Prop 124: Pension fix has broad support
PRESCOTT – Reportedly the “last piece of a comprehensive fix” for Arizona’s public-safety pension, Proposition 124 appears to have support from virtually every entity that would be affected by the changes.
Everyone from police and firefighter organizations, to the League of Arizona Cities and Towns, to the State Legislature, to Arizona Governor Doug Ducey, to the mayor of Prescott has voiced support for the constitutional-amendment issue that will be on the state’s special-election ballot May 17.
While the proposition generated 16 arguments in support in the state’s election publicity pamphlet, it generated no arguments of opposition.
David Leibowitz, spokesman for the Yes on 124 campaign, says the level of support extends well beyond leadership.
“We’ve heard from cops and firefighters all over the state asking what they can do to help make sure Yes on 124 wins,” Leibowitz said this past week. That includes knocking on doors, pounding signs, and writing to local newspapers, he said.
“The public safety organizations who have endorsed this measure represent more than 30,000 active and retired police officers and firefighters,” Leibowitz added. “There is absolutely broad support for Yes on 124 across Arizona’s public safety community.”
What it would do
If approved, Proposition 124 would allow for the replacement of the current guaranteed cost-of-living (COLA) increase of 4 percent with one based on the Consumer Price Index, with a cap of 2 percent.
An analysis of the proposition by the Arizona Legislative Council states: “The COLA would be based on the average annual percentage change in the metropolitan Phoenix-Mesa consumer price index, with the immediately preceding year as the base year for making the determination. The adjustment could not exceed 2 percent of the retired member’s or survivor’s base benefit each year.”
The analysis explains that the Arizona Constitution currently provides that the PSPRS benefits “shall not be diminished or impaired.”
Proposition 124 would amend that to create an exception to the current prohibition by allowing for the PSPRS adjustments contained in Senate Bill 1428 (legislation approved earlier this year).
Leibowitz describes Proposition 124 as “the last piece of a comprehensive fix to Arizona’s public safety retirement system.”
He added: “The entire package, negotiated by a bipartisan coalition that included everyone from public safety leaders to Gov. Ducey’s office, will save Arizona taxpayers more than $1.5 billion over the next 30 years while ensuring that we keep the promises made to police officers and firefighters – namely, that the men and women on the frontlines can retire with security and dignity.”
Prescott Mayor Harry Oberg, who was among the officials to testify before the State Legislature in support of Senate Bill 1428 earlier this year, said his support extends to the constitutional amendment as well.
“I definitely support it,” Oberg said of Proposition 124, noting that the existing system, which links COLA increases to PSPRS investment returns, does not allow the pension system to take advantage of years of good returns.
“In good years, with good returns, they didn’t save that money for when there were bad years,” Oberg said.
The proposal to peg the COLA increase to the consumer price index would make the program more solvent, Oberg maintained.
Although the change would help the system overall, Deputy City Manager Alison Zelms has noted its impacts on Prescott’s more than $70 million of unfunded PSPRS liabilities would be fairly minimal.
“The impact of Prop. 124 will be positive but not significant relative to the unfunded liability,” Zelms said this week.
She earlier pointed out that the measure would “increase the value of the investment for paying down the debt, vs. adding more benefits.”
While an August 2015 city effort to increase sales tax to cover Prescott’s unfunded liability failed with the voters, another citizen-driven initiative is underway this year. If successful, it would increase city sales tax by 0.6 percent, with the revenue going to pay down the unfunded liability, as well as to police and fire operations.
A recent report to the Prescott City Council by the Reason Foundation Pension Integrity Project explained that PSPRS had experienced “degrading solvency” over the past 12 years or so – from a funded ratio of 100 percent in 2003 to a 48-percent ratio in 2015.
During the same time period, the unfunded liability rose from zero to $6.6 billion, according the presentation.
The problems reportedly stemmed from a number of factors, including under-performing investment returns, and the existing pension-benefits mechanism that directs a portion of the investment returns toward paying out benefits.
Part of a larger fix
The vote on the constitutional amendment is just one component of a larger reform measure that the State Legislature approved early in this year’s session.
The Reason Foundation presentation explained that Senate Bill 1428 would create a tier of PSPRS for new hires after July 1, 2017.
While current retirees and PSPRS members would not be affected by the new tier, the presentation maintained that the reform would reduce “the city’s (and hence, taxpayers’) exposure to financial risk in the long run.”
It would reduce the normal cost associated with every new hire after July 1, 2017, by offering two new options: a defined contribution only plan; or a defined benefit hybrid plan.
“Each new hire after July 1, 2017 will cost less under SB1428 than without reform,” the Reason Foundation presentation stated, adding, “The faster the city replaces current employees with new hires after July 1, 2017, the faster the city will realize normal cost savings – and reduce its exposure to unfunded liability amortization payments.”
The state’s ballot publicity pamphlet includes more than a dozen arguments in favor of Proposition 124.
Bryan Jeffries, president of the Professional Fire Fighters of Arizona, for instance, maintains that the proposition would “take the pressure off over-burdened taxpayers and municipal budgets, while ensuring middle-class retirement of the men and women working on the frontlines of public safety.”
John Ortolano, president of the Arizona Fraternal Order of Police, added: “Supporting a ballot measure which asks men and women on the frontlines of public safety to accept even a penny less in retirement was a tough sell to our members.” But, he said, Arizona’s cities and towns are “in crisis when it comes to tax dollars and budgets. If we want to keep families safe, this crisis must be met head-on and solved. Proposition 124 is that solution.”
While Leibowitz acknowledges that “anyone with standing” could challenge Proposition 124 through litigation, he says the measure has been vetted by attorneys, constitutional and pension experts, and actuaries, who agree that it obeys stated and federal law.
“No one is winging it here,” Leibowitz said. “Prop 124 took years to craft, and it has been written with the law and with fairness to taxpayers and public safety in mind.”