Does the Scalpel Trump the Sledgehammer?



The town is confronted by the specter of three underfunded pension plans. As of yet, no one seems to know the gravity of the problem and no one appears to be particularly exercised about the enormity of the problem. But that is not the focus of this column. Instead, I want to discuss one of my favorite complaints about our form of government, and that is an unpaid town commission that relies on the town manager to formulate the commission agenda, all the way up to the actual alternatives and options that the town commission uses as the basis for its decisions. So far, the discussion of what to do about the pension plans has focused on either continuing the existing defined benefits plans or changing over to defined contribution plans. Those are the only two alternatives that have been presented so far, in a very lengthy commission discussion that has reverberated around town hall for perhaps a decade, with no resolution in sight. Perhaps the $25 million to $35 million pension buyout elephant sitting in the commission chamber may be one reason the commissioners are hesitant to really deal with the issue once and for all.

There may be several alternatives available to the town and perhaps a surgical repair of our pension system may be better for all concerned than using a sledgehammer approach to pound our existing defined benefits plan into a total defined contribution pension plan, that may adversely impact the futures of our employees. Perhaps there are alternatives to a total defined contribution plan that will serve both the taxpayers and our employees. Let's look at a few.

The material from here on out is necessarily technical. My apologies in advance but this stuff needs to be said. Much of what appears below is excerpted from information found on the internet and in not my own work.

Target-Benefit Plan - A benefit plan that is similar to a defined benefit plan since contributions are based on projected retirement benefits. However, unlike a defined benefit plan, the benefits provided to participants at retirement are based on the performance of the investments, and are therefore not guaranteed. The target benefit plan also bears some similarity to a money purchase plan as contributions are mandatory. Generally speaking, a target benefit plan is a cross between a money purchase pension plan and a defined benefit plan.

Cash Balance Plan - A cash balance plan is a defined benefit retirement plan that maintains hypothetical individual employee accounts like a defined contribution plan. The hypothetical nature of the individual accounts is crucial in the early adoption of such plans because it enables conversion of traditional plans without declaring a plan termination.

The employees' accounts earn a fixed rate of return that can change over a period of time from year to year. Although it works much like a defined contribution plan, it is actually a defined benefit plan for legal purposes. In 2003, over 20% of US workers with defined benefit plans were in cash balance plans, according to Bureau of Labor Statistics data. Most of these plans resulted from conversions from traditional defined benefit plans.

The Conversion Controversy - Cash balance conversions have been controversial and have raised the ire of workers and their advocates. In 2005 the Government Accountability Office (GAO) released a report analyzing the effects of cash balance conversions on worker benefits. They found that in a typical conversion the cash balance plan would provide lower benefits for most workers than if the defined benefit plan had remained unchanged and the worker had stayed in their job until retirement age. This decline in benefits tends to be largest for older workers. This is because in a traditional plan, where benefits are based on final average pay, the "value" of the benefits accrues much faster for older workers than for younger workers. In contrast, in a DC or cash balance plan, all workers contribute at the same rate, and a dollar contributed by a younger worker is actually more valuable because it has more time to compound before retirement.

Integrated Pension Plan - A pension plan that is tied to an individual's Social Security payments to determine the total benefit that the plan participant should receive. The actual amount sent to the recipient in a defined benefit integrated pension may be reduced by a dollar amount equal to all or a percentage of the person's annual Social Security payment. Some integrated plans have a specified total benefit in mind, and look for Social Security and pension funds to combine toward meeting that goal. In most cases, the pension amount can only be cut a maximum of 50%.

I have sited a few of many ways the town can approach our current projected pension shortfall. I suggest that the commissioners hire an expert who is not working directly for the town manager. I believe that a surgical approach to our pension plan problems is better than bludgeoning our employees into a retirement situation where some employees may not be able to retire with dignity.

We have all heard the expression that you should be careful what you wish for because you might get it. From a personnel management total compensation standpoint, an equally relevant expression in the benefits area is that you should be careful what you pay for because you might get it.

I am not proposing that any of the above variations and hybrids of pension plans are appropriate for our situation. I am trying to open the process to include an intelligent and informed decision-making process.

Collateral Damage

(Key Club Project Model)

Bank of America recently sold the Grand Mariner to investors at about one third the original construction loan and after the project sat idle for several years. The original investors, in their zeal to optimize their investment, proposed a project that sailed too close to what was allowed by the town's codes and ordinances and a suit ensued. Eventually, the Grand Mariner developer declared bankruptcy. There is no blame here, only financial loss and missed opportunities. Perhaps if the planning and zoning board had applied the town codes more strictly things might have turned out better for the developer.

Land use suites have been lodged against the town by several developers and residents. My experience only goes back to the mid 80s when the Klauber suit cost taxpayers more than $6.5 million dollars. That loss actually shows up in your utility bill today since the utility fund was used to pay the plaintiff.  There was collateral damage stemming from the Klauber suit in the form of about 70 upscale resort/spa suites, with overflow from the spa into surrounding hotels and motels, that were never built. Instead we gained a few more condominiums that are occupied perhaps a month or two a year. Klauber's resort/spa might have become another island hallmark similar to the Colony. We will never know. But we do know that if the project had been completed there would now be around 70 more tourist units to support local businesses.

The collateral damages from the failure of Klauber's resort/spa, and other projects such as the Grand Mariner, the Poseidon and even the proposed house on Longboat Drive North are twofold. First, the vitally needed redevelopment of older properties is impeded. Second, and perhaps a more important consequence of land use suites, is that the the suites may discourage future developers from venturing onto our island. Each time a developer or a resident files a suit against the town for perceived grievances, our stature as a stable, developed community with well founded codes and ordinances may be diminished. Additionally, perspective home buyers may begin to shy away from purchasing property in a community where developers are able to compromise existing property values with the help of a developer-friendly town government.

I am not questioning that the suites I am referencing were necessary or that the outcomes were not just. I am simply saying that if a different course of events had occurred we might now have more tourist units and new luxury condominiums in our community. The suites I am referring to involve actions by the town in land use applications. The town has an unfortunate record in court for those town government actions that displeased developers or residents enough to go to court.

I see the Key Club expansion project as perhaps the best example of how things might have been different. Many people in our community believed that if the Key Club and IPOC could have reached an amicable arrangement, we would not now be witnessing a protracted litigation that will certainly delay the proposed project. Instead our town attorneys and commission decided that it was more to their liking to accept the Key Club proposal in toto, even if it plunged the project into a succession of lawsuits and government interventions. It may come to pass that the Loeb Partners reach a decision to withdraw the project just because of the specter of more and more legal costs and lengthy delays. The current commission and the town attorney appear intent in fashioning some sort of revisionist version of what existed when the Key Club began its tortuous journey through quasi-judicial proceedings. Only the courts will decide if what the commission is currently doing can be substituted for what existed when the commission passed the Key Club expansion plan.

For the commission and the town attorney it seems all to possible for them to legislate their dreams. But they may find that at the end of all the court proceedings, it might have been easier to change the past.

Just as when an 80s commission asked Ms. Stroud about the Klauber suite, and if they had the right to revoke Klauber's building permit, Ms. Stroud has assured the current commission that they have the right and the power to take things into their own hands, this time to rewrite the codes and the comprehensive plan to suite the developer. We will have to wait to see if the courts agree with Ms. Stroud this time.

As for the Key Club proposal, I do not recall any other time in my life when I have witnessed a public entity being paid by a developer for its services on behalf of the developer. I am personally very uncomfortable with the financial arrangements in what to me looks just like a pay-to-play government deal. Let's hope there is not too much collateral damage this time.

Walking on Rainbows



I sold my business in Lake Tahoe in 1984 and complained about the cold and the snow for another year before I decided to move to the village on Longboat Key. Twenty-six years later I still feel I made a really good decision to move from an alpine paradise to a tropical island paradise. I appreciate beautiful places and friendly people. At first I leased one of the Whitney cottages on Longboat Drive South. I met some wonderful young neighbors who advised me to buy Rainbow flip-flops. They told me they were the best. I still agree and I have spent the past two and a half decades mostly in tee-shirts shorts and walking on Rainbows. You can buy Rainbows at the surf shop adjacent to Manatee Beach.



In 1985 there were around 5,000 residences on Longboat and the median income was around $40K. Rents were reasonable as were home prices and taxes. There were a number of young people living on the north end. Many of today's condominiums did not yet exist and living was easy. Whitney Plaza was full of fun and interesting shops along with a huge drugstore and a Foodway market. There was an art supply shop frequented by a very busy art center clientèle, along with a high-end kitchen store and cute clothing shops. The village was a sort of Bohemian community filled with artists and other interesting people. It was easy to fall in love with the miles of sunny sugar-sand beaches and the relaxed tempo of island living. Even then the local paper was filled with articles and letters about political turmoil surrounding the developer wars. PIC became active the year I moved here. PIC would soon have 1,100 members. (PIC now has fewer than 115 members including the Key Club, their lawyer and two Chamber board members.) Things were intense for a couple of years. In the end the people prevailed, the developers were reined-in and the density of Longboat was reduced from a proposed seventy-five thousand to twenty-five thousand.

By 1990 there were almost 6,000 residents and the median income had risen to $85K. People with money were pouring onto the island. It was the hay-day of the new American prosperity and Longboat was paradise for sale. What had been a relatively undeveloped beach town with lots of motels was rapidly being transformed into an exclusive seasonal residential retirement oasis.

Whitney Plaza was the center of commercial activity on the island after Paul Neal opened the shopping center in 1971. However, when Publix open their market at Bay Isles in the mid-80's, the two gentlemen who owned the Foodway market at Whitney Plaza put the business up for sale. Within a few years the new shopping center at Bay Isles had a profound negative impact on Whitney Plaza businesses. The Pan Handler and the wonderful art shop closed. The market was obviously in trouble. The new owners could not afford to restock the shelves and soon shopping there became what one might imagine it would be like to go shopping in Siberia. Bay Isles and the Center Shops slowly sucked the life out of Whitney Plaza at a time when tourism, real estate and population were peaking on Longboat. We had lots of tourists, yet Whitney Plaza struggled and slowly deteriorated. Since the businesses that replaced the Plaza's initial array of interesting shops were less prosperous, needed repairs and improvements were never made.

By 2000, the resident population of Longboat had grown to 7,600 and the median income was over $100K. Longboat was one of the wealthiest zip codes in the country. Still Whitney Plaza was languishing and the types of businesses coming into the shopping center catered more and more to tourists. Real estate prices shot up as demand increased. Rents increased along with home values and most of the young renters had to leave paradise. Longboat was at the pinnacle of its development cycle, yet Whitney Plaza was sinking. Why? The Holiday Inn and most of the other hotels/motels were still open. My guess is that Longboat was morphing from being a residential beach community into a town of exclusive, seasonal second homes. Inversely, as the affluence of the property owners increased, the vitality of the community decreased. We became a gathering of gated and very private enclaves for America's wealthy. Nothing wrong with that. However, one consequence of becoming a private community is that all the young people left along with a lot of what made it fun for tourists. Let's be honest young people are more lively and active than what Longboat was becoming.

During the period between 1970 and 1990 Longboat was a relatively undeveloped island. The Old Florida atmosphere and numerous mom-and-pop motels and resorts attracted tourists all winter long. The Key Club was emerging as a major attraction for the more affluent home buyers looking to invest in a second home. Little by little the condominiums replaced the 50s-style seaside resorts and tourists had to find somewhere else to vacation.

Our current commissioners are trying to convince us that only lots of new, and probably tall tourist resorts will bring back Whitney Plaza, and that we need to expand commercial activities to attract tourists to fill the new tall resorts. Of course, along with all of this, there will need to be a considerable increase in density, especially on the Manatee end of the island.

Meanwhile, 13 properties sold on Longboat during March, 2011, the peak real estate sales month on our island. Thirteen. During 2010, 2,225 properties sold in The Villages in central Florida. Our commission would do well to stop pushing on a string and start pulling our community towards home sales liquidity.

From 1980 to 2010, Longboat Key was transformed from a sleepy, relatively undeveloped tourist destination into an upscale residential community. The tourist community no longer exists. Instead, we have become perhaps the most beautifully developed community on the West coast of Florida. Let's not destroy our ambiance with tourist shops and too many people. We already are the pot of gold at the end of the rainbow.