Pension and benefits changes

In November the voters called for sweeping change—including an unprecedented turnover in the Pensacola City Council. Resonating through local races was a call to reform the serious pension problem that was threatening to gobble up the city budget. I continued to hear “No more studies, please take some action.”

Since being sworn in we have discussed, debated, and dissected the pension issue. We have expanded the deliberations to include the entire benefits package. Meanwhile uncertainty looms over the heads of City employees in an already tough economic time.

Rumors have been swirling that the general City employees are contemplating union—which, among other things, would further complicate any future reforms by adding another layer between policy and practice. At the same time a proposal is being submitted by the Charter Review Commission to fundamentally change the structure of city government—further adding to the climate of uncertainty in City Hall.

I believe it is time to take decisive action to 1) save the taxpayers’ money, and 2) restore some stability to the city workplace.

I suggest that we

• approve two reforms to the pension plan that should save $2.5M per year,
• adjust leave accrual and payouts so that these benefits will be more consistent with the benefits in the private sector, and then
• make a commitment to City employees to take these issues off of the table for the duration of this term.

PENSIONS

We have a clear mandate from the voters to tackle the pension problem and to do so swiftly. I propose that we act now to make the two changes to the pension I outlined in my previous post:

• adjusting spousal benefits and
• implementing 5 year averaging

The combined impact would save $2.5M annually in pension costs, an overall savings of 20%. These changes must be applied equitably to all of our pension plans: general, police, and fire. (While making this change to fire requires legislative action, we should adopt the policies now and enact the changes as soon as we can in each case.)

Adopting these changes now will send an unambiguous signal that we are committed to making the changes necessary to ensure the fiscal stability of our city and that we intend to deal fairly and equitably with all city employees. And we will begin accruing savings immediately.

BENEFITS

The press has documented some of the most excessive pensions. Often the most bloated retirement packages have been coupled with huge payouts for accumulated vacation/sick leave. So it makes sense to examine this part of the benefit package while we are doing pension reform.

How do we compare?

In comparison to the private sector, the City allows the accumulation of a large amount of vacation/sick time (combined as paid time off—PTO), and it is paid out at the end of employment. This structure, which defers to the future costs incurred today, doesn’t make for sound fiscal policy. That’s why most other employers—both public and private sector—have limited accumulated leave.

Certainly, there is some value to accruing leave time, allowing employees to have a cushion in case of catastrophic illness for themselves or family members, but a reasonable benefit should not balloon into a golden parachute. We can't afford it.

My Proposal

I propose bringing our leave accrual and payouts closer to the private sector. The Family and Medical Leave Act allows employees 3 months leave for illness or caring for a sick relative, so it is a valid benchmark. I suggest that employees should be able to accrue up to 12 weeks of leave, which pegs this benefit to a national norm.

(The payout cap is just one component of leave. Other issues include separate sick and vacation time, leave accrual rates, and mandatory vacations. These are primarily policy issues, with little long-term budget impact. We should leave the tweaking of these minor issues to future councils. Simply changing the payouts for accruals will make a significant change to our system and prevent the “sticker shock” that has occurred recently regarding payouts.)

What about employees whose cumulative hours exceed the new cap?

We need to honor previous obligations. Therefore, I propose that we pay out employees’ accumulated time in excess of the new cap over the next two years. This payout will cost approximately $1.5M per year for only two years. The ongoing $2.5M per year savings from the pension could offset these short term costs. What’s more, this change—which will benefit the taxpayers in the long term—will put cash in the hands of nearly 600 of our 850 employees (employees who have not seen a raise in two years, who have had the opportunities for overtime pay reduced, and whose longevity benefits have been put on hold).

So why not embark on a study?

Sure, it would be nice to know precisely and exhaustively how the rest of our benefits and salaries compare, but much of that information is available without paying a consultant. City staff has already provided data on other cities, and this information is available as public record. Many local employers have shared their pension and benefits packages with me during the past week. I have reviewed the plans from Gulf Power, Baskerville-Donovan (who also furnished data on benefits for engineering firms nationwide), O’Sullivan Creel, Escambia County, and others, and my proposal regarding leave is based on that research.

Benefits are not an exact science; they reflect the current situation of the particular employer. No matter what a consultant reports, in the end we will likely be in the same position we are today—faced with enacting cuts that are fair to both employees and taxpayers. However, it is clear the issues I propose changing are ones that are most out of line with other employers and promise to take a big bite out of current and future costs.

We could tinker. But while we tinker we lose time. We lose money. And we allow the climate of uncertainty to persist.

Moreover, the benefits in taking decisive action far outweigh any minor additional savings that a study might uncover.

IF WE ADOPT THESE REFORMS, EVERYONE WINS.

In summary, I propose several changes:

1. enact the Life Annuity Normal Form (choose whether spouse is part of pension calculation)
2. adopt 5-year averaging for pensions (as opposed to current 3 year averaging)
3. cap leave accrual/payout to 12 weeks
4. make no further changes to pensions and benefits during this council’s term.

The benefits?

For employees:

• a pension system that values an employee’s work and dedication,
• stability and protection from other changes,
• for most, a pay out of accrued leave now during a time with tightened budgets.

For the City:

• reduced annual pension payments
• reduced future payouts for leave accrual
• short- and long-term financial savings.

And, for the taxpayers:

• stabilized, reduced future costs on pensions and benefits
• improved ability of the City to provide superior service at the lowest cost.

This council has already shown it has many creative ideas, but we have been bogged down by this huge problem which we have inherited. If this Council proves equal to this task, we can set our eyes on the future and the exciting challenge of making Pensacola the great, vibrant city that we can become.

City Pensions—a couple of quick fixes

City pensions consume $13 million a year. That is a huge piece of our $212 M City budget and almost as much as the city collects in ad valorem (property) taxes. (This doesn’t count the money going for the new employees who are going into FRS.) There are no easy answers, no silver bullet, but there are meaningful measures we can take to curb this growing liability. And we don’t need a consultant to point the way...

Why does the city offer pensions at all?

Pensions offer one tool to attract and retain the best employees we can. And we must be fair. If we are perceived as an organization that doesn’t honor commitments to employees, we will be unable to attract and retain the best talent to serve this city.

But we also have an obligation to the taxpayers—to deliver high quality services at the lowest price.

When our benefits threaten to decrease the quality of city services, we must take action.

What can we do?

I believe we have two options that could improve the pension picture immediately, changes that will both save money for the taxpayers and improve the fairness to city employees.

Five year averaging

The headline-grabbers are the handful of folks on the high end of the salary range who will receive large pensions. But there is a second group of retirees who receive disproportionately high pensions: The end-game over-timers. . .

Currently, the city pension plans calculate an employee's salary based on the best two out of the last five years. Some employees have used this provision as an opportunity to pad their pension-basis through stepped-up overtime during their last two years. Instead of rewarding steadfast service, this provision rewards those creative employees (something we usually encourage) who can game this system in the final innings. And it unfairly penalizes those employees whose jobs do not provide opportunities for overtime.

By switching to a calculation based on the average salary over the last five years, we can get a better picture of an employee’s work history and reward each employee based on his or her work.

The savings? According to our finance director, making this change in all city pension plans could save us $1 million a year.

Spousal benefit

Today most people subscribe to the concept of “equal pay for equal work.” Yet the seemingly antiquated city pension system violates that goal. . .

Today the city pension is paid to an employee until he (or she) or his spouse dies. This system presupposes that 1) people marry within their own age group and 2) that they stay married. And it is based on a by-gone era when the social norm was one bread-winner/pension-earner per family.

But look what happens when a retiree violates the Leave-It-To-Beaver social more:

A Tale of Two Officers
(Not to pick on police—just easier with a pension that is 100% of salary to make this illustration)

For the sake of simplicity, let's make the following assumptions:

• Both join the force at 20 years old.
• Both officers serve the city admirably, receive the same base pay for their equal work for 35 years.
• Both retire at 55 and receive a pension paying 100% of salary.
• Both officers earned the same, constant amount of $40,000 every year on the force.
• Everyone (pensioners and their spouses) lives until they are 80 years old.

Let's look at their compensation while on the force:

			Officer A	Officer B	Difference
		Years on Force	35	35	--
		Total Salary Payments While on Force	$1.4M	$1.4M	--

So far so fair.

Now let’s say that Officer A is a devoted husband who is married to a woman of his age. Officer B has a midlife crisis at 50 and marries a woman half his age. Let's see happens to their pension compensation:

			Officer A	Officer B	Difference
		Years of Pension Payments	25	50	25
		Total Pension Payments	$1.0M	$2.0M	$1.0M

As you see, there is a difference of a million dollars between these two employees. Equal pay for equal work? Not.

This inequity not only costs the taxpayers, it violates the fairness principle. A simple change could repair this inequity. The technical name for this change is “life annuity normal form.” In practice it means that upon retirement, the employees must choose whether to receive benefits only until they die or until their spouse dies. If they choose to include their spouse, then the benefit level is adjusted based on the age of the spouse, dividing out the pension expectation of the employee over the life expectancy of the youngest partner.

This is a standard practice with other pension plans and provides equitable payments with respect to different life choices. According to the city finance director, making this change for all city pensions would result in a $1.7 million a year savings.

Action now

By making these two changes for all of our employees, the 5 year average and the spousal consideration, we can create a pension system that treats our employees fairly and equitably. These changes also bring our system more in line with other local governments and the FRS system, our main competitors for top talent.

These changes will should save the city an estimated $2.7 million a year. The city should move forward with these changes now.

Natural Playground Update

Several weeks ago I presented the idea of creating a natural playground at Bryant Park, surrounding the new Tryon library, and the City Council wholeheartedly supported a new way of thinking about and designing parks.


Bryant Park in many ways provides a great proving ground in Pensacola for a natural playground. Primarily an empty field prior to the construction of the library, the original design for the park included a walking trail and a standard plastic playground structure. Armed with a new direction, City Parks and Recreations staff began working with the architects and others involved in the park to modify the plan to become a natural playground.

In Pensacola we have no expertise in natural playground (there are none in Florida, as far as I am aware), so staff and the architects enlisted the help of Natural Playgrounds Company to explore this idea. I recently had the pleasure of attending a meeting with the architects overseeing the project, Parks and Rec director David Flaherty, John Ewing (Parks department Project Manager), and Doug Durden, the supervisor of park maintenance. They had asked Ron King and his son, both of Natural Playgrounds Company, to come to town for a site visit. (The visit was held during some of the rainy weather we have been having, which Mr. King thought was a great time, since they could see some of the real conditions the park will experience.)

We all came out of the meeting energized and excited about this new park. Mr. King described some of his ideas about elements to incorporate in the site. He was very sensitive to the experience of the site, such as views of the park as well as the relationship with the adjoining neighbors. The original plans had a walking trail around the park, and the current plan is for that to stay, with major play elements in the center as well as some scattered around the park. Mr. King was particularly conscious of the fact that this is a park around a library, noting the potential for outdoor activities and the appeal of quiet places for reflection and reading. Among the ideas were:

• a 10 ft tall hill with built in slides and climbing walls,
• an amphitheater,
• a frog bog,
• a bridge across the shallow retention pond planned for the site.

And there is good news regarding costs. The rough estimates are that the park will come in within budget even considering that this is going to be a change order with the architects. One of the benefits of this natural playground over the traditional structure originally planned is that most of the money that will be spent will be spent on local landscapers and local materials, rather than being paid to a manufacture in another community.

The architects and park staff will work with Mr. King on the design which should be forthcoming in late May or early June. Citizen input is certainly welcome, so send me your ideas. Look for this natural playground to be completed some time this fall. Bring your kids and grandkids. Then let me know what you think.

The Maritime Museum

The Admiral John H. Fetterman Maritime Museum will be the crown jewel of the entire maritime park project. As a mother and a scientist with a passion for education, it is the part of the project that excites me the most. I want an economical viable park that acts as a magnet for drawing people of all types to one of our greatest assets, our downtown waterfront. Some will come for work, others for ballgames, others for a nice walk, but I believe the largest group will be coming to visit the maritime museum. However, I believe that we must consider the museum as part of the whole and think that creating the best park might entail shifting the museum site.

The negotiations regarding the project as a whole. I began considering the museum in the context of the overall site as our negotiations with the Master Developer evolved. (And steady progress is being made in making this project a reality.) Incredible effort has been going into crafting a Master Developer agreement that will provide incentives for retail uses of the private development (as opposed to offices on the ground floors) and other elements that will make this a economically viable, exciting park for all of us to visit.

The park is a three-leg stool: maritime museum, multiuse stadium, and public park. The master developer agreement governs the construction of the multiuse stadium, the public park, and development of the private buildings (along with the environmental cleanup of the site). A separate agreement, between the CMPA and UWF, governs the construction of the maritime museum.

Maritime Museum site. The maritime museum has always been envisioned along Devilliers Wharf. It seems fitting that a maritime museum have some element of water frontage. However, I believe that the activity we all have come to expect, the pretty pictures we were sold on, will not occur if the museum consumes the entire frontage of Devilliers Wharf.

Certainly, the entrance should relate to the waterfront. The entrance of all great museums sets the tone for the experience you will have inside, looking at the museum collections. Still, museums are by nature inward-looking—the curators expect visitors to enjoy the exhibits rather than the views (though occasional nice views can be integrated into the experience). Once a visitor enters the museum, they have left the public realm and do not add vibrancy to the street. And that’s a critical issue.

Activity on Devilliers Wharf limited by single use frontage. Currently, under the CMPA contract with UWF, the museum is proposed to consume the entire stretch of Devilliers Wharf that has buildings (the southern half of Devilliers Wharf will front the park). So the only reason to walk along Devilliers Wharf in this design is to enter the museum (assuming the museum puts the entrance on the wharf—their preliminary sketches have the entrance on the north side, by Devilliers Square). As I understand it, the museum will house the Trader Jon’s collection to add character to the museum restaurant. It would certainly be appropriate to have an exterior entrance to the restaurant, and perhaps they will have the restaurant stay open after museum hours. However, a museum entrance and one (potential) restaurant along Devilliers Wharf will not create the activity that will make this park successful. That is why I suggest some flexibility in siting the museum.

Additional uses on Devilliers Wharf. There are, I believe, changes that could be made that will improve the overall park design and success. Key to the park will be an active waterfront with a variety of attractions: restaurants, shopping, the museum. Perhaps we could create a narrower entrance for the museum on Devilliers Wharf with private development (restaurants/retail) on the first floor on either side and museum on the second floor. Perhaps shift the museum complex to the north to allow private restaurants/retail on the south side. I am not a planner nor a developer, so I don’t know what changes exactly would be most viable—I just feel that the plan as it is does not contribute to the level of activity needed for this project to meet the expectations of the community.


Collaborative Effort. This park has a number of participants, all necessary for its success. In all of the other agreements that the CMPA is entering (the Studer MOU, the Pelicans lease, the master developer agreement) there is wording that acknowledges that this is a multi-faceted agreement and that all parties will work together to create the best possible park. These agreements include wording like “a site selected by the mutual agreement of Studer Ownership Group and CMPA” and “in the general location at the Park.” The CMPA will have final oversight of all building placements on the park. Unfortunately, as I read the CMPA/UWF agreement, there is not the flexibility that would allow UWF and CMPA to work together and make adjustments to create the park we want.

What I would like to see. The UWF/CMPA agreement does not include any provisions for adjusting the site of the museum to create the best park for the community. In my conversations with many involved in the project and museum, there is a general understanding that the museum placement might be adjusted to conform to the overall plans. However, from what I know about contracts, if it is not written in the contract, it is not part of the agreement. I propose amending the museum contract to include language that allows flexibility in siting the structure. This would be consistent with the contracts governing the other pieces of the project. In addition, any considerations necessary for a move should be included—-the museum should have waterfront access/views, reimbursement for architectural charges paid by the museum in developing plans for a prior site, proximity to park, etc—-so that all of the parties know what the expectations are.

Am I undermining the project? I don’t believe so. By adding some flexibility, I believe the proposal helps strengthen the project as a whole. It can enhance the economic viability of the project by opening additional waterfront to commercial, revenue-producing, tax-generating activity. And it could increase the number of people enjoying the waterfront, bringing essential vibrancy to this wonderful community asset.