PSPRS: ‘Financial freefall,’ or reformed system?

State Legislative ad hoc committee kicks off PSPRS study effort

Members of the committee listen to audience concerns.

Photo by Cindy Barks.

Members of the committee listen to audience concerns.

The six state legislators serving on an ad hoc committee appointed to look into the Public Safety Personnel Retirement System (PSPRS) heard a variety of views last week about the status of the pension system, as well as its impact on local governments.

During its first meeting in Flagstaff on June 28, the committee spent more than two and a half hours listening to and asking questions of local officials, police and fire union representatives, and area fire chiefs.

Legislators noted during their introductions that they were looking for ways to fix the PSPRS, which has suffered in recent years from underfunded pensions.

Committee member David Stringer, a state representative from Prescott, pointed out that local governments and fire districts “are deeply stressed financially by the PSPRS conundrum.” He added: “We hope first to study it, and hopefully come up with some ideas that begin to solve the problem.”

The committee heard first from local resident and Prescott mayoral candidate Mary Beth Hrin, who told the legislators that the PSPRS is in “financial free-fall.”

Hrin said she researched the issue and compiled her presentation because “I wasn’t sure we were getting the truth from everyone.”

Noting that the net statewide liability to PSPRS currently totals $8.2 billion, Hrin pointed out that the required payments by a number of Arizona communities have risen dramatically in recent years. For instance, Flagstaff’s contribution to PSPRS in 2003 totaled just under $400,000, she said, and by 2017, it had grown to $7.3 million.

Still, Rick Tadder, management services director for the City of Flagstaff, said the annual payments to PSPRS have not led to the reduction of any services in the city.

That prompted Committee Chairman Noel Campbell, a state representative from Prescott, to suggest that Flagstaff has a “golden honey pot of money.” He asked: “How do you keep it from getting out of hand?”

Tadder responded that Flagstaff’s tourism-related sales tax has increased significantly in recent years. “Also, we are pretty conservative fiscally,” Tadder said. “We just control spending in that way.”

And Mike Townsend, deputy county manager for Coconino County, said the county had opted to make a $10 million lump-sum payment to PSPRS a year ago — a move that helped to bring down the county’s liability level.

The contribution came from money that had accumulated in the county’s jail district, and was not needed immediately for jail additions, Townsend said.

Even with the additional payment, however, Campbell pointed out that Coconino County was still at about the 50-percent funded level — “well below the safe level of 80 percent.” He asked: “Do you foresee yourselves working your way out of this?”

Townsend responded that Coconino County is considering making an additional contribution this year, as well as additional funding in coming years — steps that he said will “pay off in the future.”

While allowing that recent pension reform had occurred — especially through Proposition 124, which Arizona voters approved this past year — Hrin maintained, “Unfortunately, this is not going to produce any significant savings for decades to come.”

Prescott Mayor Harry Oberg added his concerns as well, maintaining that “There is something fundamentally wrong” with the pension system, which he said has failed to meet its investment projections in recent years — “even when we have good years.”

But Jim Mann, executive director of the Arizona Fraternal Order of Police, cautioned the committee against “trying to understand something with incorrect information.”

According to Mann, “The most current reform fixed many of the structural problems in the retirement system” — in part by adding a new tier of benefits for new employees, and by replacing the permanent benefit increase (PBI) with a cost-of-living increase.

When pressed by Stringer about why unfunded liabilities continue to rise, Mann said, “With the changes made, it’s going to take time.”

And of the investment losses that PSPRS has suffered through the years, Mann emphasized that the system had experienced losses in two major financial events — the tech bubble in the 2000 and 2001, and the housing crash in 2008.

He added that although PSPRS had failed to meet its projected investment returns last year, early numbers show that the system had achieved a return of about 12 percent in the recently-ended fiscal year.

Bryan Jeffries, president of the Professional Fire Fighters of Arizona, maintained that Hrin’s presentation was “one-sided” and failed to take into account the impacts from the new-employee tier, which went into effect on July 1. “She says the system is in a free-fall, but she brings no actuarial studies to prove those points whatsoever,” Jeffries said.

The committee plans to conduct future meetings in Bisbee/Douglas (July 13); Prescott (late July); Globe/Miami; and Yuma. The study will culminate with four committee meetings at the capitol.