By: Katherine Newman, Coral Gables Resident
We are running out of choices. In 2001, Coral Gables pension fund was almost fully funded. By 2009, the unfunded deficit had risen to over $165 million. In 2018, even after the stock market rose 300%, that unfunded deficit had risen to almost $200 million, with the total liability to current and retired employees nearly $600 million. The Covid-19 crisis increased that deficit by $60 million in the last 2 months, which means our plan is only 55% funded. Coral Gables has received a grade of “F” for most of the last 15 years for the management and health of its pension plan – May 2019- Leroy Collins Institute .
The unfunded pension deficits do not include another liability the taxpayers are on the hook for- $26 million in post-retirement health care benefits.
There are several reasons for the unfunded liability skyrocketing, despite major investment gains. The most important reason is the extremely generous pension benefits promised 20 years ago. If one reviews the list of pension payments to the retired workers -it is available by a public documents- the amounts and age at retirement tell the whole story.
Our first responders in Coral Gables are the best of the best. They have the highest benefits, and that would be still be recognized by changing them to the Florida Retirement System plan, as Pinecrest and Palmetto Bay first responders are.
But “general employees”, the people who answer the phones, file clerks, paralegals, etc. retire in their late 40s or early 50s at amounts very close to the salaries they were making while working. Those payments, for people who retired in certain years, are automatically increased each year by 3%. That 3% may not sound like much, but if you compound it, an employee who retired in 2008 with a $65,000 pension is now making $90,000. And the total payout, if that person lives to be 85, is almost $4 million. An employee who retired in 2010 at 50 years old at a pension of $100,000 will receive over $6 million. How many in the private sector could amass that type of fortune?
All of these facts can be gleaned from the city’s audited financial statements, which are on the Coral Gables website, and any annuity calculator.
The taxpayers of Coral Gables have contributed over $29 million to the pension plan this year and for the past 10 years. The employees contribute about $4 million, a fraction of what the taxpayers must pay in to an ever-expanding liability. That represents 1/5 to ¼ of our total budget, and a percent of payroll reaching 50% in some years. Those pension contributions have crowded out funds for sidewalks, infrastructure, safety, a reasonable reserve fund and shade trees for some of our sweltering neighborhoods.
The only way to dig out of the spiraling pension liabilities is to immediately move all general employees to a 401K plan, and all first responders to the Florida Retirement System plan, which many municipalities did years ago. Among those are high end, tree shaded and safe cities, like Pinecrest and Palmetto Bay.
If these changes are made tomorrow, it will still take Coral Gables taxpayers decades to dig out of this mess. The current benefits will be frozen, but will still be paid out. While the private sector taxpayers lose their jobs and the value of their 401Ks, the public sector remains safe from any impact of Covid-19 or any other economic impacts the private sector is subject to.
If we stay with the status quo, the only choices are to keep raising taxes or declare bankruptcy.