Library or Roundabout? The Daily Courier applied this heading to a recent letter to the editor regarding City finances. While the highway project at the Phippen Museum has been removed from the budget for the upcoming year, given the comments prompted by the question, an explanation of City fund types, permitted uses, and restrictions, will help clarify the implied competition for funding.
Except for the General Fund, which pays for police, fire, recreation, and library services, all other City revenues are restricted by purpose. For instance, water, sewer, golf course, and airport charges can only be used to provide services directly related to the rates and fees paid. Further, revenue from the 1 percent streets and open space sales tax cannot be used for the library, public safety pensions, parks, or the operation of general government. These restrictions pose fundamental challenges to preparing and communicating the annual City budget-not all revenue can be used for all expenses, and depending upon the financial health of each fund, cuts may have to be made in one fund but not another.
City finances have been explored in detail in numerous presentations dating from 2011. The major themes have not changed: the Arizona Legislature has whittled away at General Fund revenues municipalities use to provide services, leaving only two major sources for Prescott-City sales tax, and money returned from the income and other state taxes we pay. City primary property tax only provides 5% of General Fund revenue, and minimal increases are allowed per state law. More than 80% of the collections of tax on property in the City go to the Prescott Unified School District, Yavapai College, and Yavapai County.
On the expenditure side, Public Safety Personnel Retirement System (PSPRS) costs have skyrocketed, leaving the finances of many municipalities in precarious conditions. While this pension dilemma is not of the City's making, realistically, the state is not going to bail out all of the counties, cities, towns and fire districts whose unfunded PSPRS obligations now total $6.2 billion statewide. In recent years, the financial health of PSPRS has deteriorated to the point where current assets are now only 50% of liabilities (future pension payouts to members). Regardless of state-level reform, likely applicable only to future hires, the hard truth is that Prescott will have to pay its $70 million unfunded PSPRS obligations, and the longer it takes, the more it will cost. A sales tax increment of 0.55% on the August 25th election ballot is being directed to that specific purpose.
Questions have been raised regarding the service cuts that will be necessary in the event a supplemental revenue source is not found to address the pension obligations. If the 0.55% sales tax on the ballot does not pass, $1.8 million of General Fund expenditures will have to be cut during the next two years to keep up with pension payments to PSPRS, followed by steeper cuts thereafter-this means from police, fire, library, recreation, and general government. To put this in perspective, annual City funding for the library is $1.8 million. At no time has a proposal been made, however, that the entire amount of cuts should come from the library budget.
Many cities and towns have been forced to cut services because of increased public safety pension costs. Because most benefits are protected by law and the plans are controlled by the state, there are few options. The City of Prescott is united with the League of Arizona Cities and Towns task force in seeking major changes to the financially troubled retirement system. The 91-member League is proposing a new statewide retirement system for public safety employees hired after July 1, 2016.
For each county, city, town, and fire district with employees in PSPRS, resolution of the pension dilemma will require two things: the money to meet pension obligations, and reform at the state level to preclude a reoccurrence of the problem. Prescott voters will choose the course for addressing it locally on August 25th. Whatever the outcome of the 0.55% ballot measure, a public dialogue will be necessary to align the City budget with the election result, now and for the years to come.
For more information on the City Budget, August 25th ballot measures, and a diagram summarizing fund types and restrictions, click on the "Budget Fiscal Year 2016" and "2015 Election Information" spotlights on the City of Prescott homepage at www.prescott-az.gov.
Catherine Sebold is Communications and Public Affairs Manager for the City of Prescott.