Originally Published: April 29, 2015 6:02 a.m.
PRESCOTT - The debt that Prescott owes on its police and fire pensions will continue to grow, city officials say, and if left unaddressed, could ultimately cripple city operations.
To avoid that, the city has proposed a sales tax increase to cover the estimated $70 million in "unfunded liability" with the Public Safety Personnel Retirement System (PSPRS).
In 5-2 vote on Tuesday, April 28, the council agreed to put a 0.55-percent sales tax increase measure on the Aug. 25 primary ballot to cover the unfunded liability.
If successful, the revenue from the tax hike would go into effect on Jan. 1, 2016, and would go to pay down the unfunded liability over the next 16 to 20 years. It would end when the city's pension fund becomes 100-percent funded.
Prescott City Manager Craig McConnell led off this week's discussion by maintaining that doing nothing about the unfunded liabilities could have serious impacts on the city's future.
Within the next two decades, he said, the amount would grow to about $165 million, and would eat up more and more of the city's general-fund budget.
If nothing is done about the debt within the next year, McConnell said, the city would have to cut about $2 million from its budget - equaling the amount the city puts into its public library.
"If, in fact, we do not deal with this liability, it will be devastating, and it's real," McConnell said.
Not everyone in the room agreed, however.
Councilwoman Jean Wilcox maintained that the city has a responsibility to question the PSPRS's numbers.
"I'm just not buying it at all," Wilcox said after listening to McConnell's explanation. "Something is wrong up there at the state level. I am just not buying their numbers."
She added: "Here we are asking Prescott voters to approve a sales tax based on numbers we can't trust."
Instead of taking steps toward a sales tax increase, Wilcox suggested that the city should press the PSPRS for explanations about its management, and how the unfunded liabilities occurred - up to and including litigation.
She suggested postponing the matter at least until the city's general election in November.
Prescott Budget and Finance Director Mark Woodfill said a League of Arizona Cities and Towns group has been working to improve the numbers.
While allowing that the actuarials that the numbers are based upon are "full of assumptions," Woodfill said, "That doesn't mean there isn't an unfunded liability."
Members of the audience also pushed the city to ask more questions before pursuing the sales tax.
Retired Superior Court Judge Ralph Hess pushed for a shorter term for the tax increase.
"It's clear you're going to approve the sales tax," Hess said after listening to about an hour of discussion. "But instead of putting this on the ballot for 20 years, put it on for five years, or three years."
That way, he said, the city could pursue its questions with PSPRS while still having the money to pay down the unfunded debt.
City Attorney Jon Paladini pointed out, however, that any litigation that the city might pursue would take "years and years" to resolve.
Meanwhile, the city's debt would continue to grow, officials say.
While noting that there "is no doubt that there is a problem with the PSPRS management and system," Councilman Charlie Arnold maintained that the city should move now to ensure Prescott's future.
Councilman Chris Kuknyo added: "Are we willing to cut services while we fight this fight, hoping we win?"
Kuknyo ultimately joined Wilcox in voting against putting the issue on the ballot, because he said he would have preferred a shorter term. The city has estimated that the debt could be paid off in 16 years, but opted for a term of as long as 20 years.
The PSPRS tax will not be the only increase that voters decide in August. Earlier this month, the council voted to put another sales tax increase on the Aug. 25 ballot, asking voters to raise the street tax from 0.75 percent to a 1 percent, as of Jan. 1, 2016.
In addition, the council tabled a measure this week on a 0.08-percent increase for open space, postponing a decision until May.
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