April 2011 – Arizona Pension Changes
Arizona’s Pension Change Shows That No Union Is Untouchable
Rich Danker – Forbes.com – 4/21/2011
Public safety unions were supposed to be the holy grail of pension politics, but a bill passed by the Arizona legislature this week changed that. If it becomes law, as is expected with the governor’s signature, police and firefighters will have to gradually contribute more toward their pensions. The conventional wisdom had been that these were untouchable classes of government employees. But the civic work done in Arizona overturned that.
The alarm was first sounded by the Goldwater Institute, which published a report a year ago that exposed the state’s $50 billion pension deficit. The paper, written by American Enterprise Institute retirement expert Andrew Biggs, was a bombshell because it uncovered the true size of Arizona’s unfunded liabilities with proper accounting methods.
The Arizona Republic followed later in the year with an eight-part investigative series on all that is wrong with the state’s pension system. It reported a litany of unduly high payouts ($275,000 for a former elementary schools superintendant), perverse outcomes (convicted felons receiving pensions), dysfunctional initiatives (a deferred retirement program for public safety workers providing pension sweeteners), and bad practices (double-dipping, spiking) that helped make Arizona a case study in retirement compensation gone wrong.
The special dynamic there has been the public safety lobby, representing workers in a place where law enforcement and security are highly valued for good reasons. In contrast to some parts of the country, civilians in Arizona and out west in general tend to have deep respect for policemen and firefighters. Many elected leaders are former officers.
The unions were able to leverage this political support to persuade the state to resist changes to their pension plans. Republican-controlled legislatures had been reluctant to touch public pensions in general and the public safety pension system in particular, knowing that its beneficiaries leaned on strong public support.
But the fact that the Public Safety Personnel System is in terrible financial shape convinced Arizona House Speaker Kirk Adams and Senate President Russell Pearce (a retired sheriff) to spearhead reform through the legislature this year. The bill on Gov. Jane Brewer’s desk requires police officers and firefighters to increase their paycheck contributions from 7.65 percent to 11.65 percent over the next five years and scales down their deferred retirement program.
It also makes elected officials pay more for their pensions and restricts double-dipping, spiking, cost of living allowances, and eliminates pensions for those convicted of felonies in the performance of their duties. It isn’t a cure-all for the broken pension model, but it is a promising first step.
Arizona lawmakers say they expect litigation from the unions in return, which has been the pattern around the country. The state constitution has an amendment carving out public employee pension benefits from diminishment. Adams is aware that this has to go. “If we are going to have any fundamental change, the voters will have to get involved” to amend the Constitution, he told the Arizona Republic. Only then will the state have the latitude to rein in excessive pensions and get away from guaranteeing workers’ retirement returns.
“We shouldn’t have a system where taxpayers are paying into a 401(k) system and receiving Social Security, but public employees are receiving benefits that are far better than what the private sector is getting,” Adams concludes.
This pension bill passed the Arizona legislature on party-line votes, which in most cases would not be an indicator of political progress. But the fact that Adams and Pearce delivered their caucuses in altering police and fire pensions could be a tipping point for other states with similar politics to follow suit.
Until recently, the political insulation that certain unions enjoyed kept pension reform off of the table. In the span of a year, Arizona changed that. Common sense beat delicate special interests, a welcome trend in state government.