Pension Ruling Could Put $860 Mil. Hole in State Budget By Lloyd Dunkelberger

Posted: March 3, 2012 in News and politics

TALLAHASSEE | As the Senate and House move toward completing a $70 billion-plus state budget, a pending court ruling threatens to derail the Legislature’s annual appropriations process.

The highly anticipated decision from a circuit court judge in Leon County could overturn a 2011 law that made public employees pay 3 percent of their salaries for their pensions, leaving an $860 million gap in the current budget year and vastly complicating the proposed spending plan for the coming year.

If Circuit Judge Jackie Fulford overturns the law, it also would bring a huge financial challenge to Florida’s counties, which could lose nearly $600 million in the current year.

“I think it would place the budget in serious jeopardy if we have to go back because of a judge’s order to cut ­another $1.2 billion out of the budget,” said Sen. Don Gaetz, R-Niceville. “I think it would create some real severe problems for critical services for the people of Florida or it would necessitate a tax increase, which I think a vast majority of the Senate Democrats and Republicans would be opposed to.”

Senate Budget Chairman J.D. Alexander, R-Lake Wales, who will present the Senate’s $71 billion budget bill on the chamber’s floor today, said it was premature to be concerned about the ruling.

“Until we know how she rules, it would just be speculation,” he said.

The Florida Retirement System collects retirement money for more than 655,000 active employees throughout the state and provides benefits to 219,000 retirees.

An analysis by the House in the fall showed an adverse court ruling could wipe out $860 million in savings that lawmakers built into the current budget, including $456 million from the 3 percent employee contribution and $404 million from limiting cost-of-living adjustments (COLA) for future retirees.

That figure was confirmed in an annual financial report that Chief Financial Officer Jeff Atwater presented to Gov. Rick Scott and legislative leaders last month.

“The financial impact of a ruling that the compulsory 3 percent contribution is unconstitutional would be in excess of $861 million,” the report said.

An adverse ruling would present a double whammy for lawmakers. They would have to plug the hole in the current budget year, which is nearly three-quarters complete, while having less money for the new budget year, which begins in July.

It could jeopardize their ability to provide an additional $1 billion for public schools, which Scott has proposed. It also could deepen budget cuts for many state programs, including hospitals and state universities, which are already facing major revenue losses.

At the least, a negative ruling may cast into doubt the 2012 Legislature’s ability to finish by its March 9 deadline.

But there are plenty of variables in the case — not the least of which is how Fulford will rule.

Legislative leaders think they have the authority to make future adjustments in the state’s pension plan. They contend there was no “contractual obligation” between the state and the workers and they can change benefits prospectively.

“If she rules the judiciary is going to take over the appropriations process of the Legislature, then, with all due respect, I think she would have breached the separation of powers and an appeal would be in order,” said Gaetz, who will become the next Senate president in November.

But that authority has been challenged by firefighters, police officers, teachers and other public employees and their unions, which argued in the lawsuit that making workers contribute to their pensions violates the original terms of their employment. Public workers haven’t contributed to their pensions since the 1970s.

In the fall hearing, Fulford expressed skepticism about the new law. “He’s paying more and getting less,” Fulford said about the impact of the law on workers. “You’re punishing him for coming to work.”

Union representatives said they expect a ruling within the next few days, although Fulford canceled a scheduled hearing on the case that was set for her courtroom on Friday.

“We still anticipate a ruling pretty soon,” said Mark Pudlow, a spokesman for the Florida Education Association, which represents teachers across the state.

Pudlow said a ruling in favor of the workers would not necessarily bring great harm to the state budget, noting lawmakers have a number of ways to offset the financial loss, including looking at new revenue sources or tapping budget reserve funds. He also noted the state pension fund has been financially strong because of a robust stock market during the past year.

“They’re going to have some choices,” Pudlow said. “But I’m sure the only thing you’re going to hear is cuts to education, cuts to other programs. You’re not going to hear about taking back corporate tax breaks or finding any new revenue or using the rainy day funds.”

County officials are also closely watching the case, which has a potential $597 million impact on their budgets.

Like state lawmakers, county governments are also preparing their budgets for the next year, said Cragin Mosteller, a spokeswoman for the Florida Association of Counties.

“They are in the middle of the 2011-12 budget,” Mosteller said. “To go back and try to readjust your budgets for some counties in a significant manner would have dire consequences for critical services.”

Gaetz made a similar point, noting an adverse ruling could impact Floridians who rely on a variety of services, ranging from schools to care for the disabled to economic development programs.

“Everybody ought to light a candle tonight to make sure that that ruling doesn’t go the wrong way,” he said.

Copyright © 2012 — All rights reserved. Restricted use only.

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