The city’s ongoing pension burden has had yet another financial effect.
Fitch Ratings has downgraded several of Jacksonville’s bond ratings, citing pension risk and lack of reform as key drivers to the 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-. The ratings affect the city’s interest rates on borrowing and debt.
David DeCamp, Mayor Alvin Brown’s spokesman, said Fitch’s decisions reflect “the urgent need to pass pension reform.”
For every $100 million of new debt, the cost rises about $600,000 annually, DeCamp said.
Brown and Police and Fire Pension Fund administrator John Keane struck a deal on changes to the public safety’s retirement plan that the mayor said will save $1.5 billion over 30 years.
City Council President Clay Yarborough agreed with the sentiment that pension reform needs to happen, but said the question of how it will be paid for still remains. How the city covers paying an additional $40 million toward the plan each year was a prevalent concern last week during council’s first meeting to talk about the deal.
Yarborough said Fitch asked those same questions.
“It shows the city is being watched,” said Yarborough.
In all, Fitch said the city’s pension and liability profile is more consistent with an AA instead of an AA+ rating in terms of its unlimited tax general obligation.
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 projected at $154 million for fiscal year 2014-15, up $6 million from the year before.
“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,” Fitch’s report states.
Fitch points out that pension reform has been “very slow to evolve.”
The rating agency also said it is “unclear” when the deal on the table will be voted on and points out the lack of a definitive funding source for the additional $40 million. Specifically, it has a section with a headline of “The $40 million question” when discussing the city’s credit profile.
DeCamp said the key word for that $40 million conversation is “yet” — as in the city has time to determine how it annually will be paid. Brown has pitched JEA chipping in the additional $40 million in exchange for other savings for the utility.
JEA officials have not been supportive of that idea, saying it could cause rate increases.
Brown has rejected any notion of a tax increase to cover the cost.
The downgrade didn’t come as a surprise to city officials, DeCamp said, after another agency dropped the city’s credit ratings within the past several months.
Moody’s, another national credit ratings agency, downgraded city bonds in June.
The move also was tied to pension woes.
The Fitch report said if the deal is changed by council members, it raises questions as to when, or if, a vote on the new agreement will happen.
While council members didn’t act on the deal last week, there is a slate of amendments that could alter key parts of it, such as the length of the deal and changes to cost-of-living adjustments.
Yarborough said he likely will let council committees take up the bills next week instead of calling another special council meeting.
But, he said he could add a couple of members to the Rules Committee for the subject.
@writerchapman
(904)356-2466