Fitch Slaps Jacksonville With Credit Downgrade Over Pension Obligations

palm tree

Fitch warned Jacksonville earlier this year that a credit downgrade was waiting in the wings if the city didn’t move to control its rising pension costs.

Fitch has now followed through on the threat, downgrading several city bonds from AA+ to AA, and others from AA to AA-.

In doing so, Fitch becomes the second agency to downgrade Jacksonville’s credit in the last four months. Moody’s did so in June.

From the Jacksonville Daily Record:

Fitch Ratings has downgraded several of Jacksonville’s bonds, citing pension risk and lack of reform as key drivers to its negative changes.

In all, about $1 billion in bonds and commercial paper notes were downgraded. Three bonds went from AA+ to AA, while one bond and the city’s commercial paper went from AA to AA-.

Regarding the city’s unlimited tax general obligation, its pension and liability profile is more consistent with an AA rating as opposed to an AA+ rating, the agency explains in its notes. Ratings affect the city’s interest rates on borrowing.

“The rating action focuses on credit risk associated with the city’s pension plans, which have a large collective unfunded actuarial accrued liability and rapidly escalating funding costs,” it states.

The city’s police and fire pension plan’s unfunded liability is more than $1.6 billion. The annual cost of paying into the plan is a projected $154 million for fiscal year 2014-15, up $6 million from the year before.

Chief among Fitch’s concerns is the city’s stalled pension reform efforts. One Fitch analyst said reform has been “very slow to evolve”. From the Florida Times-Union:

Fitch Ratings voiced concerns Monday about whether Jacksonville can actually achieve pension reform that will strengthen the city’s financial outlook.

[…]

After noting that some City Council members have filed amendments seeking to change a pension bill introduced by Mayor Alvin Brown, Fitch’s report questions “when or if” the City Council will vote on that bill.

Fitch also points out that Brown’s bill doesn’t identify a “definitive long-term funding source” to pay for a $400 million piece of Brown’s proposal — a criticism also lodged by several City Council members and the Jacksonville Civic Council, a high-profile business group.

[…]

Fitch put Jacksonville on notice earlier this year it would downgrade the city’s ratings if pension reform isn’t achieved. Brown filed his pension bill in June but it went on the back-burner during the summer budget hearings. The City Council conducted its first session last Wednesday to discuss the bill.

The Mayor’s Office has said the question-filled meeting was productive. But Fitch’s analysts were “concerned that it was not the progress they were after,” said city Chief Financial Officer Ronnie Belton, who talked to the analysts last week.

“I think the message from them is, ‘We’re looking for you to deal with the No. 1 issue you’ve got,’ ” Belton said.

Read the Fitch report here.

With $40 Million Pension Payment Looming, Jacksonville Mayor Says He Won’t Raise Taxes To Pay Down Pension Shortfall

palm tree

The city of Jacksonville agreed earlier this year to pay $40 million annually for the next 10 years to its Police and Fire Pension Fund.

But the city hasn’t yet decided where it will get that money. But Mayor Alvin Brown made it clear Wednesday that a tax increase is not in the cards.

From the Jacksonville Daily Record:

How will the city pay an additional $40 million each year to more quickly pay down its unfunded liability?

If it’s up to Mayor Alvin Brown, it won’t be a sales tax. Or a property tax. Or any tax for that matter.

If council ends up seeking the Legislature’s approval to put such a funding mechanism on the ballot, Brown would not support it.

“No, sir. I wouldn’t sign it,” Brown responded when council member John Crescimbeni asked if he’d support a bill for a tax referendum.

Brown later went a step further, telling council member Bill Gulliford he’d veto any such attempt.

“I don’t think we have to do any taxes to solve this,” Brown said.

[…]

Brown and Police and Fire Pension Fund administrator John Keane struck a deal this year that has the city paying a total of $400 million over the next 10 years make the stabilize the plan. That $40 million each year would be determined annually by a newly formed committee. For months, council members have said not having an identified source is a chief concern — sentiments that spilled into Wednesday’s almost four hours of talks.

Council member Lori Boyer said not having the source identified was “totally irresponsible.” The burden, she said, would come back to council for the financial wrangling “and everyone (else) can stay hands off.”

Brown told the group he and his administration are “working on it.” Chris Hand, Brown’s chief of staff, said there isn’t a dedicated funding source “yet.” The JEA proposal is the only one the administration has pitched as a funding source to this point.

The Jacksonville Police and Fire Pension Fund is 43 percent funded and is shouldering $1.6 billion of unfunded liabilities.