The Daily Courier Logo
Trusted local news leader for Prescott area communities since 1882
11:57 PM Sat, Oct. 20th

Prescott mulls sales tax hike to pay for police, fire pensions

PRESCOTT - It was characterized as "the elephant in the room," an "enormous" hit on the city budget, and a "wake-up call" for the community.

The City of Prescott's future costs - or "unfunded liabilities" - in the Public Safety Personnel Retirement System (PSPRS) took center stage at a Prescott City Council workshop on Tuesday, April 7.

As Budget and Finance Director Mark Woodfill explained it, the city's unfunded police and fire pension actuarial costs will total between $165 million and $167 million over the next 22 years.

Information from the city showed the city's unfunded actuarial accrued liability cost for police and fire pensions rising from $3.8 million in the coming fiscal year (2016) to $11.2 million in fiscal year 2037.

The numbers would go down slightly if the city were to choose not to phase in an increase that is the result of a recent court case that challenged (and won against) the 2011 pension reform approved by the Arizona Legislature. Under the non-phased-in approach, the city's unfunded costs would total $165.3 million by 2037.

Over the past decade or so, a number of factors have contributed to Prescott's current situation, Woodfill said, citing losses that PSPRS suffered in its assets, as well as the City of Prescott's comparatively slow rate of growth, which results in fewer new workers coming on board.

Currently, both the police and fire departments have fewer people on the job, contributing to the system, than those who are collecting pensions.

To help pay off the unfunded liability, city staff members presented a number of scenarios for sales tax increases, which they say would bring the city's pension costs down to a manageable level in the future.

Woodfill's presentation included three options - a 0.5-percent tax; a 0.65 percent; and a 0.75 percent increase. Depending on the amount, the number of years the tax would be needed would go down - ranging from about 10 years to 18 years.

City Manager Craig McConnell said the public-safety issue was separate from any sales tax proposal for streets or open space that the city might also put to voters. Proposals for both have been discussed at previous meetings.

During McConnell's introduction of the item, he pointed out that Prescott participates in the PSPRS, "but it did not design it." He added: "Nor does the City of Prescott have the ability to redesign, unilaterally, this system."

The PSPRS is different from the Arizona State Retirement System (ASRS) for non-public-safety employees, McConnell said, in that it is not a pooled system. The city stands alone in paying for its own public-safety retirement costs.

"The city has no control over cost increases or the benefits which are provided," McConnell said of PSPRS. "Unfortunately, whether much-needed pension reform happens or not, the city will be obligated to cover its unfunded liabilities by itself."

Of the liabilities, McConnell said, "They are enormous, and they are growing." He added that the growing pension costs have been Prescott's "elephant in the room."

McConnell stressed that city staffers are not proposing a specific timing for the ballot issues, although discussion appeared to lean toward putting the matter on the Nov. 3 general-election ballot, rather than the Aug. 25 primary ballot.

The council took no vote at the workshop, and it will consider the issue again on Tuesday, April 14.

Council members appeared to agree that some action was needed to deal with the unfunded liabilities.

"We've been kicking this can down the road, and (now) we are out of road," Councilman Chris Kuknyo said. "Something's got to be done. We could put Prescott back on solid footing within 10 years from now."

Councilman Charlie Arnold emphasized the impact the growing pension costs would have on other services that the city provides through its general fund, such as recreation, library, and community development.

Councilman Steve Blair added that this week's presentation should serve as a "huge wake-up call" for the community.

Follow Cindy Barks on Twitter @Cindy_Barks