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Arizona PSPRS Part 1: Public Unions Cloud Pension Future

Public-sector unions, left unchecked, cloud our financial future

East Valley Tribune – June 20, 2015

Story Highlights:

  • An unsustainable pension and benefits system is cracking.
  • Today government unions, with their enhanced bargaining power, have aggressively leveraged superior compensation along with lavish health and pension benefits onto the traditional advantages of government employment.
  • Public-sector unions get to participate in the selection of the bosses with whom they negotiate. Which they do, heavily. Government unions have become a go-to funder of the Democratic Party. Labor “negotiations” commonly have the same interests on both sides of the table.
  • While private sector unions have steadily declined since the ’50s to less than 7 percent participation, public-sector unions have flourished. Compensation for government employees grew 21 percent since 2000, according to the Bureau of Economic Analysis, only 9 percent in the private economy.
  • Skyrocketing costs of salaries, pensions and health care are making basic services like public safety and education unaffordable for many local governments. Several cities and states are facing bankruptcy, owing $2.5 trillion (not a typo) to their own pension systems alone. An unsustainable system is cracking.

Even Americans traditionally sympathetic with labor unions are beginning to realize that, left unchecked, public-sector unions are clouding our financial future.

Unlike private sector unions, government unions don’t have to deal with the hazard of pushing their employers too far. Government is not profit-oriented and has theoretically limitless ability to tax.

Even better, public-sector unions get to participate in the selection of the bosses with whom they negotiate. Which they do, heavily. Government unions have become a go-to funder of the Democratic Party. Labor “negotiations” commonly have the same interests on both sides of the table.

As a consequence, while private sector unions have steadily declined since the ’50s to less than 7 percent participation, public-sector unions have flourished. Compensation for government employees grew 21 percent since 2000, according to the Bureau of Economic Analysis, only 9 percent in the private economy.

Government employment traditionally was compensated somewhat less for similar jobs, but this was offset by less demanding employment, good benefits and ironclad job security. Today government unions, with their enhanced bargaining power, have aggressively leveraged superior compensation along with lavish health and pension benefits onto the traditional advantages of government employment. Workers, especially the educated, are beginning to prefer government work rather than the private sector, which creates the wealth and drives the economy.

But there’s a more immediate problem. Skyrocketing costs of salaries, pensions and health care are making basic services like public safety and education unaffordable for many local governments. Several cities and states are facing bankruptcy, owing $2.5 trillion (not a typo) to their own pension systems alone. An unsustainable system is cracking.

Illinois, the state in deepest trouble, should serve as a warning for other governments on the same course. For example, 5,000 education retirees pulldown over $100,000 per year in benefits. Half of government employees retire before age 60.

Illinois pension funding rose 12 percent last year alone. Yet these contribution levels don’t begin to keep up with the actual cost of the programs, which are far more generous than those available to most taxpayers. Illinois is $110 billion behind on pension funding and that number inexorably grows.

Unfortunately, Illinois has used up most of its options. Taxes are already so high that raising them further has only hastened the exodus of businesses from the state. Borrowing likewise isn’t a practical option for a state already deeply in debt, with a credit rating near junk-bond status.

Worse, just this month, the Illinois Supreme Court overturned a much-needed pension reform on the basis that benefits are constitutionally protected. The court even threw out provisions that affected only newly entering workers! Under the court’s dictates, Illinois is faced with cutting $6 billion from other stressed services to maintain pensions.

States like Illinois would obviously like a federal bailout but that’s another wretched idea. The line would be long of states who would rather get (another) handout from Washington rather than go through the pain of real reform at home.

One hopeful sign is the several states are now shining light on what have always been secret negotiations between union and government officials. Pennsylvania recently joined a list of 12 states that provide some transparency like open meeting laws and public access to agreements before they are finalized.

“It’s simply anti-labor, anti-worker legislation” a labor leader in Pennsylvania charged. It sounds like secrecy must really be important to those negotiations, right? It’s outrageous that taxpayers should have to beg for information when their money is being spent on a powerful interest group.

In Arizona, if we’re not as bad off as Illinois, we’re headed that direction. As recently as 2002, state retirement plans ran a surplus. No longer. By 2011, pension plans were $13 billion underfunded. Today the public safety retirement system is just 49 percent funded.

Yet even Arizona’s fiscally conservative government has not moved on such important reforms like weaning state workers off of defined benefit plans. Arizona actually has a law requiring secrecy in contract negotiations.

We would be wise to learn from states like Illinois. Why keep doing the same thing when the eventual consequences are bound to be dreadful?


AZ Supreme Court Moves Forward With Judge Hall PSPRS Pension Benefit Lawsuit

Arizona Supreme Court picks five judges to hear pension case

Craig Harris, The Republic | July 13, 2015

Story Highlights:

  • The Arizona Supreme Court has drafted five subordinate justices to decide how much long-serving judges should pay for their state pension benefits.
  • A 2011 pension-reform law increased the amount judges must contribute to their retirement, raising it in steps from 7 percent of their salary to 13 percent.
  • Arizona Court of Appeals Judges Philip Hall and Jon W. Thompson filed suit to roll back the increase, arguing that their pension contributions were locked in by contract at a lower rate. They sued on behalf of themselves and others who were on the bench before July 20, 2011, when the pension-reform law went into effect
  • The case is expected to be heard by the end of the year, according to an attorney for the Elected Officials’ Retirement Plan.

LINK:  The Two Most Important Legal Issues Facing The PSPRS Public Safety Pension

The Arizona Supreme Court has drafted five subordinate justices to decide how much long-serving judges should pay for their state pension benefits.

The state’s high court last week appointed the five judges in an apparent bid to avert conflicts of interest, since the outcome of the case would affect the justices.

The five judges who will hear the nearly 4-year-old civil case are newer to their positions and are not a part of the old judicial retirement system. They therefore are not affected by the outcome of the lawsuit. In it, several judges challenged a hike in the cost of their retirement benefits by the Elected Officials’ Retirement Plan.

Though the Supreme Court sought to avert any appearance of a conflict, the new arrangement might still raise eyebrows because two of the replacement judges are colleagues of a key plaintiff in the case.

The Supreme Court did not give a reason for recusing itself, but the high court’s five justices would financially benefit if the suit prevails.

A 2011 pension-reform law increased the amount judges must contribute to their retirement, raising it in steps from 7 percent of their salary to 13 percent. The law was designed to save taxpayer money and shore up the financially ailing Elected Officials’ Retirement Plan and other state retirement systems.

Arizona Court of Appeals Judges Philip Hall and Jon W. Thompson filed suit to roll back the increase, arguing that their pension contributions were locked in by contract at a lower rate. They sued on behalf of themselves and others who were on the bench before July 20, 2011, when the pension-reform law went into effect. Hall has since retired.

The suit also seeks to restore pension cost-of-living increases after retirement.

Hall and Thompson won their case in Maricopa County Superior Court, claiming the law was an unconstitutional infringement on a judge’s state-mandated salary and contract. Because the plaintiffs were members of the appellate bench, the case bypassed the Court of Appeals and went to the state’s high court on appeal.

Should they prevail, they could have their contribution rates for pensions restored to 7 percent of their salary. That would eventually require government employers to put more taxpayer funds into the retirement system, according to the Elected Officials’ Retirement Plan’s most recent annual report.

By comparison, members of the more financially stable Arizona State Retirement System pay 11.47 of their pay for pension benefits.

If the judges win, the decision likely would also benefit police officers, firefighters and correctional officers. All of those groups have retirement plans through the Public Safety Personnel Retirement System, which acts as the umbrella organization for the Elected Officials’ Retirement Plan and pension programs for first responders and prison guards.

When a separate legal challenge restored cost-of-living increases for retired judges, those benefits also were restored for retired first responders and correctional officers. That cost the system a one-time hit of at least $233 million.

A spokesman for the Elected Officials’ Retirement Plan said Monday that the pension plan did not have an estimate of the cost should the judges prevail in the current case.

Judges ordered to hear the pension case are Randall Howe and Kent Cattani of the Court of Appeals, Michael Butler of Pima County, Karl Eppich of Pinal County and Patricia Trebesch of Yavapai County. All of these judges were seated after the law went into place, and therefore would not be affected because they are part of a different Elected Officials’ Retirement Plan retirement group.

Howe and Cattani are Appeals Court colleagues of Thompson, one of the lead plaintiffs in the case.

Supreme Court Chief Justice Scott Bales was unavailable to discuss the case.

Heather Murphy, a Supreme Court spokeswoman, said while Howe and Cattani serve on the same court as one of the plaintiffs, the system has a “rule of necessity” that says “someone has to have this case.”

Jon Riches, an attorney with the Goldwater Institute, said it may appear that a conflict of interest remains, but there is not much that can be done. The Goldwater Institute has previously sued over public-pension abuses in Phoenix.

“It’s a tough deal. There is no other entity that can make these rulings,” Riches said.

The case is expected to be heard by the end of the year, according to an attorney for the Elected Officials’ Retirement Plan.

Vivian Farmer For Pension Administrator !

The Daily Courier – 7-5-2015     Vivian Farmer

Letter to the Editor:  Pensions

Regarding the Public Safety Pension Retirement System article in the Courier, I am demanding our city and state elected officials do something immediately.

Has a letter been written to the department that oversees this system that says “our city will not be held hostage because of their (PSPRS’) mistakes,” has our Mayor and County Supervisors written letters to every affected city and township in the state asking them to stand with us, if this has been done let the citizens of Prescott know about it.

It seems you are just caving in to this state department because they are part of the state, make the PSPRS cover the short fall.

This is not how this works, we “the taxpayers and voters” hired you to do a job and now you say OOOOOPPPPP’s and expect us to roll over and just take it.

Don’t worry Vivian, the Arizona Public Safety Personnel Retirement System just hired another media consultant to ensure their political “spin” gets thoroughly published in local and national papers and, more importantly, ensures that your voice is NEVER HEARD!

Not only will you “take it,” the PSPRS Board of Trustees is ensuring that you take it with a smile, because you have no other choice.

– Pensioners First

Prescott City Council show me what you are doing in this situation to warrant a yes vote on this upcoming ballot (tax) measure, don’t just threaten me with cutting my services. Let the people know what you all are doing to correct this situation.

Sorry Vivian, the Prescott City Council can’t do much to correct the past and current public safety pension liabilities; however, cities and municipalities can change the future by demanding reform from Governor Doug Ducey’s office and their representatives in the legislature.

Governor Ducey appoints the PSPRS Board of Trustees.  These Trustees can be removed and replaced with reformers willing to tell the truth, and who are not there for union representation or political gain.

PSPRS will not change until the Governor feels the heat and the Arizona League of Cities and Towns brings the heat (PS – Prescott is a member of the League).

– Pensioners First

I am sending a copy of this letter to the Courier, Yavapai County Supervisors, Mayor and Prescott City Council, Governor Ducey, our State Senator and our State Representatives.

Lets hope we see some action.

Don’t hold your breath Vivian

– Pensioners First

Vivian Farmer


Risk Adjusted Returns My A$$ !

The Public Pension Funding Trap

To make up for shortfalls in contributions, plans take extraordinary risks to earn higher returns

Andrew G. Biggs  –  May 31, 2015

LINK:  Risk Adjusted Returns Are B.S.

LINK:  Be Suspicious When PSPRS Insists They Are Telling The Truth

State and local government pensions were national news during the recession, as unfunded liabilities rose into the trillions of dollars and overheated commentators predicted that rising pension costs could push governments into bankruptcy. Today attention has faded and the public-pension industry claims that plans are back on track. Don’t be too sure.

Governments are still failing to make their full contributions; as recently as this week New Jersey’s chief budget analyst deemed it not “fiscally or physically possible” for the state to make its nearly $3 billion full pension contribution this year. Public pensions are taking greater investment risk with the money they do receive. If those investments fail to pan out, the budget picture for many governments will once again be grim.

Thanks to rising stock markets, the average pension funding ratio, which compares a plan’s assets to its benefit liabilities, rose to 76% from 72% in 2014, according to the Public Plans Database. This led the National Conference on Public Employee Retirement Systems to crow in December that “the vast majority of public pensions are well funded and are growing stronger as the economy continues to recover.” More recently the National Association of State Retirement Administrators statedthat “most states have made a reasonably good effort” to fund their plans. The “perception that many plans and states have failed” is wrong; funding problems persist, Nasra said, in “only a handful of states.”

In truth, only 41% of state and local plans received their full contribution last year, according to plan data, down from 65% in 2008. New York state plans to defer $1 billion in pension contributions over the next five years. Pennsylvania’s school-employees retirement plan last year received less than half its full contribution.

Even the “full” pension contribution isn’t all it is cracked up to be. Compared with American corporate pension plans or public pensions in other countries, U.S. public pensions calculate their contributions assuming a higher rate of return on their investments, and they take longer to pay off their unfunded liabilities. If U.S. public plans operated under the same accounting rules as corporate pensions, annual contributions would roughly double. In other words, public pensions are failing to meet what is already a very low bar.

To make up for shortfalls, U.S. public plans are taking extraordinary investment risks to earn higher returns. Three Japanese public-employee plans, for example, recently shifted to what news reports termed an “equity-heavy” portfolio holding 50% stocks and 50% bonds. In the U.S., the average public plan devotes 72% of investments to stocks or other risky assets and only one plan out of 98 tracked by the Public Fund Survey held less than half its assets in risky investments.

Kansas has recently gone further, by borrowing $1 billion from the public, which it will invest in hopes of generating a 7.75% annual return. Kansas’ hoped-for return is the norm—the average U.S. public pension also assumes an annual investment return of about 7.75% and bases its contributions on those projected returns.

But are these returns realistic? In October 2014, the Pension Consulting Alliance compiled investment-return projections from eight investment consultants and five asset managers. For a portfolio of 70% stocks, 30% bonds, the survey’s median projected return over the next 10 years was 5.9%. No adviser projected a return exceeding 6.5%.

Many of the investment advisers surveyed are employed by public plans for their advice, but the plans don’t want to listen. If these advisers turn out to be correct, funding costs could rise by 40% above the current levels that most governments already cannot pay.

U.S. state and local governments are required to contribute half as much to their pensions as are private employers, and six-in-10 public plans fail to receive even that low required contribution. If public pensions are indeed back on track, that track may simply be leading the country to more trouble down the road.

States Required To Add $454 Billion Of Unfunded Pension Obligations To Their Books

Government Retiree Costs to Be Put in the Spotlight

Accounting rules will require states and localities to add unfunded benefit obligations to their books

Michael Rapoport – June 2, 2015

Story Highlights:

  • State and local governments will have to add hundreds of billions of dollars in retiree obligations to their books under new accounting rules
  • The Governmental Accounting Standards Board sets accounting rules for states and municipalities
  • This will require the accurate disclosure of unfunded pension debts
  • State governments alone had $454 billion in unfunded retiree-benefit liabilities for 2013
  • The changes are intended to provide more information to taxpayers and law makers

State and local governments will have to add hundreds of billions of dollars in retiree obligations to their books under rules enacted Tuesday that spotlight the growing costs of health insurance and other benefits owed to former municipal employees.

The new rules approved unanimously by the Governmental Accounting Standards Board, which sets accounting rules for states and municipalities, will require governments to carry their unfunded retiree-benefit obligations on their balance sheets—thus making their overall financial position look worse. Currently, governments are required only to disclose the benefit costs in the footnotes to their financial statements.

In addition, governments will have to use more conservative interest-rate assumptions in calculating the value of benefit obligations that they haven’t funded. That could increase the current value of the obligations, thus worsening the plans’ funding shortfalls.

The changes are intended to provide more information to taxpayers, policy makers and municipal-bond analysts, GASB Chairman David Vaudt said in a statement. The rules won’t require governments to commit more money to pay for retiree benefits, nor do they require any changes in the level of benefits provided to retirees. But by making benefit costs more visible, the changes could prompt more governments to take action to address rising benefit costs.

“I think we would expect to see ongoing efforts by governments to control these costs,” Moody’s Investors Service analyst Marcia Van Wagner said.

The rising costs of retiree benefits have plagued state and local governments and have played a role in the bankruptcies of cities like Detroit. According to Moody’s, state governments alone had $454 billion in unfunded retiree-benefit liabilities for 2013, the most recent data available.

“These costs have been rising pretty significantly, and it’s a cost states want to control,” Ms. Van Wagner said.

GASB’s new rules, which were first proposed in May 2014, will take effect in mid-2016 for benefit plans and in mid-2017 for governments themselves. They parallel similar changes that GASB enacted in 2012 regarding state and local governments’ disclosure of their pension obligations.

Prescott And a Recommendation To Shut The PSPRS Pension Down

Prescott League of cities, towns pension reform plan goes to council

5-25-2015  The Daily Courier


In order to make Arizona’s public-safety pensions sustainable into the future, a task force of the League of Arizona Cities and Towns maintains that a comprehensive overhaul is necessary.

Among the recommended changes: Halting all enrollment in the existing Public Safety Personnel Retirement System (PSPRS), and starting a new plan for all future employees.

The details of the recommended pension reform – termed “The Yardstick,” by the League’s Pension Task Force – will be a topic of discussion by the Prescott City Council this week.

At its 3 p.m. Tuesday, May 26 meeting, the council will hear a presentation by representatives of the task force on recommendations for reform of the PSPRS. The meeting will take place at Prescott City Hall, 201 S. Cortez St.

The task force’s reform discussions have been under way since June 2014, and have yielded a three-page Yardstick document, which identifies recommended standards that any pension plan should follow to be viable.

A letter from Pension Task Force Chair Scott McCarty states: “The Yardstick identifies the goals, characteristics, and elements of a viable and sustainable public safety pension system for the State of Arizona.” It adds, “Also, as the name implies, it is an evaluation tool for the current system and reform proposals.”

The League’s evaluation maintains that the reform plan already proposed by labor representatives “is not comprehensive and, for the issues it addresses, does not do so correctly.”

On May 13, the Professional Fire Fighters of Arizona (PFFA) presented its reform plan to local officials in Prescott Valley. Its recommended changes include: cutting cost-of-living increases for retirees from 4 percent to 2 percent; a higher employee contribution to the system; and a requirement that employees work six years longer or turn 60 to be eligible for benefits.

The League Task Force recommends, on the other hand, that a new statewide system be formed for employees hired after July 1, 2016, and that all current employees and all current retirees remain in the existing system.

It also recommends that all system assets and liabilities be pooled, resulting in “shared risk across the broadest base.”

In addition, under the League task force’s plan, employers and employees would pay equal contributions. (That compares with the City of Prescott’s 2016 fiscal year, in which the employer’s contribution is estimated at 74 percent, while the employees’ contributions will be 11.65 percent).

The League task force is also recommending that the local boards that currently oversee the plan would be replaced with a single “committee of qualified experts.”

Prescott Deputy City Manager Alison Zelms said Friday, May 22, that the League’s plan attempts to avoid future legal challenges.

“The League is very adamant that we don’t want a repeat of the Fields case,” Zelms said, referring to the lawsuit that the Arizona Legislature’s 2011 pension reform faced.

In 2014, the Arizona Supreme Court ruled that the legislature’s 2011 move to eliminate the annual 4-percent cost-of-living increases to retirees was unconstitutional – causing the system to pay retroactive increases, which is contributing to the rising costs for Prescott.

The League task force maintains that the labor proposal would be subject to two legal challenges, because it applies to existing employees and retirees.

Zelms said the League task force’s recommendations are “very much in line” with the pension fixes that city officials have discussed. “Changing the whole structure is very important in staying sustainable,” she said.

Prescott has grappled with the rising costs of its public-safety pensions for years, and this year, is proposing a 0.55-percent sales tax increase to cover the estimated $70 million in unfunded pension obligations. The 20-year sales tax measure will be on the city ballot for the Aug. 25 primary.

Zelms and City Manager Craig McConnell said that regardless of the outcome of coming reform, Prescott still would be responsible to pay those costs.

“I think the bottom line is that there is almost no chance that reform will affect our existing liabilities,” Zelms said.

Meanwhile, they say, the League’s reform plan would help to ensure that the plan would remain healthy in the future. “It would almost self-police itself,” Zelms said of the recommended changes, “and we would have a plan that’s sustainable.”

The League’s pension reform would require approval by the State Legislature. Zelms predicted that pension reform would be a major issue in the Legislature’s 2016 session.

Firefighter’s Pension Fix Won’t Legally Hold Up

Firefighters’ plan to save pensions not popular, may face uphill battle

5-19-2015  Scott Orr  The Daily Courier


Although the Professional Fire Fighters of Arizona (PFFA) plan to repair the state’s public service retirement plan was met with smiles of relief from firefighters at a presentation Wednesday, May 13, in Prescott Valley, it may face a tough road to adoption due to opposition by police organizations and retirees.

PFFA President Bryan Jeffries presented a plan to bring fiscal solvency back to a pension plan wracked by poor decisions made by past administrators and a disastrous attempt by the legislature to fix it, which ended up costing $375 million.

As things now stand, Arizona cities, towns and fire districts are being required to pay the Public Service Personnel Retirement System (PSPRS) fund high percentages of their employees’ salaries – Prescott will pay 75 percent for firefighters in 2016. That means if a firefighter makes $50,000 in salary, Prescott will pay $37,500 above that to PSPRS.

The plan Jeffries offered won’t cost taxpayers any money; in fact, it would ultimately save them money – but at least one of the provisions has some retirees unhappy.

In 2011, the state legislature passed a bill to eliminate the 4 percent annual cost of living (COLA) increase paid to retirees. That effort was found to be unconstitutional by the Arizona Supreme Court in 2014.

But the COLA money is still an issue. In an interview with The Daily Courier last month, PSPRS spokesman Christian Palmer said, “It’s an overly generous system and that’s ultimately straining the system as a whole.”

Jeffries said the PFFA wants to make a constitutional change to allow the COLA to be changed, and would fund a 2016 campaign to get it passed.

Jeffries called the COLA “a very rich benefit, to be blunt,” and noted that the more money the PSPRS makes in investment returns, the more it pays in COLAs, or what’s officially called the Permanent Benefit Increase.

“In fact, within 15 years (some retirees) were making more in retirement than they were working,” Jeffries said. “Some of them have actually told me that, watching us (current firefighters) take pay cuts … they felt guilty about that.”

But, he said, “There are some who have pushed back.”

One of those who do not like what he’s hearing is retired firefighter Bill Follette.

“I’m definitely not on board with this,” he said. “Myself and others aren’t in favor of the plan, a lot more than they’re going around saying.

“It won’t hold up legally, in my opinion,” he said. “I’m more than willing to join that lawsuit.”

His complaint is the cut in the COLA, which he said was a “contractual obligation.

“The average pensioner doesn’t make that much money,” Follette added.

The man who heads up both the Arizona Police Association and the Phoenix Law Enforcement Association, Levi Bolton, said some police organizations, initially on board with the PFFA plan, have pulled their support over concerns that it will not stand up to a legal challenge.

“Pensions are not like other things,” he said. “They were protected by design in the constitution.”

“We would support moving forward and doing something with our system,” Bolton said, but “we had concerns, and we had not yet had anyone present us with anything that would abate those … if we went through with Mr. Jeffries’ plan.”

Bolton noted that discussions with legislators had confirmed their belief that changing the conditions that current employees and retirees had been guaranteed will not work.

“We believe that, if we put something in statute, and it does not pass constitutional muster, we will be right back where we were … and the fund will be less healthy,” he said.

One possible solution would involve leaving the situation as it exists for current employees and retirees, he said, but make the changes for new hires.

“Budgets were being trimmed, we were not hiring police officers and firefighters (and) that in and of itself was part of the problem,” but now that hiring has begun to resume, he said, it might work.

The executive director of the Arizona Conference of Police and Sheriffs, Jim Parks, said he hasn’t heard Jeffries’ presentation yet, but will within a “week or two.”

Parks said, “We need some kind of plan.”

In the meantime, the City of Prescott is looking to a ballot measure to offset the costs it faces by raising the sales tax: a 0.55-percent sales tax increase, with the revenue restricted to payment of the city’s unfunded pension obligations to the Public Safety Personnel Retirement System (PSPRS). The tax would end no later than Dec. 31, 2035.

The measure will be on the Aug. 25 primary ballot.

Prescott Needs To Raise Taxes To Pay Huge Pension Liability

Sales tax for public safety on ballot: Prescott voters will decide 0.55-percent tax hike for PSPRS

4/29/2015  Cindy Barks Daily Courier


The debt that Prescott owes on its police and fire pensions will continue to grow, city officials say, and if left unaddressed, could ultimately cripple city operations.

To avoid that, the city has proposed a sales tax increase to cover the estimated $70 million in “unfunded liability” with the Public Safety Personnel Retirement System (PSPRS).

In 5-2 vote on Tuesday, April 28, the council agreed to put a 0.55-percent sales tax increase measure on the Aug. 25 primary ballot to cover the unfunded liability.

If successful, the revenue from the tax hike would go into effect on Jan. 1, 2016, and would go to pay down the unfunded liability over the next 16 to 20 years. It would end when the city’s pension fund becomes 100-percent funded.

Prescott City Manager Craig McConnell led off this week’s discussion by maintaining that doing nothing about the unfunded liabilities could have serious impacts on the city’s future.

Within the next two decades, he said, the amount would grow to about $165 million, and would eat up more and more of the city’s general-fund budget.

If nothing is done about the debt within the next year, McConnell said, the city would have to cut about $2 million from its budget – equaling the amount the city puts into its public library.

“If, in fact, we do not deal with this liability, it will be devastating, and it’s real,” McConnell said.

Not everyone in the room agreed, however.

Councilwoman Jean Wilcox maintained that the city has a responsibility to question the PSPRS’s numbers.

“I’m just not buying it at all,” Wilcox said after listening to McConnell’s explanation. “Something is wrong up there at the state level. I am just not buying their numbers.”

She added: “Here we are asking Prescott voters to approve a sales tax based on numbers we can’t trust.”

Instead of taking steps toward a sales tax increase, Wilcox suggested that the city should press the PSPRS for explanations about its management, and how the unfunded liabilities occurred – up to and including litigation.

She suggested postponing the matter at least until the city’s general election in November.

Prescott Budget and Finance Director Mark Woodfill said a League of Arizona Cities and Towns group has been working to improve the numbers.

While allowing that the actuarials that the numbers are based upon are “full of assumptions,” Woodfill said, “That doesn’t mean there isn’t an unfunded liability.”

Members of the audience also pushed the city to ask more questions before pursuing the sales tax.

Retired Superior Court Judge Ralph Hess pushed for a shorter term for the tax increase.

“It’s clear you’re going to approve the sales tax,” Hess said after listening to about an hour of discussion. “But instead of putting this on the ballot for 20 years, put it on for five years, or three years.”

That way, he said, the city could pursue its questions with PSPRS while still having the money to pay down the unfunded debt.

City Attorney Jon Paladini pointed out, however, that any litigation that the city might pursue would take “years and years” to resolve.

Meanwhile, the city’s debt would continue to grow, officials say.

While noting that there “is no doubt that there is a problem with the PSPRS management and system,” Councilman Charlie Arnold maintained that the city should move now to ensure Prescott’s future.

Councilman Chris Kuknyo added: “Are we willing to cut services while we fight this fight, hoping we win?”

Kuknyo ultimately joined Wilcox in voting against putting the issue on the ballot, because he said he would have preferred a shorter term. The city has estimated that the debt could be paid off in 16 years, but opted for a term of as long as 20 years.

The PSPRS tax will not be the only increase that voters decide in August. Earlier this month, the council voted to put another sales tax increase on the Aug. 25 ballot, asking voters to raise the street tax from 0.75 percent to a 1 percent, as of Jan. 1, 2016.

In addition, the council tabled a measure this week on a 0.08-percent increase for open space, postponing a decision until May.

Prescott-Area Fire Districts Feel The Squeeze

4-20-2015  Scott Orr  The Daily Courier


Arizona’s fire districts are in financial trouble.

The problem, in a nutshell, is that a new state law caps the amount of tax revenue a fire district can receive, and it’s taking effect at the same time as the state’s retirement system is charging fire services unprecedented high rates.

That squeeze is hurting even the best-managed fire districts.

A “fire district” is different from a “fire department.” Fire departments, as the name suggests, are part of a city government, like the Prescott Fire Department, and are funded by the city using whatever means the city prefers. Some may enact a sales tax, some may use property tax revenues.

Fire districts, in contrast, are separate entities and, as their name suggests, are “taxing districts” that survive on property tax revenues, with some help from subscription fees. Prescott Valley is served by the Central Yavapai Fire District, which also covers parts of unincorporated Yavapai County.

Some, like the Chino Valley Fire District, primarily cover a town, but may also charge a fee to serve “out of district” customers and may not put out fires for non-subscribers.

The landscape for fire districts can make fiscal solvency tough:

• Proposition 117 took effect this year, limiting how much they can make from property taxes. (See related story.)

• State law caps the amount of property tax a fire district can charge at $3.25 per hundred dollars of a property’s net assessed value.

• The Public Safety Personnel Retirement System, a state fund that pays firefighter pensions, has had a tough time in the last few years, and is taking an ever-larger mandatory – and, officials said, unpredictable – bite out of fire district budgets. (See related story.)

Firefighting is an expensive proposition, CYFD Assistant Chief of Support Services Scott Bliss said, and while people see the large, admittedly expensive fire trucks as a major cost, they’re overlooking another big expense.

“It’s just labor intensive,” Bliss said. “If your expectation is that we are going to get to fires fast enough to put them out while they’re still where they started, and before they spread to the rest of the house, you have to have people spaced out the right way to get there fast enough.”

Bliss said it takes 13 people to fight a typical house fire safely and efficiently.

The Arizona Tax Research Association (ATRA), a taxpayer watchdog organization, strongly favored Proposition 117, and said in a recent position paper, “Arizona has 156 (fire districts) and the skyrocketing tax rates for many of them demonstrates that they should be looking aggressively at options other than to simply continue increasing tax rates.”

Bliss said that the proposition passed because voters believed some fire districts were throwing money around, and “unfortunately, I believe there were some taxing groups that did things to reinforce that belief.”

ATRA went so far as to suggest that some smaller agencies “are no longer sustainable” if they use PSPRS.

Mayer’s budget woes

There’s a dogfight going on in this town of 1,400, with an 11-year veteran fire chief fighting to keep his $93,000 a year job and the fire board trying to let him go.

“The budget’s not in a good place,” Chief Glenn Brown said. “We’ve been dealing with reductions in property tax.

“We’re 45 percent down in property tax revenues since 2009,” he said, and they’re at the $3.25 cap.

But, Brown said, laying him off wouldn’t make economic sense. “I think I bring more to the organization than I cost,” he said, noting that he’s helped to bring in more than $1.8 million in grant funds.

Board member Russ Dodge said the board was looking at “taking whatever steps we can” to balance the budget, and “I am waiting for studies on (other) districts our size” before deciding on Glenn’s future.

But the board is looking at several other cuts. “Reducing manpower, closing stations, pay cuts across the board, and even furloughs for employees-so there’s a lot of options that are being looked at,” he said.

Dodge, new to the board in December, added that some bad fiscal decisions in the recent past added to the budget problems.

The budget was balanced for 2015, at just over $2.8 million.

Chino Valley faces tough times

Chino Valley Fire District operates under a joint management agreement with Central Yavapai Fire District, signed last summer. CVFD, which had hired Chief Scott Freitag in August 2013, agreed to share him with CYFD; Chino Valley pays most of his $111,000 salary (CYFD kicks in $10,000). In return, Central shares its management staff, including CYFD’s in-house “budget guru,” Scott Bliss, with Chino Valley.

The CVFD proposed FY 2015-16 budget is $4 million, which is down about $300,000 from the last year. PSPRS will take almost $500,000 from CVFD over the next fiscal year, which is a $90,000 increase.

Freitag is looking at laying off two new firefighters and leaving a third slot unfilled when that man retires. He’s already let a part-time office worker go.

The layoffs will mean he will have to close one of Chino’s three fire stations from time to time when they run short on manpower due to vacations or lack of ability to pay overtime. “When people say, ‘You just have to cut the fat’-there is no more fat,” Bliss said.

“Our hope is that property values increase, because we need increased revenue to be able to cover increased expense,” Freitag said, “and (already) being at the $3.25 cap, we have no other opportunity to generate revenue.”

One seemingly simple idea would have nasty results, he said: he won’t cut salaries, because that would lead to a de facto “training factory,” where new firefighters might come to Chino Valley to learn – and be trained to the tune of thousands of dollars – but would then leave for a better-paying city or town.

Another suggestion, from a Chino resident, to make the CVFD a volunteer force, received a chilly reception from LifeLine Ambulance, which would have to supply paramedics to make up for the loss of paramedic-firefighters, as well as law enforcement, which, according to Chino Valley Police Chief Chuck Wynn, would be unable to deal with medical emergencies.

Central Yavapai Fire District: concern, but no panic

Those two districts’ budget woes make the numbers at CYFD look positively rosy. The tentative budget for fiscal year 2015-16 is $16.8 million, a 4.24 percent increase over the last year.

The district will absorb at 6-percent increase in its PSPRS contribution ($380,000), a 7-percent increase in health care costs ($49,000), and a 10-percent increase in worker’s compensation contributions ($16,000).

But, Assistant Chief of Administration Dave Tharp said, due to the effects of Prop. 117, “our overall revenue increases only equated to 2.53 percent this year.”

Yet, officials don’t seem to be unduly worried. Make no mistake – cuts will be made for the fiscal year 2015-16 budget, but they aren’t deep cuts of the type Chino Valley faces.

One idea being kicked around is to cut annual pay increases from 5 percent to 2.5 percent. Also on the chopping block: some of the money now allocated for fuel.

CYFD is not yet bumping up against the $3.25 maximum tax rate, and that is by design. The district expects the rate to be $2.37 for 2015 and projects a peak of $2.64 in 2020. The rate is projected to drop a couple of pennies in 2023.

“It’s like turning a battleship,” CYFD Fire Board Chairman Steve Rutherford said. “It takes years” to get a tax rate down once it’s been raised.

“Because of good planning and fiscal responsibility” the district stands a good chance of being able to start decreasing taxes by 2023, he said.

“Going forward, we want to make sure we have a plan so we don’t get up to that $3.25,” Bliss said. “It’s a lot better” to stay below the cap, so CYFD can avoid a “crisis situation,” he added.

Possible solutions

Freitag wants to see Prop. 117 reformed and said that the firefighters’ union has worked with professionals to develop a plan, but the legislature will have to enact it, or it will have to go to a ballot referendum.

“There are other avenues (for fire districts to raise revenue), but they’re never going to succeed here,” Rutherford said. “Fire districts can do overrides, just like school districts can, but that’s a non-starter. Is that going to pass in Chino Valley? No way.”

Prescott Unfunded Pension Liability Surpasses $70M

The new actuarial reports are out, and they show a bunch of red ink for local communities.

February 2, 2015 – Lynne LaMaster

It’s no secret that the Public Safety Personnel Retirement System (PSPRS) pension has a serious financial issue. As of the end of 2013, PSPRS claimed a Net Unfunded Accrued Liability of $4,654,534,525.

The City of Prescott has $70 million in PSPRS unfunded liabilties.

See: Arizona Public Safety Personnel Retirement System Annual Actuarial Valuation

By the end of October, 2014, in an Arizona Republic article titled, “More financial trouble for public safety pension plan” by Craig Harris, they used a figure of $7.78 B for the unfunded liability, stating, “The state pension system for police officers and firefighters has less than half of the money it needs to fund current and future retirement payments…”

Whatever figure you choose to believe, in the most recent computations, $70M of that unfunded liability belongs to the City of Prescott.

See: PSPRS 2014 Actualrial Reports, Prescott Police Department

PSPRS 2014 Actualrial Reports, Prescott Fire Department

Add that all up, divide by Prescott’s population, and that’s a whopping bill of $1,735.43 for each person – man, woman and child – residing in the city limits.

Prescott’s not the only city with a gigantic unfunded liability – Flagstaff totes a $78.7M bill, Phoenix has a (gulp) $2B ledger of unfunded liabilities for their police and fire pensions.

Prescott Valley, on the other hand, has a much more modest amount of $6,592,682 of unfunded liabilities for their police department. Of course, PV doesn’t have it’s own fire department, they rely on Central Yavapai for fire service. And yes, there’s some $21M in unfunded liabilities at CYFD, too.

Today, the Prescott City Council will start their 2016 budget discussions, which will surely be affected by these numbers. Stay tuned as we continue to cover this issue in the days and weeks to come. How did this happen? More importantly, what can be done about it?

In the meantime, just remember the figure of $70M in the red.

One more thing: The local PSPRS board decisions to give retirement benefits to three of the Granite Mountain Hotshot widows has not been calculated in yet. So, that isn’t reflected in the $70 M figure. However, once it is figured in, the amount can be expected to rise.

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