web analytics
Your Independent Alternative!

Curtis Lee: Our Public Pension System is Broken

Guest Editorial by Curtis Lee

Jacksonville’s taxpayers are being harmed because the City’s public employee pension benefits are lavish, and because the plans are mismanaged.

The City provides the most lavish pension benefits to its police and firemen, who benefit from the Police and Fire Pension Fund (PFPF). Police and firemen can take full retirement at any age, after 20 years’ service. At 30 years’ service, they can obtain 80% salary replacement, for life. Plus, they get 3% annual increases, compounded, for life, after retirement, even when there is no inflation. The average police or fireman in Jacksonville retires at 49, and receives a pension of about $46,000 per year. (2008 City figures – recent data not available.)

Because of this lavishness, the average police and fireman in Jacksonville gets about twice the annual benefit that Social Security recipients get, and gets it for twice as long. All told, on average, they get at least 4 times as much as most Social Security recipients get, while making lower lifetime contributions to the PFPF. An amazing deal!

I am unaware of any private company that provides such lavish pension formulas. Only governmental entities can be this spendthrift. But the gig is up - these lavish pensions are making Jacksonville insolvent.

Thanks to the City’s folly, combined with negative pension fund returns over the last 3 years, Jacksonville’s 3 public pension plans have a combined $1.467 billion deficit. (Pension liabilities exceed pension assets by that amount.) And, for several reasons, the total unfunded employee related liabilities actually total about $1.8 billion – about $2,000 per City resident (including children). A nasty surprise for taxpayers suffering from declining property values!

The City’s pension deficit (unfunded liability) plus other City liabilities total over $5 billion. The City’s assets are about $4 billion. If Jacksonville were a corporation, it would probably be in bankruptcy.

Thus, the costs of Jacksonville’s public employee pension plans are zooming. The average City household spends, in taxes, over $300 per year just to fund the City’s pension plans. (The City, in total, contributes about $110 million per year to those plans.) All so that some 8,000 public employees, plus retirees, can get lavish benefits.

Unless benefits are slashed, City pension costs will more than double by 2020. City pension costs are 11% of the current City budget (General Fund), and are headed toward 20%. They are the fastest growing major City cost. They are the driving force behind library cutbacks, etc. But most people want libraries. Most of us don’t want to pay higher taxes so that 49 year olds can retire at $46,000 per year or more for life, with 3% annual escalators! If only we could vote on City pensions! Note – all this does not even consider public schools and teacher pensions.

Moreover, the City’s pension administration costs are excessive. More than $13 million per year is spent to manage the pension plans and invest their assets. These costs are high when compared to pension plan norms.

Scandals at the Police and Fire Pension Fund (PFPF)

Of the City’s 3 pension plans, the PFPF is the worst, and is beset by scandal.

Scandal #1 - It has assets of about $900 million, versus liabilities of about $1.8 billion (9/30/09 figures). It scarcely has sufficient assets to satisfy its liabilities to retirees; there is essentially no PFPF money to cover active employees’ expectations. Yet the same man has run the PFPF for 20 years. He is John Keane, a retired fireman.

Scandal #2 - The PFPF spends more than $6 million per year in investment and administrative costs, including $1.2 million per year on personnel costs, for 8 employees. John Keane makes $238,702 per year, plus excessive benefits like more than 6 weeks’ paid vacation, other lavish leave provisions, junkets, and a golden parachute worth almost $2 million. The PFPF is a honeypot for the favored few.

What is this “golden parachute”? Despite a PFPF deficit of about $900 million, the PFPF board of trustees – all union members or allies – gave Mr. Keane contractual rights to get a payout of almost $2 million from the PFPF should he be forced from office today. The second in command would “only” be entitled to about $1 million in that event.

Scandal #3 is more complex, and took me several weeks to unravel.

The PFPF is governed by a 5 person board of trustees, who in theory could replace Mr. Keane, but who have not, despite these scandals. One trustee, Peter D. Sleiman, has been a PFPF trustee for about 23 years. Mr. Sleiman is in the property development and management business, and is (or was) a wealthy man. I started researching his background, and was amazed at what I learned.

In 2005, Peter Sleiman and his 3 brothers, who had been in the property development and management business together, had a falling out. Litigation followed. The 3 brothers accused Peter Sleiman of looting, embezzlement and theft. A judge held that Peter Sleiman violated his fiduciary duties to his brothers. Another judge, in January 2010, signed a judgment against Peter Sleiman and in favor of his brothers. Peter Sleiman was ordered to pay his brothers more than $3.8 million.

I also learned that Peter Sleiman had violated 3 laws, all of which required him to live in Jacksonville in order to be a PFPF trustee. By violating these laws, Mr. Sleiman committed dozens of misdemeanors, and possibly felonies. Mr. Sleiman moved to, and registered to vote in, Ponte Vedra Beach, St Johns County, in February 2006. He subsequently voted, twice, in St Johns County. In 2009, he supposedly moved to Jacksonville Beach, and claimed a homestead exemption. But, in 2010, the homestead exemption was revoked by the Duval County Property Appraiser’s Office, because of returned mail. It seems he might not really live in Jacksonville Beach.

Then, after I started writing to City officials documenting Peter Sleiman’s violations of the law and dubious character, Mr. Sleiman, in mid July, officially changed his voting address to Jacksonville Beach. Convenient, but doubtful, since his homestead exemption had been revoked!

I thought that all these violations of the law, the $3.8 million judgment against Peter Sleiman, and all the other information I unearthed would cause the City Council to refuse to reappoint Peter Sleiman to another term as PFPF trustee. I was mistaken. On August 24, 2010, the City Council met. About 2 dozen policemen appeared in uniform, to support Mr. Sleiman. This, plus probable backroom politicking, plus who knows what else, caused the City Council, by a 12 to 5 vote, to reappoint Peter Sleiman to another 4 year term as PFPF trustee. What were they thinking?

If you are rich and powerful in Jacksonville, you can oversee a public pension plan having $900 million in assets, even if you violate the law, and even if your family has claimed that you are a thief, looter and embezzler, and then obtained a $3.8 million judgment against you! Amazing!

What next? Will Angela Corey – State Attorney – prosecute Peter Sleiman for violating the 3 residency laws, and for possible homestead exemption and voting related fraud? Or will she too kowtow to the public employee unions? Will the City Council wise up and put taxpayers first by exercising its right to remove Mr. Sleiman, which it can do at any time? The answer depends in large part on the public. Do they care? Will they contact the State Attorney? Will they contact the City Council?

The PFPF is a scandal, and a basket case. It needs a thorough housecleaning.

---------------------------------------------------------

Curtis Lee is a retired attorney with pension expertise. He lives in Jacksonville FL and is a member of the Concerned Taxpayers of Duval County.

3 Responses »

  1. Can anyone say, "Bell, California?" That story rings a "bell."

  2. First of all, bad headline. You should clarify that it is the City of Jacksonville as the Florida Retirement System is nearly fully funded and had a record return year last year.
    Mr. Lee is another one jumping on the bandwagon of the public service employee. Pension benefits "for life" may sound like a long time if you retire as an attorney at 45. But for the average firefighter, it isn't that long. On average, firefighters live much shorter lives than the rest of the population. That is a fact.

  3. CLAWING BACK DEFERRED PAY: THE COLORADO GUIDE

    Obviously, legislators around the country are not quite as sophisticated as their counterparts in Colorado. It never occurred to them that they could just pass a bill stating “Oh, by the way, we are no longer bound by our contractual obligations.” Simplicity itself! This approach makes life much easier in difficult budgetary times, and takes the burden off of GASB, state and local governments, plan sponsors and the SEC!

    Under Colorado’s “contract breachin’ plan”. . . . . you simply seize vested, accrued, earned, contracted benefits from retirees and pension members (incredibly, with the help of your local union lobbyists) until your unfunded pension liabilities are sufficiently reduced to raise your funded ratio. This plan also improves the status of your bonded debt (keepin’ those SEC fellas happy).

    If you’re as brazen as we are in Colorado you claim that your goal is to achieve a 100 percent funded ratio, instead of the 80 percent level that is considered well-funded in the industry. May as well go for the full 100 percent, no one understands all this pension mumbo jumbo out here in the west.

    The 100 percent goal provides lots of wiggle room for unexpected investment shortfalls, or needed under-funding in the future. Also, here’s another ingenious provision that we invented. If it happens that God provides you with a lame pension investment staff, they consistently underperform their benchmarks (last year we underperformed by about a billion), and accordingly you have an investment loss for the year, no problemo, just state in the bill you enact that retiree contracted benefits will be further cut to accommodate the loss! My guess is that when pension investment staff around the country hear about this sweet no-accountability gig they are going to beat a path to Colorado PERA. Where can I get that kind of a job? To be fair, credit for finding this solution should go to the bright administrators at Colorado PERA. You can imagine how difficult it is psychologically to advocate a course of action that you yourself have earlier declared illegal, (see this excellent Denver Post article.) http://www.denverpost.com/news/ci_11105271

    We know it's burdensome for busy pension administrators (particularly short timers) to have to tell elected officials that they really ought to make their annual required contributions . . . it’s much easier to just let those unfunded liabilities build up year after year after year, until you have a good pile, then wipe the slate clean with a good contract breachin’!

    Our Colorado pension administrators are straight shooters. They’ve been telling us for a couple years now, “We can’t invest our way out of this.” Now they’re keeping their word . . . by missing their investment performance benchmarks by wide margins.

    Meeting contractual obligations? Performing your fiduciary duty? Acting in a moral fashion? No need to fret about these things. We looked into it in Colorado and dang if they haven’t been optional all along. Hello state and local governments . . . round up those rascally debt problems and herd ‘em out west to us in Colorado, we’ll fix ‘em right good fer ya!
    (Visit saveperacola.com for more info.)