The Tucson City Council has chosen a three-year phase-in plan to pay off its growing public safety pension costs.
Tuesday’s decision to cover an $18 million pension obligation in three annual installments of between $6 million and $7 million, rather than in one year, will give the city budget flexibility for the coming year.
But interest on the deferred payments will be tacked on to the city’s future pension obligation, ultimately costing taxpayers an extra $24 million over the next 20 years.
An $18 million commitment from the city was required because the police and fire pension funds were underfunded, due to asset losses during the recession, an Arizona Supreme Court ruling that voided a state pension reform bill and increasing retiree payouts.
The state, which manages the pension fund, gave local governments a choice of bringing funding levels up through a single contribution increase, or to do it over three years. Unlike Tucson, Pima County and Oro Valley opted for the one-year plan.
The phased-in contribution, along with the city’s current obligations, bring [Tucson’s] total public safety pension contributions to $51.3 million for the year.
The state-run Public Safety Retirement System contribution rates already have “increased significantly” and will “increase dramatically” next fiscal year due to losses during the recession and recent court rulings, Interim City Manager Martha Durkin said in a memo to the council.
The three-year phase-in “gives us more financial flexibility so that we’re not taking funds from other needed services in this community to pay the pension,” said Budget Director Joyce Garland. “In the long run, it will cost us a little bit more.”
“This really makes us move forward with the obligation for the pension for the public safety folks, and I think that’s a good priority,” said Councilwoman Shirley Scott. She warned it also means some other budget requests won’t get funded “because this will take the lion’s share of what might be available in the general fund.”
The city plans to pay for next fiscal year’s $51.3 million in contributions — a $6.7 million increase over this year’s payments — from the rainy-day fund and from a police fund that collects impound fees.
For each of the following two years, the city will have to figure out how to come up with another $6-$7 million to cover the next phase of the increase and additional money to rebuild the rainy-day fund.
The city is working on the sale of some land, which could bring in $5 million to be applied to the pension fund. That would be like making an extra payment and would help bring costs down. Additional details about the sale were not immediately available.