Photo by Cindy Barks.
With a statewide shortfall of $8.2 billion, Arizona’s public-safety pension system is in “critical condition,” according to members of a local tax watchdog group.
Fixing the system will require a multi-faceted approach, they say – one that will need to extend far beyond the City of Prescott’s proposal for a 0.75-percent sales tax increase.
“PSPRS (Public Safety Personnel Retirement System) is collapsing, make no mistake about it,” Mary Beth Hrin of the Citizens Tax Committee (CTC) told a packed room at the Prescott Resort Thursday night.
CTC members have urged the City of Prescott to take a “wait and see” approach to its more than $78 million in PSPRS unfunded liability, while a larger-scale fix is worked out.
Hrin maintains that the revenue from the city’s proposed 10-year 0.75-percent sales tax increase would not solve the city’s unfunded obligation.
“Based on this trajectory, that entire sales tax is going to be eaten up in a few years,” she said, referring to the PSPRS’s past investment-return record.
But Prescott City Councilman Steve Sischka, who attended the event, disputed the dire predictions. “That’s their opinion, but it’s hysteria as far as I’m concerned,” he said.
Specifically, Sischka, a supporter of the city’s Aug. 29 sales-tax ballot measure, disagreed with the CTC’s predictions that the additional sales tax revenue would not pay down the city’s $78 million in obligations. Over 10 years, he said, the sales tax is expected to raise at least $110 million.
Meanwhile, he said, a new tier of pension fixes that are set to go into effect for new police and fire hires starting July 1 would help the long-term viability of the system. “We haven’t even gotten to tier 3 yet,” he said.
An ‘$8.2 billion hole’
The CTC billed its Thursday night program as “PSPRS 101; straight talk on the pension system,” and three speakers – Hrin, former Prescott City Councilman Chris Kuknyo, and John Lamerson – spent nearly two hours outlining problems with the system, and answering questions from the audience.
The presentation attracted more than 125 people, including area residents, local officials, state representatives, and police officers and firefighters.
Hrin and Kuknyo started by outlining basic history of the PSPRS – from the system’s 1968 creation, though the 1998 voter proposition that protected the system’s benefits in the Arizona Constitution, to the current status of largescale unfunded obligations.
“You know what they’ve created?” Hrin asked. “An $8.2 billion hole in the state.” Of the entities participating in the system, she maintained, “112 are actually in critical condition.”
A number of factors led to the system’s financial problems, Hrin and Kuknyo said, including: under-performance of invested assets; the promise of PBI (permanent benefit increases) to retirees; and miscalculations in actuarials (the calculation of risks and premiums).
Hrin pointed out that PSPRS’s investments suffered huge losses during the tech downturn in the early 2000s, and then again during the recession of 2009 and 2010. Even during the recent “bull market,” she said, PSPRS has failed to reach its investment projections.
On the local level, Hrin said, the PSPRS’s problems have translated to a 1,375-percent increase in the City of Prescott’s unfunded liability in about 14 years.
Kuknyo stressed that Prescott is not the only local entity facing an unfunded liability. Yavapai County’s shortfall, for instance, totals about $43 million (including the Sheriff’s Office, corrections officers, dispatchers, and County Attorney investigators).
And on the state level, the Department of Public Safety has a $735 million shortfall, Kuknyo said, adding, “This problem is huge. No one solution is going to fix the problem.”
City of Prescott officials have maintained, however, that a local sales tax could only help – even as the community continues to push for a statewide fix.
‘Reacting to crisis’
Still, state Rep. Noel Campbell told the crowd that the legislature would not become motivated to take on the PSPRS problem again, while the local governments continue to pay their bills.
Last year’s Proposition 124 was intended to “stop the hemorrhaging and clean up the mess,” Campbell said. Now, with that effort behind it, “There is absolutely no desire in the legislature to touch this problem. They want no part of it.”
After the meeting, Campbell added, “The legislature reacts to crisis.” If several Arizona communities were to become financially distressed, he said, the legislature might be forced to take on the issue again.
No ‘bail out’
But Bryan Jeffries, president of the Professional Fire Fighters of Arizona, disputes the notion that local efforts to solve the problem would hurt a statewide effort.
“I think the idea that trying to raise revenues in some way, shape, or form won’t help is a false statement,” Jeffries said after the meeting, adding that he disagreed with Campbell’s claim that more communities need to be in distress before the legislature would take more action.
“The legislature gets it,” he said, pointing out that the state started its pension reform attempts in 2011 and continued in 2016. Now, he said, the state is “putting it back on the local communities.”
“This notion that the state’s going to come in and bail them out is false,” Jeffries added. “I just don’t believe that’s going to happen in any situation.”
Beginning after the legislative session, Campbell and fellow Rep. David Stringer will head up an Ad Hoc PSPRS Study Committee to look into the pension problems.