Council seeks solution to growing $81 million pension debt mess

The Public Safety Personnel Retirement System (PSPRS) serves city employees such as firefighters and police officers, and the city's unfunded liability for it has grown from $71 million to $81 million, the city manager says.

Photo by Les Stukenberg.

The Public Safety Personnel Retirement System (PSPRS) serves city employees such as firefighters and police officers, and the city's unfunded liability for it has grown from $71 million to $81 million, the city manager says.

PRESCOTT – With its public-safety pension debt up recently by nearly $10 million, the City of Prescott continues its search for revenue sources to cover the unfunded liability.

Prescott City Manager Michael Lamar said Friday, Jan. 6, that the city’s unfunded obligation with the Public Safety Personnel Retirement System (PSPRS) rose significantly after the November 2016 Arizona Supreme Court ruling in the Hall lawsuit, which favored employees who challenged a 2011 pension-reform move by the Arizona State Legislature.

While city officials have long said the unfunded liability stood at about $72 million, Lamar said estimates now have the total at about $81 million. He added that even before the Hall decision, the total was closer to $75 million or $76 million.

The Prescott City Council was scheduled to consider methods for dealing with that debt this past week, but the Jan. 5 meeting was cancelled because of expected illness-related absences among the council members.

City Clerk Dana DeLong said the city opted to reschedule the meeting to allow the full council to be present. Late Friday afternoon, the city amended its 1 p.m. Tuesday, Jan. 10, study session agenda to include the PSPRS discussion. The meeting will take place at Prescott City Hall, 201 S. Cortez St.

Meanwhile, the council’s three-member Strategic Plan Committee has been considering a number of options for paying down the PSPRS debt.

Lamar said those ideas have ranged from a business tax, to a property tax increase, to a sales tax measure, to adding to city utility bills.

“They basically have looked at a number of potential theoretical ways to stabilize the general fund,” Lamar said. “There are four or five different options. I think (the committee is) prepared to make some general recommendations to the full council.”

In order to pay down the PSPRS debt in 10 years, Lamar said the city would need a revenue source that would generate about $10 million to $11 million per year. Sales-tax increase options have ranged from 0.6-percent to 0.75-percent, he said.

If council members plans to set a special election for May 2017, DeLong said they would have to make a decision by Jan. 16. And if the council opted to wait until fall 2017 for a sales tax election, she said the decision would have to be made by early April.

While Lamar, who came on board as city manager in October 2016, said he has heard a number of local residents suggest that the city should consider bankruptcy to deal with the debt, he says the ramifications from such a move would be severe.

“Everybody bandies about this bankruptcy concept,” Lamar said. But, he said, the city has many assets that would be negatively affected by going the bankruptcy route.

“It’s a very painful process,” he said, noting that a federal overseer likely would be brought in to make local decisions.

“I didn’t come here to run a community that’s going to go bankrupt,” Lamar said. “With our assets, it’s not realistic to even consider it. We’re not in that financial position. We just need to find a way to solve this.”

Although noting that “there’s no magic panacea” for the PSPRS debt, Lamar said the city does have options.

He added that Prescott is not the only Arizona community facing PSPRS debt. “There are a lot of communities in the state of Arizona with their heads in the sand,” Lamar said, noting that he gives Prescott credit for facing the situation head-on.

Mayor Harry Oberg, who has advocated seeking assistance from the state on the PRSPS problems, said that he continues to meet with state officials on the matter. “They need to look at further (PSPRS) reforms from the legislature,” Oberg said Jan. 4.

Maintaining that the state’s arrangement with PSPRS exceeds “normal contract law,” Oberg said he would advocate for a change in the Arizona Constitution to deal with the situation.

And Oberg questioned whether the city should make a move toward solving its unfunded liability until options with the state are exhausted. He suggested waiting with a city financial proposal “until this (legislative) session is well along, or over” – which he estimated would be about April.