Oct. 2 Mail: City Cars and Pension Ideas

There were two items in the Sept. 18 Folio Weekly that could prove important to taxpayers.

Wes Denham’s Crime City column [“Crazy Cop Cars”] is intended to be factitious; however, it brings up an opportunity to state how we can save the city money. Of course, all of the alternative transportation used by the police department serves a purpose, but 90 percent of uniformed officers do not need Impalas that get 18 miles to the gallon, and neither does the city’s motor pool.

If the Jacksonville Sheriff’s Office, the Transportation Services Department, the city government, JTA, JaxPort, JAA and finally JEA all cooperate, the city and the authorities could save a lot of money. According to a chart on Wikipedia, regular gasoline has about 114,000 BTUs per gallon. By simple division, a million BTUs of compressed natural gas (CNG) is the equivalent of 8.77 gallons. A gallon of gasoline is about $3.50, based on observing prices around town; the commodities list in The Florida Times-Union reported the price of a million BTUs of natural gas was $3.69, or about $0.41 for the same energy as contained in a gallon of gasoline. While this is the wholesale rate, JEA should be paying this.

JEA has five power plants that use natural gas and are tied to gas lines. If the JEA would front the $30 million (based on Business Insider, the cost is $1 million per station; however, these would be fleet-sized stations requiring far more fueling units) to build the five fueling stations, the other three authorities and the city could pay back JEA at $1.5 million each per year for four years.

The Sheriff’s Office and the city fleet come into the mix, because the 90 percent portion of the police fleet replaced and all the city sedans replaced would be about 1,640 vehicles. In 2009-’10, the last year fuel use was itemized, the city used about 7 million gallons of motor fuel; probably about 70 percent of this fuel was used by these vehicles. The only CNG sedan currently on the market is the Honda Civic. The equivalent miles per gallon is 28 in the city, and the current police cars on the market are the Chevrolet Caprice at 15 mpg city; the Chevrolet Impala and the Ford Taurus get about 18 mpg each.

Instead of 4.9 million gallons of fuel going to these vehicles, there would be 3.151 million gallons equivalent. This is an instant savings of $5.684 million, but the savings can continue. At JEA’s wholesale price for natural gas, the cost would be around $1.292 million. The fuel savings would about $14.633 million for the motor pool and police vehicles. The Honda dealerships are always offering 60 months same as cash; if the city negotiated this deal with Honda USA, the savings could start right away and would include $1.312 million per year in amortized savings. The total savings of $15.945 million would be offset by a purchase price and special equipment price of up to $10.496 million. The savings this year, even after unbudgeted payments for the fleet, would be $4.999 million.

The above does not include savings in converting trucks belonging to the city and other authorities to natural gas.

The article that really is a surprise is that the Civic Council recommends borrowing $1 billion in bonds. This does not resolve the issue. The new figures for the unfunded liabilities are estimated at $1.7 billion. Even that may be low; during the Sheriff’s workshop on the pension, it was discussed that the Police and Fire Pension is unfunded by $1.2 billion and the other pensions may have a combined liability of $1.3 billion. This is money that grows by a 7.75 percent guarantee each year.  If we assume the city’s number dour jour is correct, then $1.7 billion in unfunded liability is costing the city an additional $131.75 million in additional liability the first year.

If we issued $1.7 billion in bonds at 5 percent, the cost would be $124.780 million per year in principal and interest (this is very conservative, as 30-year treasuries will actually still pay at about 3.6 to 3.7 percent into the sinking fund). The cost of paying into the fund each year in 30 equal payments while paying off the principal is equal to $146.148 million. The difference of $21.368 million per year is a substantial savings. The savings between pay-go and bonds is even greater if we determine the liability is $2.5 billion. The rate may now be below 5 percent, as QE3 was extended and treasuries have dropped by 0.3 to 0.4 percent.

Other concessions should be made, such as reversing the city and employee contribution rates to the funds, deferring pensions to age 62 for those employees who are not disabled and moving new hires to a 503(b) plan to move away from pensions (and future problems). These three changes should take effect on Oct. 1, 2014. With these changes, the first year savings would be $34.583 million. The savings in years 10 through 25 could be $110.426 million each year.

These changes to the Civic Council recommendations would save $55.951 million the first year and as much as $131.794 million in years 10 through 25. The city should do a full audit to determine the total liability and pay it off, using bonds that cost at least $21.368 million less than paying off the city’s unfunded pension liabilities without financing them. If the bonds had been issued earlier this year at 3.5 percent before bond rates increased, the city would be saving $46.868 million per year right now. 

Bruce A. Fouraker