Pension reform in Jacksonville has a long history which included a forensic investigation and this week:
Voters in Jacksonville, Fla., on Tuesday approved a referendum that creates a half-cent sales tax that will be used exclusively to fully fund the city’s three pension funds.
The vote came as a result of a state law passed earlier this year that allowed for the referendum, with the requirement that all three pension funds become closed to new employees and the employee contribution rate is increased to at least 10%. The pension funds are the general employees and corrections officer pension funds that make up the $2 billion Jacksonville City Retirement System and the $1.8 billion Jacksonville Police & Fire Pension Fund.
Since we are doing a comparison of public pension plans for major cities based on data from their actuarial reports, it’s time to turn to Jacksonville.
The Yankee Institute for Public Policy “develops and advances free-market, limited-government solutions in Connecticut” and today they focused on our blog entry on Teacher Pensions (for which I was interviewed) :
The Pew Charitable Trusts’ raw data is taken from the CAFRs of over 230 public pension plans comparing liabilities and assets (in thousands) by state. Five of those states happen to have liability amounts in the $190 billion range but when you look at the assets each has accumulated to pay those benefits a stark trichotomy emerges:
The Pew Charitable Trusts updated their State Pension Funding Gap brief for 2014 and after combing their numbers a spreadsheet with ours here is how they compare:
In a format and with a level of transparency that public plan sponsors and the Center for State and Local Government Excellence (SLGE) are comfortable with. From an email sent out by SLGE this morning:
Pensions and Investments published SLGE President/CEO Elizabeth Kellar’s letter to the editor (August 22, 2016) explaining that free, accurate pension data is already available at www.publicplansdata.org. An earlier commentary had argued that there was no comprehensive public pension database and that Congress should pass legislation to require state and local governments to file an annual report with the U.S. Treasury.
For those without the online subscription to P&I here is that letter to the editor:
Dallas Cops’ Pension Fund Nears Insolvency In Wake Of Shady Real Estate Deals, FBI Raid
The Dallas Police & Fire Pension (DPFP), which covers nearly 10,000 police and firefighters, is on the verge of collapse as its board and the City of Dallas struggle to pitch benefit cuts to save the plan from complete failure. According the the National Real Estate Investor, DPFP was once applauded for it’s “diverse investment portfolio” but turns out it may have all been a fraud as the pension’s former real estate investment manager, CDK Realy Advisors, was raided by the FBI in April 2016 and the fund was subsequently forced to mark down their entire real estate book by 32%. Guess it’s pretty easy to generate good returns if you manage a book of illiquid assets that can be marked at your “discretion”.
To provide a little background, per the Dallas Morning News, Richard Tettamant served as the DPFP’s administrator for a couple of decades right up until he was forced out in June 2014. Starting in 2005, Tettamant oversaw a plan to “diversify” the pension into “hard assets” and away from the “risky” stock market…because there’s no risk if you don’t have to mark your book every day. By the time the “diversification” was complete, Tettamant had invested half of the DPFP’s assets in, effectively, the housing bubble. Investments included a $200mm luxury apartment building in Dallas, luxury Hawaiian homes, a tract of undeveloped land in the Arizona desert, Uruguayan timber, the American Idol production company and a resort in Napa.
Despite huge exposure to bubbly 2005/2006 vintage real estate investments, DPFP assets “performed” remarkably well throughout the “great recession.” But as it turns out, Tettamant’s “performance” was only as good as the illiquidity of his investments. We guess returns are easier to come by when you invest your whole book in illiquid, private assets and have “discretion” over how they’re valued.
Not unlike other public plans so anxious to justify 8% valuation interest rates that they invest pension money with anyone willing to tell them that’s what they are getting.
Though looking over their actuarial reports the Dallas Employees’ Retirement Fund is not much better.