Prop. 443: How should the tax revenue be administered?
In recent discussions, Prescott City Council members have debated how best to handle the revenue generated by Proposition 443 – should the sales tax measure get voter approval.
For instance: What should happen to the amount that would be freed up in the city’s general fund if and when the new sales tax revenue goes toward the required annual payment to Public Safety Personnel Retirement System (PSPRS)?
Already, the City Council has opted to pay the entire $7.8 million annual-payment amount to PSPRS in the current fiscal year, along with the $6 million that would be anticipated from the first six months of the proposed 0.75-percent sales tax (should it pass, effective Jan. 1, 2018).
The fate of freed-up general fund money is less certain in future years, however, with some council members maintaining that a portion of the money should go to help maintain levels of service in city’s departments such as police and fire, parks and recreation, and the library. Council members say the budgeting decision should be made on a year-by-year basis.
Here, candidates for Prescott Mayor and City Council discuss how they envision the administration of the Prop. 443 revenue, if the measure gets voter approval in the Aug. 29 primary:
If Proposition 443 passes, how should the city administer the revenue from the tax? (Should the entire amount go immediately to PSPRS? And what should be done with the amount freed up in the general fund?)
Connie Cantelme: The entire amount plus what is in the general fund should go immediately to the payment. An analogy would be like the difference between a 30 year mortgage or a 15 year mortgage. The savings in the interest alone would be monumental.
Phil Goode: The full amount should be used for the purposes as presented to the taxpayers to pay the PSPRS unfunded liability. The current PSPRS payment in the City budget combined with Prop 443 monies need to be allocated to pay down the PSPRS liability.
Greg Lazzell: 443 by law, 100% of revenue has to go to pay down the liability.
Alexa Scholl: The ballot language for Proposition 443 states that all of the revenue from the sales tax will go directly to our PSPRS payments. Council should continue to direct as much money as possible to PSPRS, but only after public safety, park, and library services are properly funded and are functioning as they should.
Joe Viccica: The proposition is worded in a way that any revenue from this 0.75% sales tax increase is used only to pay down the PSPRS liability and nothing else. I believe the proposition does not entirely free up the general fund and some payment will still need to be paid from it. We should be focusing on three things: strengthening our public safety by increasing police and firefighter staffing levels, reopening the library on Sunday, and economic development to grow our general fund.
Steve Blair: Yes the full amount generated by the tax should go to pay down our obligation. Make sure police and fire are staffed to the fullest and the library is open and the rest to be sent to pay down our obligation as determined by the budget process each year.
Jean Wilcox: If Prop 443 passes, the Council will need to decide each year during its annual budgeting process how much of the general fund the city can afford to pay toward paying down the debt, without reducing services to the point where the community is negatively impacted. If sales tax revenues continue to increase, for example, the council could allocate the increases to our PSPRS obligation. If there is another recession, the council may need to allocate more of the general fund to maintain acceptable service levels. The citizens elect the council to make these difficult decisions and they do and will have a voice in the process.
Mary Beth Hrin: The only way to actually reduce Prescott's unfunded liability is to use the entire sales tax revenue generated from Prop 443 along with paying our full annual pension payment from the general fund each year. Anything less does nothing to reduce our growing public pension liability. Following the above does not allow for any monies to be “freed up” from the general fund.
Greg Mengarelli: The entire amount of tax collected from the Prop. 443 should be used to pay the unfunded liability of PSPRS. In addition, any current payments the city is making to the unfunded liability from the city’s general fund should continue.
Editor’s note — This is one of the key issue questions posed to Prescott City Council and Mayor candidates recently by The Daily Courier. The candidates were asked to answer a number of questions in 75 words or less. Voters will choose from among the candidates in the Aug. 29 primary.
Framing much of the 2017 Prescott City Council campaign to date has been the city’s more than $78 million shortfall with the Public Safety Personnel Retirement System (PSPRS).
The issue of whether the city should impose a 0.75-percent sales tax increase to help pay down the unfunded pension liability will be decided in the Aug. 29 city primary, along with the choice of a new mayor and three council members.
Without the additional sales tax revenue, city officials say cuts in services will be necessary in coming years, as the required PSPRS payment ($7.8 million in the current fiscal year) continues to grow. General fund services such as library, parks and recreation, and police and fire are among the categories most at risk, they say.
The nine candidates (three for mayor, and six for council) are split 7-2 on whether the tax is a good idea. Here they explain why, and also comment on what happens if the tax fails:
Do you support Proposition 443? Why or why not? Also, if 443 fails, what should the city do?
Mary Beth Hrin: No. The ballot language is fatally flawed. It does not ensure revenue generated from the sales tax would actually be used to reduce Prescott’s pension liability. The language reads the revenue will be “dedicated to” the unfunded liability. If we are to tax our residents, we need to ensure we are actually going to pay down the PSPRS liability.
If the proposition fails, it is because the ballot language granted too much discretion for the City Council to disseminate Prop 443 tax revenue and general fund monies to discretionary budget items rather than pay down our pension liability. Therefore, I would fully support a sales tax increase dedicated solely to the police and fire operations. In the interim, it is critical we begin to re-model delivery of all our city services wherever possible. Finally, the only way to ultimately deal with the PSPRS burden is to fight for structural reform to the plan itself, for we cannot tax or invest our way out of this pension liability.
Greg Mengarelli: I support Proposition 443. If the additional revenues from Prop 443 are not available to pay this unfunded liability, then city services will most certainly be cut. Such cuts will have an impact on public safety and public health. I hate taxes as much as the next person, but this is a tax we need for a specific reason — to pay our debts. It is necessary and it is the right thing to do.
If Prop 443 fails, the city will be faced with a difficult situation. The only meaningful way to meet the burden of the PSPRS unfunded liability will be to take an ever-increasing share out of the general fund to meet the pension obligation. Because city services will have to be cut back, it will mean some very tough choices for the city.
Jean Wilcox: Absolutely. Prop 443 is the best immediate way to pay down our PSPRS obligation so we can maintain the level of public safety service we now have, restore full funding of our public library, continue to provide great recreation opportunities, and do a better job of enforcing city codes. It’s such a small increase (75 cents on a $100 purchase) that will be shared by city residents and non-city shoppers who all use our public safety, library and recreation services without additional fees.
If it fails: For the next few years, the council will have to cut services incrementally. We can use a small proportion of our reserve funds but we must keep at least 20 percent of each fund in reserve for unanticipated emergencies and to preserve our bond rating for infrastructure borrowing.
In the meantime, we must continue to work with the Legislature to find ways to keep the retirement system solvent. A financial bailout is highly unlikely, but we need additional revenue. Since each city, town, county, fire district, and DPS is a separate entity with a separate obligation, Prescott really must pay its own debt. We can’t rely on the willingness of other taxpayers in the state to finance our obligation.
Steve Blair: Absolutely. If the tax does not pass the quality of life in Prescott will not exist.
If it fails: Good question that has no answer.
Connie Cantelme: I do support Prop 443. But with concern that that alone may not be enough. We as a city will have to do whatever it takes to pay this liability down. Understanding that we didn’t cause this problem, but we are bound by legislation to pay this back. We need to support our representatives to work hard to bring awareness to this problem at the state level. We can do our part by not incurring more debt, just in case this issue takes years to solve. There is a point of no return if the debt reaches epic proportions, our future will be more difficult if we don’t pass this prop.
If it fails: The city will have no choice but to sell more assets and close more services. This will take a toll on the city and all of its taxpayers. It would take a very long time to recover from this and you can forget about economic development. We would become undesirable for businesses to relocate here.
Phil Goode: No, I do not support Prop 443. This proposition’s language indicates it’s to be used solely to pay down the unfunded liability. It has the potential to allow this or future city councils to use the PSPRS current payment for other unknown purposes.
If it fails: The city has substantial resources to deal with current demands without resorting to a tax. Prescott has surplus properties, unused contingency funds to the amount $30 million, and the ability to streamline city services. Our two state Representatives, Noel Campbell and David Stringer, have recently been given the authority to engage the state Legislature in PSPRS reform. We need to give them the time to do their job.
Greg Lazzell: Yes. (PSPRS) needs to be fixed at the state level, and it will be, but only when the communities start crashing through the house of cards. I don’t want us to be part of the house of cards.
If it fails: Council stops legislating and begins dismantling our community.
Alexa Scholl: I support Prop 443 because I feel that if the city doesn’t find an alternative source of funding for our liability, council will have to make more cuts to fire, police, library, and park services. I confidently feel that this sales tax will allow us to continue providing the services that Prescott citizens deserve while also making our PSPRS payments. I acknowledge that PSPRS has systemic issues that need to be reformed at the state level. Prop 443 is not a permanent solution to the statewide PSPRS issues, but will allow Prescott to remain a vibrant and thriving community.
If Prop 443 fails, the city will have to be innovative in the way we handle the PSPRS burden on the general fund. We will have to look for more efficiencies in services that come out of the general fund, take a look at any surplus properties to sell, and possibly approach the state for a one-time only or temporary transference of funds from other city sources that could help us make our payments. I also think that the city will need to start working more closely with our state representatives to advocate for PSPRS reform.
Joe Viccica: I am a strong “YES” on 443 for a variety of reasons. Chief among them is the strain the standard payment has on the general fund ($5.3 million this year), lack of viable alternatives, and the obligation to our police officers and firefighters to pay our unfunded liability. The PSPRS system needs to be reformed at the state level, but we don’t need to lose what makes Prescott such a special place to live in the process.
If Proposition 443 fails, it is the unfortunate truth that we will have to make ever deeper cuts to vital city services in order to accommodate the growing standard payment to PSPRS from our general fund. Next year alone, we need an estimated additional $1 million from somewhere in the general fund just to satisfy our PSPRS payment. My father was a police officer and was shot in the line of duty. My family relies on the pension he receives now that he’s retired. The necessary cuts to any service, whether the library or public safety, will be felt county-wide.
(In this continuing series, the order of candidates’ answers will be shuffled.)