disclosure, but we want it to be accurate,” said Robert Suarez, vice president of FPF and a fire lieutenant with the Miami Fire Rescue Department. “There’s a difference between reporting facts and deceiving.”

Weatherford gets long-awaited case for pension overhaul

Florida House Speaker Will Weatherford thinks he finally has the evidence that proves it’s time to reform the state’s $136 billion pension system.

He’s made it one of his chief priorities to prevent new employees from enrolling in the guaranteed benefit plan starting Jan. 1, 2014.

He says that other states, such as Illinois, New York and California, have proven that pension systems are unsustainable. Until now, however, he couldn’t show projections on how much it would save Florida, or how much it would cost to switch to 401(k)-style plans.

He had hoped to find out on Feb. 15 from a study by Milliman, a Vienna, VA actuarial firm, but it was deemed incomplete. On Friday, the firm turned in a second study, this one including what it would cost if nothing was done to the existing pension system and its 145,000 accounts. According to Weatherford’s office, it’s all good.

* An estimated $9.8 billion in savings to taxpayers in 2042-43.

* An estimated $2.1 billion in savings to taxpayers in 2023-24.

* No cost in the first fiscal year of the implementation and a modest $2.7 million cost in FY 2014-15

* First savings realized in 2015-16 ($12.9 million).

* Reduction in taxpayer risk as taxpayer savings increases.

Now that's an interpretation of the report from Weatherford’s office, which has been pushing for the changes. Other groups representing state and local government workers who are enrolled in the pension, are reviewing the Milliman study as well. Some have already observed that the study makes bold assumptions and leaves out important costs. We’ll be hearing from them in the coming days. In the meantime, the Milliman report, and Weatherford’s interpretation of it, only builds momentum for HB 7011.

Cost estimate for Weatherford's pension reform raises more questions

A report released Friday concludes that Florida would quickly recoup savings if House Speaker Will Weatherford succeeds in getting his pension reform plan approved.

But the report also makes some major assumptions and leaves out potential costs that raise questions about the accuracy of those projections and underscores just how tricky it can be to determine what it will cost to overhaul the Florida Retirement System’s $136 billion pension plan.

In other words, those who hoped the report would resolve the issue, think again.

Since becoming House Speaker, Weatherford has made it one of his top priorities to prohibit, after Jan. 1, 2014, new employees from enrolling in the pension plan and require them instead to choose defined contribution plans, where it’s up to each employees to choose an investment strategy.

Weatherford argues that the pension plan’s guaranteed benefit is a drag on state finances and could require a future massive bailout to remain solvent. The fund represents 145,000 current and future beneficiaries, who including state workers, teachers and college and local government employees.

Weatherford had been hoping he’d get an estimate on Feb. 15 from Milliman, a Vienna, VA actuarial firm about how much his reform proposal would cost. But the estimate didn’t compare the costs to keeping the pension system the same, so Milliman had to take another two weeks to make that comparison.

Friday’s report by Milliman, a Vieanna, VA actuarial firm, concluded that by the second year of switching from a pension system to a defined contribution system would produce $12.2 million in savings. The state would lose money, but not as much if it stayed with the pension system, the report states. In 20 years, those savings would grow to $2.1 billion.

Experts at the Capitol were scrutinizing the report Monday, and many people were waiting until they knew more before commenting. Weatherford’s spokesman, Ryan Duffy, said staff members in the House was still reviewing it.

Many actuaries also said they needed time to look at the 136-page study more closely. Among them was Bradley Heinrichs, CEO of an actuarial firm in Fort Myers. He said he did note that Milliman makes a major assumption that the pension system will continue to earn an average of 7.75 percent from its investments. That could be optimistic, and hides certain costs that would require contribution rates to climb, Heinrichs said.

“While every plan is different, as a rule of thumb, lowering the investment return assumption by 1 percent can cause contribution rates to increase by around 10 percent of payroll,” Heinrichs said.

One reason the investment return could fall from its current 7.75 percent assumption -- which is set by the Senate, House and Governor’s office -- is that the number of people enrolled in the pension plan will fall because new members will be prohibited from joining.

As the active population shrinks and the retired population continues to grow in the pension plan, benefit payments will exceed the contributions, requiring future changes in the plan’s assets so that it has enough cash for benefit payments. That would decrease the number of long-term investments the plan could make, which typically have higher returns.

A 2009 paper published by Milliman says as much. It concluded that defined contribution plans in Nebraska and West Virginia had lower returns than defined benefit pension plans, which it called more efficient.

“The biggest drivers of the cost advantages in (defined benefit) plans are longevity pooling and enhanced investment returns that derive from reduced expenses and professional management of assets,” it concluded.

In addition, Milliman mentions the risk associated with 401(k)-plans in the report it released Friday, but doesn’t calculate the associated costs.

For instance, it mentions that when pension plans come up short, then the employer (be it the state or a local government or agency) must pay the shortfall. But in 401(k)-plans, the report stated, ‘“if assets earn less than assumed, since contribution levels are usually fixed, the primary impact is that ...expected retirement benefits are less.”

But if retirement benefits help pay for the cost of growing old, who pays if those savings don’t cover those costs? How much would it increase Medicare or Medicaid costs?

Those costs aren’t tallied by the Milliman report.

“Shifting to a defined contribution plan produces lower retirement savings for workers like firefighters, police officers and teachers,” said Alan Stonecipher, director of the Florida Retirement Coalition. “They don’t look at the costs to Medicaid or food stamps. So it’s another incomplete. This raises more questions than it answers.”

Lawmakers no closer in knowing cost of Weatherford's pension reform

A report on Friday was supposed to help lawmakers understand how much it would cost to do pension reform pushed by Florida House Speaker Will Weatherford.

The study only looked at what it would cost if new employees were prohibited from enrolling in the $136 billion pension system and were required instead to enroll in 401(k) style plans.

On Monday, Weatherford concluded he needed to compare the costs of keeping the plan in its current state before understanding the cost. But late Tuesday, representatives with Milliman, the Virginia actuarial firm that did the study, alerted state officials that the report was missing even more critical data.

They told state officials that when calculating the assets of the plan, they omitted the three percent contribution rates from employees that the Florida Supreme Court recently upheld.

"This caused errors in several columns within the report," said Ben Wolf, a spokesman with the Department of Management Services, which ordered the study.

An updated study with corrections and a comparison to the current plan's associated costs will be released on March 1.

"So we’re not better off than when the report was issued," said Rep. Jason Brodeur, R-Sanford, who chairs the House Committee that is sponsoring Weatherford's pension reform.

AFL-CIO group says report bolsters case against Weatherford's pension reform

The Florida Retirement Security Coalition issued a stinging rebuke on Saturday of Florida House Speaker Will Weatherford’s efforts to reform Florida’s pension system.

Ok, that’s hardly news coming from an outfit managed by the AFL-CIO. It’s no secret the group opposes HB 7011, which would force all public employees hired by agencies enrolled in the state’s $136 billion pension plan to sign-up instead with 401-k plans after January 2014. The coalition has even published a 19-page report arguing that the plan is fiscally sound and needs no major overhaul.

But the group pegged Saturday’s lament on a report released Friday that had been ordered by Weatherford to study the economic impact of the reform. It surely wasn’t Weatherford’s hope that the report would be used as ammo against his proposal.

The study was done by Milliman, a Vienna, VA firm that is among the world’s largest providers of actuarial services.  It warned that the traditional pension plan, which Weatherford has vowed would remain intact, would rely on a shrinking payroll base on which contributions to retirees are made. This would require the contribution rates to increase as a share of payroll. 

How to pay for the growing gap? Workers could pay more in contributions, which are now capped at 3 percent, or local governments and agencies would need to kick in the difference. They might have to kick in more money to make the plan fiscally sound because of the plan’s diminished capability of making long-term investments as the number of contributors erode over time, the report surmised.

That was the opening the coalition needed.

“There is clearly a significant cost associated with this plan,” said Gary Rainey, president of Florida Firefighters. “But the legislature apparently thinks price is no object – probably because they don’t intend to be the ones footing the bill.

“Not only does the legislature want to eliminate retirement security for thousands of public servants like school teachers, firefighters and police but they are likely to expect local governments to shoulder the financial burden,” Rainey added.

There will be other interpretations of the 49-page report, which is mostly actuarial tables, but the coalition was the first one to officially react to it.