PRESCOTT - Even as Prescott attempts to solve its public-safety pension quandary through a sales tax increase, city officials acknowledge that other financial options might become available in coming years.
With that in mind, the Prescott City Council agreed on Tuesday, May 5, to change the public-safety ballot measure that will go to voters in August to include the possibility of using Pension Obligation Bonds, along with the sales tax option.
On April 28, the City Council agreed to put a measure on the Aug. 25 primary ballot asking voters to raise the city's sales tax by 0.55 percent, with the revenue going toward Prescott's unfunded liabilities in its police and fire pensions.
City officials say the additional revenue is needed to ensure that obligations through the Public Safety Personnel Retirement System (PSPRS) will not overwhelm Prescott's general fund. Currently, they say, the city's "unfunded liabilities" total about $70 million, and - if not dealt with - would more than double to about $165 million in the next two decades.
Meanwhile, they say, the pension costs could continue to absorb larger percentages of the city's general fund, which also covers departments such as parks and recreation, the public library, and community development.
The 0.55-percent sales tax is slated to run for about 20 years, or until the city's obligations to its police and fire pensions are 100-percent funded.
City Manager Craig McConnell told the council this week that Pension Obligation Bonds currently are not authorized in Arizona, but that the state could authorize their use in the future.
If that were to happen, McConnell said, the amended ballot language would allow the city to use the Pension Obligation Bonds, "if that is financially beneficial."
On Wednesday, May 6, Prescott Budget and Finance Director Mark Woodfill explained that while other states allow the use of Pension Obligation Bonds, they currently do not exist in Arizona.
Therefore, he said, it would be premature to speculate on how the bonds might be structured in Arizona. He declined to comment on the possible revenue sources that would be used to pay back the bond debt.
An explanation of Pension Obligation Bonds (POBs) on the Arizona League of Cities and Towns' website describes the bonds as a tool - "a general obligation of the government," - which can be used to alleviate pressure on the government's cash position. Basically, governments bond (borrow money) against future tax revenue.
The details of how the bonds would work in Arizona would be determined by the State Legislature, Woodfill said.
The city would then evaluate the option to determine if it would be financially advantageous to Prescott. "We want to be able to take advantage of the option in the future," Woodfill said. "But we aren't going to pursue it unless it makes financial sense."
The possibility of Pension Obligation Bonds reportedly has come up in ongoing efforts toward reform of the PSPRS.
A Pension Reform Task Force has been working since June 2014 to come up with a plan for improving the PSPRS.
A partnership of the League of Arizona Cities and Towns, the Arizona City/County Management Association, and the Government Finance Officers Association of Arizona, the task force has been working to review the pension system - to "identify areas of improvement and, if necessary make recommendations to employers, the PSPRS board, and state lawmakers for reform," according to the League website.
Woodfill said the city has asked representatives from the pension task force to give a presentation on reform to the City Council. He expects that presentation to occur in late May.
Follow Cindy Barks on Twitter @Cindy_Barks. Reach her at 928-445-3333 ext. 2034, or 928-642-0951.