COMMENTARY | The Jacksonville Police and Fire Pension Fund — an obscure but powerful local agency that manages billions of dollars in assets — defied city attorneys last month by hiring an outside lawyer to handle its legal affairs, resurrecting long-running grudges and triggering a showdown with city officials that could have major ramifications for taxpayers.
The pension fund’s decision “should scare the pants off you guys,” Jason Teal, the city’s interim general counsel. told members of the City Council finance committee late last month.
The dispute on one hand seems abstract: bureaucrats jealously guarding their fiefdoms. But the technical question — does the pension fund have to take the legal advice of the city’s general counsel? — is a thorny one with potentially giant implications. The pension fund calculates how much City Hall must contribute each year to cover its $2.2 billion retirement debt. Small tweaks to that formula could cost taxpayers millions more every year, leaving less money for public services like parks, libraries, fire and police protection, and road projects.
The pension fund — a public agency subject to open-government laws — has been remarkably circumspect about why it has so aggressively sought to carve city lawyers out of its affairs, despite the high-stakes issues at play.
“I don’t want to litigate this in the court of public opinion,” Tim Johnson, the pension fund’s CEO, told the council finance committee last month. “There are multiple reasons why the board feels there is a conflict (with the city’s general counsel), and feel that it is entitled to seek a second opinion in some cases.”
The fraught relationship between City Hall and the pension fund’s board of trustees dates back years and involves controversies both petty and incredibly important — including disagreement over the formula the pension fund uses to calculate the city’s annual contribution.
Last month, over strenuous objections from Teal and his deputies, the pension fund board of trustees signed an open-ended engagement letter with Coral Gables-based Sugarman & Susskind to handle specialized legal issues with pensions and “all other legal services” requested by the board.
Meeting minutes don’t make clear why the board decided to do that, though one member made mention of his lingering hard feelings over an “an absolutely ridiculous, politically motivated lawsuit” — likely referring to an attempt years ago by city attorneys to cancel a special and lucrative retirement plan the fund created for its former executive director, John Keane, and two other senior employees. The city believed the fund lacked the authority to do that. Keane sued, won a partial judgment in his favor, and the city ultimately settled with him for $250,000 last year.
Keane had been the fund’s public face during a time in which the city struggled with rapidly escalating annual pension costs that were eating away its budget and faced complicated, sometimes tense negotiations to rein in expensive retirement benefits for police and firefighters that were driving up those costs.
While Keane had become a bit of a boogeyman with the public, he remained popular with many cops and firefighters who saw him as a savvy advocate for their interests. The board, which includes appointments by the city’s police and fire pension members, has never forgiven the city for trying to cut Keane’s retirement pay.
Big pension debt
The board has also never been comfortable with key aspects of Mayor Lenny Curry’s pension reform plan, which voters approved in 2017. That plan, in part, places new police and firefighters into 401(k)-type retirement plans instead of pensions, created a new half-cent sales tax to fund the city’s pension obligation and essentially refinanced its large pension debt so most of the big city contributions take place far in the future.
“It’s a terrible plan,” a former pension fund board chairman said at the time.
But the pension fund never got to weigh in on Curry’s idea. City attorneys determined the pension fund had no role to play in the various levels of approvals needed to make Curry’s plan law, even as the agency, now, is bound by some of its provisions.
This is where it gets complicated but important: The new tax set to finance the city’s pension obligations doesn’t kick in until 2030. In the interim, the reform plan requires the pension fund to calculate the present value of those tax collections and apply them as a current asset on its balance sheet — an unheard of accounting trick that has the effect of lowering the city’s required contributions in the short-term because the pension fund appears, on paper, to be more flush with cash that it truly is.
In other words, the city must contribute a little more than $157 million to the Police and Fire Pension Fund this upcoming fiscal year; without that accounting trick on the books, it would be legally obligated to pay tens of millions more.
The board has never liked this arrangement — not without some good reason — and its actuarial reports in the years since warn that “it is advisable to consider making contributions to the Fund in excess of the minimum required contribution.” The pension fund only has enough assets on its books to cover a little less than 48 percent of the long-term obligations owed to retirees, a slightly worse ratio than the year before.
A pension fund armed with its own attorney, and unbound by the city general counsel’s advice, could easily begin unilaterally making changes to the funding formula that would take lengthy and uncertain court proceedings to unwind. Those changes — which have debatable merit — could cost taxpayers millions in additional payments each year, and it’s why the pension fund should be clear what its intentions are.
There are other big questions the pension fund’s ploy raises, including some that strike at the very heart of the city’s consolidated government — which operates, in large part, on the assumption the general counsel gets to settle legal disputes. Those are hazy legal questions that are important and, to some degree, unsettled.
But the pension debt, almost more than any other issue, will help determine Jacksonville’s future. Even if the pension fund believes it has this right to an outside lawyer, it has a responsibility to be transparent about why it’s aggressively pursuing this.
The pension fund trustees “believe that their duty as fiduciaries is to the interests of plan participants,” Johnson told council members, somewhat ominously. “And there are times when those interests are in conflict with the city’s interests.”
Nate Monroe’s City column appears every Thursday and Sunday.