Prescott’s pension debt is expected to drop to less than $60 million with the City Council’s decision this week to put $11 million in reserves toward the unfunded liability.
A majority of council members — in an effort to show the community that they are serious about paying down the city’s Public Safety Personnel Retirement System (PSPRS) debt as soon as possible — opted on Tuesday, Sept. 12, for making the lump-sum payment.
The $11 million will be in addition to the $15 million or so that the city also will pay this year through: required annual contributions to PSPRS; sales tax revenues; sale of properties; and a reimbursement required by a court ruling on a lawsuit over pension reforms.
Budget and Finance Director Mark Woodfill estimated that the multiple payments, including the $11 million, would bring Prescott’s unfunded liability from its current level of $78.5 million to $59.2 million.
The council had earlier allocated as much as $11 million of its “unassigned” reserve fund to be paid to the PSPRS, but postponed a final decision on the amount until after the primary vote on Proposition 443 — the ballot measure asking for a 0.75-percent sales tax increase to pay down the pension liability.
Voters approved the measure on Aug. 29, and a number of city council members and audience members maintained this week that the public now expected the council to follow through with the lump-sum payment.
Councilwoman Billie Orr, an advocate for Proposition 443, said she heard a consistent fear from the public during her numerous public appearances: “They’re concerned we’re not going to do the right thing with the money,” she said.
Councilman Steve Sischka, who also advocated for Proposition 443, said he heard the message loud and clear as well. “When the people voted for this, they expected us to pay this down as soon as possible,” he said, adding that the $11 million payment was the council’s chance “to show the public that we are not just a little serious about this, but we’re very serious about this.”
Councilman Greg Lazzell, who announced last week that he was withdrawing from the race for another term on the council, added that he had referred to the $11 million payment while he was advocating for Proposition 443 to the public. “This is going to be my legacy, and I don’t want to go out on a broken promise,” he said.
Sherrie Hanna, co-chair of the Stand for Prescott – Yes on 443 committee, agreed that voters appeared to favor the $11 million payment. “People were OK with it, because it had been put in the budget,” she told the council.
Still, Mayor Harry Oberg and Councilwoman Jean Wilcox both argued for taking a more cautious approach.
“I think it’s premature to dump $11 million into PSPRS right now,” Wilcox said. Instead, she urged the council to hire an independent financial advisor to help the city come up with a measured plan for paying down the pension debt.
“We could have a major recession next year, and we could lose it all,” she said, referring to the possibility of investment losses by PSPRS.
Oberg also stressed possible losses by PSPRS, pointing out that the pension fund had not fared well in the two major economic downturns in the 2000s. “In each of those, PSPRS lost a billion dollars,” he said.
Rather than putting the entire $11 million toward the PSPRS debt, Oberg said, “I would have no problem with $5 million right now.”
Woodfill noted that even with the $11 million payment, the city would still have a healthy amount in its reserves.
Using guidelines from the Government Finance Officers Association, Woodfill said cities are recommended to have a minimum of 60 days of operating expenditures in their general fund reserves.
Under council policy, Prescott keeps 20 percent of its operating revenue, totaling $7.3 million. In addition, the city has $15.6 million in its “unassigned” reserve fund, which it has used in the past for capital projects.
“If the council approves the $11 million additional payment to PSPRS, there would be $11.9 million of operating reserves remaining ($7.3 million operating reserve policy and $4.6 million unassigned fund balance), which provides for 119 days of reserves,” stated Woodfill’s presentation to the council.
Along with the $11 million amount, the city’s payments to PSPRS for the current fiscal year include: $7.8 million that the city is required to pay for its annual contribution ($1.3 million for normal pension costs, and $6.4 million for the amortized unfunded liability); $6 million that is expected to be raised through the first six months of Proposition 443; $579,626 from the sale of Fire Station 7 and adjoining property; $25,000 from the sale of the Granite Mountain Hotshot buggies; and $1.2 million in reimbursements required by a recent ruling on the Parker/Hall lawsuit challenging pension reform.
Woodfill said the city has already paid the $579,626 from the property sale, as well as about $1 million of the Parker/Hall reimbursements (excluding interest).
While the city expects to receive its updated unfunded-liability amount from PSPRS in November, Woodfill said the recent payments would not be reflected in this year’s amount. But in future years, he said, the lower liability will result in lower Annual Required Contributions from the city.