City Of Phoenix Vice Mayor- Public Safety Pension “Disaster”
Phoenix budget balanced for one year, then red ink
The city’s required contributions to the state retirement system for public-safety employees will jump to $197 million by the 2020 budget year
Surging pension costs for firefighters and police officers could create significant budget deficits for Phoenix in the next few years, potentially forcing the city to consider raising taxes, cutting services to the public or reducing employee compensation.
City Manager Ed Zuercher released a five-year general-fund budget forecast on Thursday, showing the city expects a balanced budget in the upcoming year, but could face a series of steep fiscal cliffs thereafter.
Phoenix anticipates facing potential deficits in four of the next five fiscal years because retirement costs are rising faster than tax revenues, city officials said. The city’s required contributions to the state retirement system for public-safety employees will jump to $197 million by the 2020 budget year, up from $116 million in the current year. In the 2011 budget year, the required contribution was $70 million.
Tucson’s unfunded pension liabilities increase $18 million
Prescott’s public safety contributions increase $70 million
The news of future general-fund deficits comes less than a year after city leaders raised taxes and fees for residents and reduced employee compensation to solve a $37.7 million budget hole.
Deficits of that magnitude could be a repeat problem for the city over the next several years, according to Zuercher’s preliminary forecast. In fiscal 2016-17, the city estimates it could face a $31 to $58 million deficit. Over the following three years, the city projects it could face budget deficits or surpluses, depending upon the economy and pension costs.
“Disastrous might be too strong a word, but it’s probably in a relevant ballpark,” said Vice Mayor Jim Waring, a fiscal conservative who’s called for tougher pension changes. “A year from now, we’re sweating bullets. I think we should start addressing our long term (problems) now, and I think that argument has failed.”
OUR COVERAGE: Taking a look at public pensions
The grim projection was released as the city prepares to begin its budget negotiations for the next fiscal year. Phoenix operates on a July 1-June 30 budget calendar.
But Mayor Greg Stanton and several of the City Council’s more liberal-leaning members focused on the relatively good news for the upcoming budget year. They praised Zuercher’s estimate of a $1.15 billion balanced general-fund budget in the new fiscal year, which likely means the city can avoid service cuts or tax hikes this year.
A year ago, city leaders projected a $14 to $54 million general-fund deficit, but Stanton said the council avoided that by making a series of difficult votes. The general fund pays for the city’s day-to-day operating costs, such as police, fire and parks.
“We had to make some tough choices, and those choices paid off,” Stanton said. “No one is saying that we don’t have challenges ahead of us, and we’re prepared to make the tough choices to meet those challenges.”
PREVIOUSLY : Phoenix voters reject pension-reform measure
A key move that helped prevent a deficit was the council’s approval of labor contracts that cut employee benefits and pay by about $26 million next year. Still, roughly 94 percent of workers will get a raise or bonus every year under the contracts, though their overall compensation may decrease.
In addition, the council also created a new tax on residents’ water bills, which costs an average homeowner $1.50 per month, and eliminated 162 vacant city jobs to reduce costs.
Zuercher conceded the city’s budget forecast is a mixed picture, with the estimate of a balanced year followed by large shortfalls. He said the primary driver of rising public-safety pension costs must be addressed at the state level.
Phoenix has enacted changes to slow the rising costs of its civilian pension system, but it doesn’t control the Arizona Public Safety Personnel Retirement System. The city’s contributions to the state system have surged as a result of an Arizona Supreme Court ruling that restored cost-of-living increases to retired public-safety and correctional officers.
“That component is really going to consume our energy and attention,” Zuercher said of police and fire pension costs. “We have our work cut out for us here.”
The details of Zuercher’s proposed budget for the next fiscal year will be outlined March 24. He said the city will spend the next 15 months figuring out how to balance its budget as it stares down four years of potential red ink.
And the city’s budget projections could take a turn for the worse, depending on what moves the Legislature makes this session. Phoenix officials said Gov. Doug Ducey’s budget could cut general-fund revenue by $4 million next year and a proposed bill that would prohibit cities from taxing rents on homes and apartments could cost the city an additional $18 million per year.
Zuercher said both scenarios would change the city’s balanced budget outlook into a deficit. State law requires that the city balance its budget every year.
Waring said the city should develop a plan to start addressing projected deficits beyond the current fiscal year. Several council members said the city needs to act more aggressively to push pension reform at the state and local level.
“Next year, the city of Phoenix will pay $145 million into the police and fire pension,” said Councilman Bill Gates. “We need action by the state to get those costs under control.”