I've been combing my memory, trying to come up with a stunt that equals what Jacksonville, Fla., is trying to pull with JEA, the water and electric utility that is the largest community-owned utility in Florida. I can't.
In essence, the city with the third-most underfunded pension of our country's big cities wants to enact a solution that will allow it to preserve its credit rating, a move that could, in effect, take the utility's rating and – forgive the expression – flush it down the toilet.
In a story that broke last week, municipal leaders of the largest city in Florida, population-wise, specifically Jacksonville Mayor Alvin Brown, are proposing that JEA boost its annual contribution to help pay down the city's pension obligations. JEA officials say giving more money to the city would likely lead to a rate hike; the mayor contends it would not. He said that the utility could cut costs to come up with the payment and avoid a downgrade.
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"For JEA to be successful, the city has to be successful," Brown said.
Smells like extortion to me.
What a sad state of affairs. Brown's essentially saying give me some of the money you make, or we won't let you serve us. Not unlike, "If you don't give us your ball to use, we won't let you play in the game." The difference is, you could find another game. How many other customers can JEA find?
Some could argue, I suppose rightfully so, that when a child comes of certain age, he should help pay the rent. That's fair, right? Except for the fact that JEA already transfers about $106 million annually to the city.
So when does it become rent-gouging?
Pension costs in Jacksonville are a problem, having risen more than six-fold since 1992 and now accounting for about 19 percent of its $983.7 million annual budget.
Jacksonville is, in fact, out of breathing room, even if it wanted to be a good teammate. Our report of the situation says that the pension for police officers is only 39 percent funded.
"There's a finite number of resources available to the operating budget and the pension has consumed an increasingly larger share very quickly," said Michael Rinaldi, a Fitch Ratings analyst in New York.
The only solution I see here is one that turns the current structure on its head. What would happen if Jacksonville put out a Request for Proposals? That is, why don't they privatize their pension problem and see which company, here or globally, comes calling? If the dance book is empty, then maybe that's a clue that defined benefits just can't work in 2014 the way they did 50 years ago.
That might put perspective on the situation. And hasten change. But foisting your credit problems on one of your providers sure doesn't sound to me like the right way to play this.
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