Council may raid rainy day fund for pensions

Tentative city budget capped at $188M

Leading up to Prescott’s Aug. 29 sales-tax-increase vote, the City Council already has committed as much as $14.4 million in the coming fiscal year toward the ailing public-safety pension system (PSPRS).

On Thursday, June 15, when council members met to consider the city’s tentative 2018 fiscal-year budget, they talked about putting even more toward the shortfall.

Mayor Pro Tem Jim Lamerson pushed for the council to devote a portion of the city’s $15.6 million rainy-day fund toward the Public Safety Personnel Retirement System (PSPRS) unfunded liability, along with the already-committed money.

Lamerson maintained that dedicating as much as $10 million of its $15,627,478 “unassigned” reserve fund would show local voters that the city is serious about paying down Prescott’s more than $78 million unfunded liability.

“I don’t think we’ve done all we can to address PSPRS,” he said.

Other city officials pointed out, though, that the council already has committed to paying a number of PSPRS obligations in the coming fiscal year, including the city’s $7.8 million required annual payment.

On top of that, the council agreed on Thursday to pay upfront the full $1,004,236, plus interest, that must be reimbursed to public-safety employees and former employees who were hired before July 20, 2011.

The reimbursement is necessary because of the recent court ruling on the Parker/Hall lawsuit, which challenged the state’s earlier attempt at pension reform on the breakdown of employee/employer contributions to the pension system.

“There are 106 employees and former employees that the city needs to refund excess contributions paid over the 7.65-percent rate,” stated Budget and Finance Director Mark Woodfill’s presentation to the council.

Woodfill noted that the city has two options for paying back the employees’ excess contributions: Taking credits from the amount due to the PSPRS for the coming fiscal year, which would increase the city’s overall unfunded liability; or paying the full $1 million from other city sources.

The council agreed by consensus that the over-payment should come out of the city’s reserve fund.

Also committed toward the PSPRS unfunded liability for the 2018 fiscal year is about $5.5 million that the city would expect to generate through the proposed 0.75-percent sales tax (from the projected start of the tax on Jan. 1, 2018, through the end of the fiscal year on June 30, 2018) – should the measure pass with voters in August.

Depending on the outcome of the election, that would bring the city’s total payment for fiscal-year 2018 to more than $14 million.

City Manager Michael Lamar cautioned against tying the city’s hands on an additional payment from the reserve fund – especially if the sales tax were to fail.

Other council members suggested putting a smaller portion of the reserve toward the pension shortfall, but also questioned using as much as $10 million. “I would feel very uncomfortable with putting $10 million of our rainy-day fund (toward the unfunded liability),” Councilwoman Billie Orr said.

And Councilman Steve Blair maintained that the council already has shown a commitment toward paying down the unfunded liability.

Ultimately, the council unanimously approved the tentative budget for the 2018 fiscal year – capped at about $188 million – with flexibility to devote additional money to the PSPRS at a later date by re-appropriations within the budget.

In another PSPRS-related matter, the council opted not to use the option allowed by the Arizona State Legislature this year to spread out the unfunded liability payments for an additional 10 years.

While the option would bring down the city’s annual required payment amount, it would add as much as $74.3 million to the total cost of the unfunded liability. Woodfill noted that city staff was not recommending the option, and several council members voiced opposition to it.

“I have no interest in going down this road whatsoever,” Lamerson said.

The matter died for the lack of a council motion.

Along with the PSPRS issues, much of the budget discussion also focused on public works capital projects. Public works officials explained that budgeted projects often are not completed in the designated years for a number of reasons. Among the reasons: unforeseen issues with real estate acquisitions, and weather and ground conditions.

Several councilmembers maintained that the unfinished projects tend to artificially inflate the city’s annual budgets, and they urged public works staffers to work to make the capital project budgets more realistic.

Under the tentative budget, the city cannot exceed the $188 million cap, but adjustments can still be made within the budget. A public hearing on the budget is scheduled for June 27, as is the final budget adoption.