Pension liabilities: the elephant in the city

There’s little disagreement among city commissioners that Sarasota’s ever-looming pension liabilities are a problem.

Commissioner Paul Caragiulo: “It’s not a question of whether the bomb goes off, it’s a question of how.”

Commissioner Susan Chapman: “There is a point — and we’re at it now — when our pension costs are taking away from our ability to provide city services.”

Commissioner Suzanne Atwell: “Although we’ve been taking proactive steps to address (our unfunded pension liabilities), we have to do more.”

Mayor Shannon Snyder: “Some people say it’s really bad, and some people say it’s really, really bad. That’s the only thing people are debating.”

According to the city’s 2012 comprehensive annual financial report, the city has almost $296 million in unfunded actuarial accrued liabilities from pensions.

That number is based on a 7% assumed rate of return for investments that fund the pensions — a rate some commissioners have called unrealistic. A 6% rate of return, which those commissioners say is closer to accurate, leaves the city with about $376.5 million in unfunded liability.

With such harmony among members of the city’s primary governing body, a question arises: Why isn’t this issue being dealt with more proactively?

Snyder says there’s a lack of political will in City Hall to deal with such a daunting issue. He has harped on a refrain that Sarasota is Detroit, 10 years out — a comparison other commissioners roll their eyes at — and foresees the city dealing with the issue in bankruptcy court in the future rather than confronting a harsh reality today.

His preferred course of action is to begin to contract out police services with the county sheriff’s office. The savings could then go to fulfilling existing police-pension obligations.

“There’s a financial initiative for the county to jump in and help us with this issue,” Snyder said. “They would rather help us out now than save this mess in 10 years.”

Chapman doesn’t think that goes far enough. She said it was regrettable that there were expectations of lush pensions for employees, but that it’s an expectation that can’t be met. Her proposed solution is to shift all city pensions to defined contribution plans, such as a 401(k).

It’s a move that the city has begun to make for general employees: Those hired before a 2011 agreement can choose between a defined benefit pension and a defined contribution plan, and those hired afterward are locked into a defined contribution plan.

Snyder believes soon police may become amenable to a defined contribution plan, an option they’ve stood firmly in opposition to in the past.

“I was surprised, for general employees, how many people went from defined benefit to contribution,” Snyder said. “When the average police officer really comes to terms that they won’t get what they’re promised, I think you’ll see the same thing.”

Caragiulo has a different answer for why anything isn’t getting done: It’s complicated. That means not only that developing a solution demands careful consideration, but that there are so many moving parts — including many on a state level — that it’s not possible to come up with a quick fix.

The challenge for the city now, he said, is establishing a new normal. He, too, advocates for a leaner police department, so that they might be able to maintain better benefits with fewer people.

“There’s no way you can form additional payroll costs,” Caragiulo said. “Pension costs are at 80% of what the payroll number is — it’s 10 times what it was just a few years ago.”

Even dealing with the local aspect of the issue is challenging. In collective bargaining with city employees, Caragiulo said, people have become entrenched on both sides. Mistrust, built up over the years since the economic downtown, is just another obstacle that must be cleared to get to a solution.

Down the road, if the market improves to the point that the city can bond out its pension shortfall, he’d like to see the city get out of the pension business entirely, migrating its costs to the state-managed Florida Retirement System.

A platform for considering these issues is the city’s second annual State of the City’s Pensions workshop, which will be held Aug. 23. Snyder credited the city for meeting more frequently in the past 18 months on the issue of pensions and said the severity of the issue has become clearer as a result.

Still, Snyder said, a more acute awareness of the problem hasn’t led to significant progress on a solution. Unless the mindset of the city changes, he finds it hard to believe that progress will be made.

“Everybody’s still wanting to believe that there’s a money tree somewhere, and there isn’t,” Snyder said.

Contact David Conway at [email protected].