Originally Published: November 16, 2016 6:02 a.m.
Updated as of Wednesday, November 16, 2016 2:55 PM
PRESCOTT – While a recent court ruling on pensions undoubtedly will lead to an increase in the City of Prescott’s debt with the Public Safety Personnel Retirement System (PSPRS), city officials say it is still too soon to estimate how much.
The Arizona Supreme Court ruled last week in favor of (now retired) Arizona Court of Appeals Judge Philip Hall, who challenged a 2011 pension-reform move by the legislature to increase the amount of employees’ contributions to the PSPRS.
In a divided ruling on the Hall v. Elected Officials’ Retirement Plan (EORP) lawsuit, the Arizona Supreme Court Justices found the legislature’s reform measure to be unconstitutional, because it negatively affected constitutionally protected aspects of the pension program.
The legislature’s 2011 action (SB 1609) increased the cap for employees’ contributions from the previous 7.65 percent to 11.65 percent.
The same legislation had also attempted to eliminate the annual 4-percent cost-of-living increases to retirees, but that measure was deemed unconstitutional by the courts in 2014.
Prescott City Attorney Jon Paladini said Monday, Nov. 14, that the Hall ruling was not unexpected. “I don’t think this is a surprise,” he said. “I think people were expecting it.”
Indeed, in a July column for The Daily Courier, Prescott Mayor Harry Oberg wrote, “A second pending court decision (Hall case) could further increase the (city’s) debt if upheld against the taxpayer.”
Paladini said that although the city does not participate in EORP, last week’s ruling would also affect the PSPRS – the police and fire pension program for which the city currently has an unfunded liability of more than $70 million.
Statewide, the PSPRS has estimated the impacts of the court ruling at about $220 million, Deputy City Manager Alison Zelms said. But she and other city officials note that Prescott’s share of the impacts are still certain and would be based upon system actuarials, calculated by the PSPRS.
Yavapai County Administrator Phil Bourdon, on Wednesday, said the ruling's impacts on the county would be "very similar to the city.
"It will obviously increase some of the unfunded liability," he said. "As we receive information, we will evaluate and work with the Board of Supervisors next budget season. We look at it as a long-term obligation."
Prescott Budget and Finance Director Mark Woodfill said, “Obviously, it’s going to increase the (city’s) unfunded liability.” But, he said, the matter is still in the courts to determine how PSPRS will handle the matter. “I don’t know when we’ll get the numbers.”
Zelms said the ruling would lead to reimbursements to PSPRS participants, but she noted that is still being worked out as well.
In an email on the “who, when, and how of carrying out the Hall decision,” the PSPRS stated that the refund amounts would depend on a number of factors, including the members’ hiring dates, and whether they are current employees or retirees.
The PSPRS email added that the Arizona Supreme Court remanded the lawsuit to the trial court to determine how the payments will be made to members, and that PSPRS would work with litigants to determine how the ruling would be carried out.
The PSPRS email states: “PSPRS and EORP employees hired prior to the July 1, 2011 effective date of the contribution rate increase will receive a refund of contributions in excess of the rate that was in effect when they were hired.”
But those hired on or after July 1, 2011 will not affected by the Hall lawsuit, according to the PSPRS, and those who retired prior to Aug. 1, 2011 are not affected, the email stated, noting: “This class already received retroactive permanent benefit increase payments” in 2014.
Zelms emphasized that the city’s PSPRS unfunded obligation is “a long-term liability.” She added, “The concept that we need to be 100-percent funded is not how long-term liability works. Yes, we have challenges, but we don’t owe all of this today.”
Courier reporter Sue Tone contributed to this article.