Council finalizes sales tax increase language
In an attempt to “get out of the weeds” of its public-safety pension shortfall, the City of Prescott will ask voters in August to approve paying 0.75-percent more in sales tax.
In a 6-1 vote Tuesday, Feb. 21, the Prescott City Council OK’d ballot language that seeks a sales tax increase that would run for 10 years, or until the city’s “unfunded liability” with the Public Safety Personnel Retirement System (PSPRS) reaches $1.5 million – whichever is earliest.
Currently, the city’s unfunded amount totals about $78.4 million, and officials say that shortfall is causing a drag on the city’s general fund – a situation that is expected to escalate in coming years if the liability is not paid down.
Still, Mayor Harry Oberg voiced concerns about the 10-year tax that would be dedicated exclusively to PSPRS. He led off the discussion by suggesting that the city should instead ask voters to approve a tax that would be dedicated to the police and fire departments, without the PSPRS restriction.
Noting that the police and fire departments have become understaffed because of the city’s budget issues, Oberg said, “We need to focus on supporting our police and fire.”
In addition, he questioned the proposed 10-year duration of the tax, maintaining that paying down the PSPRS liability could take much longer than that – perhaps as long as 15 to 18 years.
Illustrating his comments with past PSPRS investment returns that have failed to meet projections, Oberg said the city’s pension obligations could grow beyond the current level in coming years.
Ultimately, Oberg said he could not support a tax that falsely implies to voters that the liability might be paid off in 10 years or less, and he cast the sole vote against the ballot language.
But other council members maintained that setting an end point for the tax would be crucial to getting voters’ approval.
“People say if it doesn’t sunset, it is dead in the water,” Councilwoman Billie Orr said. And of Oberg’s proposal for a tax that would be dedicated to police and fire, she said the city first needs “to get out of the weeds” of the PSPRS liability.
Councilwoman Jean Wilcox added that the point of the tax was “to pay down (the PSPRS liability) to where it is manageable in the general fund,” and she maintained that the 0.75-percent “would get us there in 10 years.”
Budget and Finance Director Mark Woodfill estimated that the 0.75-percent sales tax increase would generate about $10.5 million per year, based on current city sales-tax collections.
City officials have emphasized that the PSPRS obligation would never be completely paid off, because pensions would continue to be paid for the employees who have retired. Woodfill estimated the annual cost of those pensions at about $1 million to $1.5 million.
In addition to that, however, the city has been required to pay millions more each year to cover the unfunded obligation, based on actuarial estimates of what the pensions will cost in the future. Woodfill said the city is currently about 31-percent funded on its PSPRS pensions.
Before the vote, the council heard from several members of the audience – some in favor of the 10-year tax, and others voicing concerns.
Former Yavapai County Supervisor Bill Feldmeier, for instance, urged the council to move forward with the measure. “You need to get it on the ballot,” he said, adding that the city had been “dealt a really bad poker hand,” and needed to play it out.
But local resident Ross Bausone agreed with Oberg that the 0.75-percent for 10 years would be inadequate to pay down the city’s liability. Rather, Bausone pushed for a state ballot measure for changing the Arizona Constitution’s clause that protects the PSPRS.
While the draft ballot language initially stated that the sales tax would sunset in 10 years, or after the city had reached 100-percent funding of its PSPRS obligations, council members suggested that referring to the amount of the unfunded liability would be more understandable. They changed the sunset trigger to $1.5 million or less in unfunded liability.
With the council’s vote this week, the measure will appear on the Prescott primary ballot on Aug. 29.