George Gibbs Center for Economic Prosperity

Rober⁠t⁠ McClure: Flor⁠i⁠da Leg⁠i⁠sla⁠t⁠ure’s fa⁠i⁠lure ⁠t⁠o reform pens⁠i⁠ons cos⁠t⁠ly ⁠t⁠o c⁠i⁠⁠t⁠⁠i⁠es

By: The James Madison Institute / 2014

By Robert McClure | July 3, 2014Because of a credit rating downgrade by Moody’s Investors Service, Jacksonville will soon be paying higher interest rates on its debts. This may well divert millions of tax dollars from serving the city’s residents to enhancing the bottom line of Wall Street’s lenders.The Florida Legislature’s chronic failure to make major reforms in state and local pension plans contributes to Jacksonville’s problems. Moreover, it is also part of a larger problem: the tendency of elected officials — in Washington and Tallahassee alike — to “kick the can down the road,” foisting the consequences of their inaction on future generations.Granted, city officials around the state — including Jacksonville’s — must share much of the blame. A decade ago, their revenues from two sources were skyrocketing. The real estate bubble buoyed property taxes while a spate of hurricanes in 2004-2005 caused insurers to raise their rates and, thus, caused the yield from the tax on insurance premiums — literally a windfall — to soar.Officials in many of Florida’s cities imprudently spent these windfalls instead of lowering tax rates, boosting their reserves, and returning some of the money to taxpayers and policyholders. In particular, officials in Jacksonville and other major cities enhanced their already lucrative pension benefits for government employees.Indeed, because of a state law passed in 1999, additional monies gained as a result of the growth in revenues derived from the tax on insurance premiums can be used only to enhance public pension benefits. They cannot be used to underwrite the pension’s basic costs or for other pressing municipal expenses.That’s like saying that if your boss gives you a raise, you may use it only to redecorate your kitchen or add a pool, but you can’t use the money to keep the lights on or put food on the table. For many reasons, repeated efforts to amend this law have failed.The sad thing is the pension predicament facing Jacksonville and many of Florida’s major cities was predictable. In fact, it was outlined in The James Madison Institute’s January 2011 study, “Protecting Florida’s Cities Through Pension Reform.”Written by Randall Holcombe, the study offered practical solutions. During four consecutive legislative sessions — from 2011 through 2014 — state leaders had an opportunity to act on those solutions and others put forth but failed to do so. Now Florida’s cities are beginning to pay the price.As Jacksonville’s Florida Times-Union reported, “The downgrade could result in roughly $1.4 million in additional interest costs for the city on existing debt, and could make issuing new debt more expensive, too.”Thus far, no city in Florida has had to follow the course charted in California and other states where pension burdens forced cities into bankruptcy. However, when pension costs take an inordinate share of a city’s budget, that city’s taxpayers aren’t getting what they’re paying for in the form of basic municipal services and infrastructure improvements.The ultimate solution — for Florida’s cities and for the state’s own Florida Retirement System — is to emulate the private sector, where the traditional defined benefit plans have been replaced with 401(k)-style defined contribution plans.At the state level, the Florida Legislature could make that change — at least for new hires. For the cities, however, changes would be subject to collective bargaining  between city officials and the employees’ unions.Even at that level, however, the Legislature could help by untying the hands of city officials. Let’s hope it doesn’t take a series of fiscal crises in Florida’s cities to prompt the Legislature to get serious about pension reform at last.Dr. J. Robert McClure is president and CEO of The James Madison Institute, a non-partisan, public policy think tank focused on Florida. Contact him at or follow him on Twitter at @DrBobMcClure. Read article here: