Florida Joins U.S. States in Budget Stress Adding Pension Costs to Workers

Florida, where legislators and Governor Rick Scott closed a $3.8 billion 2012 budget deficit last month, will join at least 16 other U.S. states increasing retirement costs for public workers.

Government staffers must pay 3 percent of salaries to their retirements under the Florida law, effective July 1, saving the state, counties, school systems, public colleges, universities and other entities $2 billion next year, Scott said last week.

Arizona, New Mexico and California also raised or imposed employee-pension contributions in the past two years, said Keith Brainard, research director of the National Association of State Retirement Administrators. New Jersey Governor Chris Christie signed such legislation yesterday. They acted after market declines depleted pension assets and tax revenue stagnated in the longest recession since World War II.

“States are making changes to pension-benefit levels, contribution requirements or both,” Brainard said in an e-mail. Utah, Connecticut, Tennessee and Oregon are the only ones that don’t require worker payments, he said.

Employee contributions will help New Jersey shore up its pension, which is among those nationwide with liabilities exceeding assets by almost $480 billion in 2010, according to data compiled by Bloomberg in April. The payments will assist Florida in closing its deficit, part of the $103 billion of gaps states face in fiscal 2012, according to a report yesterday from the Center on Budget and Policy Priorities, which studies issues affecting low- and moderate-income families.

Expense Relief

Florida counties will be relieved of almost $600 million of expenses by the new law. Miami-Dade, largest of the 67, will save $114 million, according to a June 6 report, as it works to close a budget gap estimated in December at $258 million. Costs will fall $14.2 million in Hillsborough County, which is moving after-school programs to outside providers to save money.

“With local budgets as tight as they’ve been, any savings are no longer marginal,” said Cragin Mosteller, the spokeswoman for the Florida Association of Counties.

Governor Scott, a first-term Republican, had called for workers to contribute 5 percent of their salaries. The Legislature backed the 3 percent payment, which Scott accepted when he signed a $69.1 billion 2012 budget in May.

“Without reform, Florida’s government pensions and retirement system put a heavy burden on our state’s taxpayers,” he said in a June 23 statement. The employee payments, plus curbs to cost-of-living increases and extended retirement dates for new workers, will save the state $356.8 million, he said.

The new rules cover state and municipal employees in the $131 billion Florida Retirement System, the fourth-largest U.S. public plan with about 900,000 active and retired participants.

School-Cost Cuts

In addition to saving money for the state and counties, the law will lower costs for Florida public colleges and universities by $123 million, according to the governor. Local school districts will save $819 million, prompting a suit from the Florida Education Association, which likened the contribution requirement to a salary reduction.

“This pay cut was used by legislative leadership to make up a budget shortfall on the backs of teachers, law-enforcement officers, firefighters and other state workers,” Andy Ford, president of the union, said in a statement. Florida “may not unilaterally change the covenant it made with current employees,” Ford said.

Localities that don’t participate in the state retirement system have taken their own actions to reduce pension costs as their main source of revenue -- property taxes -- has shrunk with declining home values.

Financial Urgency

The city of Miami, which has its own pension and faces a 2012 budget deficit of about $54 million, reduced retirement costs by $43.3 million last year after imposing benefit reductions on police, firefighters and other city employees by declaring a “financial urgency” under state law.

Real-estate-tax collections by U.S. local governments in the first three months of the year fell 1.7 percent, the Census Bureau reported yesterday, the second straight quarterly decline. That’s as property values in 20 cities fell 4 percent in the year ended in April, the most in 17 months, according to the S&P/Case-Shiller Index released yesterday.

Atlanta’s City Council began discussing a proposal last week to save $215 million over the next decade by increasing employee contributions to the pension to 13 percent of salary from 8 percent. The nation’s ninth-most-populous city has a $1.5 billion gap between pension assets and obligations, Chief Operating Officer Peter Aman said last week.

In Florida, real-estate values have fallen 28 percent from their peak in 2007, according to the Legislature’s research office. That means even with savings from new pension rules, spending cuts will still be needed in places like Miami-Dade County.

“While the gap is smaller than we projected in our five- year financial forecast, it remains daunting,” said County Manager Alina Hudak. “Balancing this year’s budget will almost certainly require a combination of cutting our workforce -- and the services it provides -- and reducing the compensation to those who remain.”

To contact the writer of this column: Simone Baribeau in Miami at sbaribeau@bloomberg.net.

To contact the editor responsible for this column: Mark Tannenbaum at mtannen@bloomberg.net.

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.