Originally Published: January 31, 2017 6 a.m.
PRESCOTT — Bankruptcy may be among the City of Prescott’s available options for dealing with its public-safety pension shortfall, but City Council members did not appear to warm up to the idea this week.
“I think we need to nip this in the bud,” Councilwoman Billie Orr said Monday, after Prescott City Attorney Jon Paladini presented a report on the pros, cons and details of municipal bankruptcy.
Orr and several other council members maintained that bankruptcy would hurt Prescott not only financially, but in other ways as well. “The bigger cost to Prescott would our public relations, our tourism, and our economy,” Orr said.
Prescott City Manager Michael Lamar also posed a number of concerns about how bankruptcy might affect the city, asking, “In a community whose lifeblood is sales tax, what does bankruptcy look like?”
For instance, Lamar asked how bankruptcy would affect: retention of businesses; attraction of new businesses; and attraction of middle-, upper-middle-, or high-income retirees.
And in response to State Rep. Noel Campbell’s earlier comment that five or six Arizona communities declaring bankruptcy over PSPRS would “set off the alarm” in the state for needed further pension reform, Lamar asked: “Do we really want to be the sacrificial lamb to fix the pension problem for the State of Arizona?”
Paladini’s report came as a part of the city’s evaluation of how to deal with its $78 million to $82 million in unfunded liability with the Public Safety Personnel Retirement System (PSPRS).
“It’s important to discuss (bankruptcy) because it’s come up in a number of different ways,” Paladini said.
But other cities have spent millions of dollars in legal costs for bankruptcy and have still not solved their financial problems, Paladini said, noting, “Bankruptcy is not a cheap option.”
Among the prerequisites of municipal bankruptcy are: insolvency; a desire to adopt a plan to adjust debt; negotiation with creditors (which Paladini said would include all of the PSPRS retirees); and a show of good faith.
City officials have stressed that Prescott with its many assets, such as Antelope Hills Golf Course, the public library, and rodeo grounds is far from insolvent.
Orr, who serves on the council’s Strategic Plan Committee, said bankruptcy was considered by the three-member committee early on, and was eliminated as a viable option.
Meanwhile, the committee has focused on taking a 0.75-percent sales tax increase measure to the voters possibly in August as a way of paying down the PSPRS liability.
State Rep. David Stringer maintained, however, that taking such a step this year would be premature.
“The bottom line is our pension liability is growing exponentially not only here in Prescott, but across the state,” Stringer told the council. “I think it’s a huge mistake and disservice to the voters when we know (the 0.75-percent sales tax increase) is not going to solve the problem.”
While no decisions were made during the study session, council members also discussed the possibility of asking the voters to make the 0.75-percent sales tax increase a permanent tax to fund the city’s police and fire departments in perpetuity.
The council will take on the PSPRS issue again today during a special meeting at 3 p.m., Tuesday, Jan. 31, at Prescott City Hall, 201 S. Cortez St.
Also, this weekend, Prescott Mayor Harry Oberg, along with Lamar and Leonard Gilroy of the Reason Foundation, will host a town hall meeting on PSPRS at 10 a.m., Saturday, Feb. 4, at the Adult Center, 1280 E. Rosser St.