Expert: Pension cleanup will be ‘long, difficult’

Reason Foundation Government Reform Director Leonard Gilroy speaks about the state’s pension dilemma and its impact on municipalities such as Prescott. The other panelists Saturday were Mayor Harry Oberg and City Manager Michael Lamar.

Photo by Nanci Hutson.

Reason Foundation Government Reform Director Leonard Gilroy speaks about the state’s pension dilemma and its impact on municipalities such as Prescott. The other panelists Saturday were Mayor Harry Oberg and City Manager Michael Lamar.

PRESCOTT – On a sunny Saturday, more than 100 people attended Prescott Mayor Harry Oberg’s forum at the Adult Center titled “The Elephant in the Room,” a $7.5 million budgetary expense next year rooted in the state’s more than 50-year-old pension program for police and firefighters.

This is far from the first time Oberg and other city leaders have wrestled with what is a state “unfunded liability.” Rather this was a chance to offer a thorough public explanation of the history and potential consequences of the current system, and ways to resolve the issue in future years.

photo

Prescott resident Ed Wolfe addresses Mayor Harry Oberg, City Manager Michael Lamar and Gilroy during the forum.

Indeed, one pension expert said the defined benefit pensions that exist for now-retired police and firemen, and are promised to current ones, is a state and national dilemma.

Leonard Gilroy, director of government reform for the Reason Foundation, a non-profit “think tank” headquartered in Los Angeles, described wrestling with this issue as similar to cleaning up a chemical spill. New pension options for new employees will help “cap the spill” but to “clean up” the guaranteed benefits initiated through state law dating back to 1968 will be a “long and difficult task.”

Prescott’s total liability for the Public Safety Personnel Retirement System is currently about $81 million.

The state has a pension board responsible for investment of the money municipalities pay into the system. Economic downturns, and stock market drops, have lessened what is available to cover those costs, leaving most municipalities with a debt to cover.

In 2003, Prescott was able to pay over 100 percent of its pension obligation. Now that funding is at just 31.1 percent.

Legal challenges over the years have hurt efforts to lessen those burdens. Concessions by police and firefighters have been rebuffed.

That leaves the city with limited options on a bill that consumes a major chunk of the current $33 million general operation budget that must also meet taxpayer demands for parks and recreation, public library services and ongoing public safety.

The state Legislature did make a change in the law this year that will allow new police and fire employees as of July 1, 2017, to go into what would be in the private sector known as a 401K-style benefit program. In this, the employee contributes a portion and the city contributes a matching portion.

But that has no impact on the outstanding debt.

State Rep. Noel Campbell, R-Prescott, reiterated his criticism that the city recently hired 11 new police and firefighters rather than waiting until after July 1 that would have saved the city considerable dollars in pension benefits.

City Manager Michael Lamar said the city’s elected leaders opted to fill those positions as a matter of public safety. The estimated pension costs for those individuals was estimated to be about $124,000.

Oberg said the state and city continue to look for ways to address this growing dilemma. He has created a local ad hoc committee and is working with the Arizona League of Cities and Towns on statewide solutions.

The city’s goal is to find ways to “manage” this liability.

But he is clear it is a daunting challenge.

Some options include additional reliance on police and fire volunteers who are able to handle certain tasks that do not require pension-eligible firefighters and police to perform, including routine traffic accident investigations and delivery of court subpoenas. He said there is a focus on better ways to dispatch and respond to medical emergencies to relieve police and firefighters from such duties, as well as considering rotational training programs for public safety personnel that would eliminate eligibility for pension benefits.

City leaders have also considered a sale tax measure, as well as the sale of certain city properties.

And Lamar said he and his fellow city leaders are open to constituent ideas.

“We have to be as creative as humanly possible to take this from an unmanageable problem to manageable,” Lamar concluded.