Detroit and seven other cities that have declared bankruptcy since 2010, is it time to look at Florida? Florida at the state and local levels are burdened by what destroyed Detroit – the growing costs of retirement and medical costs for government retirees coupled with shrinking revenues.
According to the PEW Center on the States, “States continue to lose ground in their efforts to cover the long-term costs of their employees’ pensions and retiree health care … In fiscal year 2010, the gap between states’ assets and their obligations for public sector retirement benefits was $1.38 trillion, up nearly 9 percent from fiscal year 2009. Of that figure, $757 billion was for pension promises, and $627 billion was for retiree health care.”
As revenues decline public employee pension promises and healthcare accounts are increasingly underfunded. Florida is no exception.
Florida cities and counties are already under pressure for funds as a growing number of foreclosures and high unemployment plague the state. RealityTrac.com reports, “Of the total 167,680 vacant foreclosure properties nationwide, Florida documented the most by far of any state, with 55,503, accounting for 33 percent of the national total … Florida accounted for 85 of the top 100 zip codes in terms of total owner-vacated foreclosures, led by zip code 34668 in the Tampa-St. Petersburg-Clearwater metropolitan statistical area.”
The Leroy Collins Institute in a 2013 report concluded, “The LeRoy Collins Institute and Florida TaxWatch have documented the perilous financial positions of around one-third of Florida’s municipal pensions. Many of these cities have recognized their funding problems and are taking action to address their pension costs.”
Although Florida consistently paid, or exceeded, its full annual pension contribution in all but one year from 2005 to 2010, the state was 82 percent funded in fiscal year 2010 and faced a $27 billion funding gap—down from fully funded just two years earlier. Most experts agree that a fiscally sustainable system should be at least 80 percent funded. The state also had a $5 billion bill for retiree health care costs, none of which was funded, well below the 8 percent national average in 2010.
Florida lawmakers approved pension benefit cuts in 2011, including requiring employees to contribute to their pension benefits for the first time and trimming annual cost-of-living increases. A circuit court judge ruled in 2012 that the contribution requirement was unconstitutional, throwing the future of the benefit reforms in doubt.
PEW states, “Florida was a solid performer at how it managed its long-term liabilities for pensions but was cause for serious concern for how it handled its bill for retiree health care.”
Many city, county and school board employees depend on the Florida Retirement System (FRS) for retirement benefits and medical costs. The FRS investment funds have come under criticism for how it rates its return on investments.
Mary Ellen Klas from The Tampa Bay Times, in February 2011, reported:
From Hialeah to St. Petersburg, Florida’s cities and counties face a “ticking time bomb” of debt because they do not have enough money to pay future pensions and health care benefits already promised to current employees, according to a report released Wednesday from the LeRoy Collins Institute.
The worst offenders — Bradenton, Hollywood, Hialeah, Miami, Cape Coral and Titusville — owe retirees between one and four times in health care benefits than the money they now spend on their total budgets.
Miami, for example, owed about $100 million a year in retiree health care and pension payments in 2009, but set aside only $74 million, or 74 percent of what they owed. St. Petersburg owed $51 million that same year, but had set aside about $40 million. The shortfall forces cities to find other funding sources.
These warning are eerily similar to the predictions for Detroit. The time bomb is getting closer to exploding.