Phoenix’s Public Safety Pension Costs Rising $40 Million

http://www.azcentral.com/story/news/local/phoenix/2015/05/20/phoenix-council-oks-budget-delays-paying-pension-costs/27631065/

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Delayed Pension Payments

Delayed Pension Payments

Story Highlights

  • Phoenix leaders say its budget is balanced but city has delayed paying pension costs to avoid deficit
  • City Manager Zuercher recommended phasing in higher pension cost for police and fire over three years
  • Budget includes money for hiring more police and increasing officer training
  • The city’s payments to the system are increasing by $40 million

Phoenix leaders voted 6-3 Tuesday to approve a final budget for the next fiscal year, but City Council members were sharply divided over whether the city truly balanced its books.

On paper, the spending plan backed by Mayor Greg Stanton and the council’s liberal and more centrist members is balanced. The city projects collecting enough revenue to cover its expenses without raising taxes or making any cuts to public programs in the next year.

While supporters of the budget have praised Phoenix’s return to black ink, their message clashed with critics who said that the city only avoided making cuts because it irresponsibly delayed paying its full retirement costs.

The city delayed paying money it owes to the state pension system for police officers and firefighters. Because of an Arizona Supreme Court decision that struck down part of a state law meant to reduce pension costs, the city’s payments to the system are increasing by $40 million.

PREVIOUSLY: Phoenix budget sidesteps soaring pension costs

However, City Manager Ed Zuercher recommended that the city phase in those high payments over three years — a move that increases its long-term pension costs by about $69 million over 22 years.

Council members ultimately approved Zuercher’s $1.16 billion general-fund budget for the 2015-16 fiscal year; Phoenix operates on a July 1-June 30 fiscal calendar. The general fund pays for everyday expenses, such as police, fire and parks.

Stanton and council members who supported the budget have said it makes sense to defer paying some pension costs because absorbing the full amount today could require drastic cuts to popular city services. The city would face a roughly $30 million deficit if it paid its full pension tab to the state next year, officials said.

RELATED: Phoenix budget balanced for one year, then red ink

“We’re here to provide those services,” Councilwoman Thelda Williams, a moderate Republican, told The Arizona Republic after she voted for the budget. “In the meantime, the economy could turn around, circumstances could change and next year, we might not even have a problem.”

The council’s more fiscally conservative members, Councilmen Bill Gates, Sal DiCiccio and Jim Waring, voted against the budget. DiCiccio and Waring said the city should address its fiscal problems head on and not create higher costs for taxpayers in the long run.

“The budget just literally puts the city of Phoenix further in debt,” DiCiccio said. “It’s like using a credit card to pay off your mortgage. You’re using debt to pay off debt.”

Even without an unexpected jump in pension costs, the city originally projected a deficit next year, and funding cuts at the state level added to the problem.

Phoenix ended up in the black because it has created a new water-bill tax for residents, cut employee compensation, eliminated 162 vacant city jobs and delayed replacing some old city vehicles and equipment.

Still, city leaders increased spending in a few areas, including $2.2 million that will pay overtime and other costs for 40 hours of additional training for all city police officers.

The city will also accelerate the hiring of police in the next year, bringing on 110 new officers. Zuercher projects that’s enough to offset personnel the department will lose through attrition. A hiring freeze shrunk the force by nearly 600 officers in recent years.

Phoenix can hire more officers now because its special public-safety funds, which are supported by a voter-approved tax, are rebounding after running sizable deficits during the recession. Those funds are separate from the city’s general fund.

Although the city has avoided a deficit next year, it’s far from resolving its long-term red ink. Phoenix faces the prospect of deficits for several years, starting with an estimated $31 million to $58 million deficit in fiscal 2016-17.

Zuercher has said the city will spend the next year finding new ways to save money and resolve a potential deficit.

So far, the city plans to increase how often it makes pension payments to the state, which could save about $20 million over 22 years because the money would be invested for longer and potentially provide larger investment returns, city officials said.

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