Residents, council split on tax to resolve city’s debt
PRESCOTT – In one scenario, the Prescott City Council was advised to leave the “gaping wound” of the public-safety pension system up to the State Legislature to fix.
And in another, a local resident urged the city to “staunch the bleeding” itself, because the state could not be counted on to fix the problem.
Views clashed, and language took a graphic turn on Tuesday, Jan. 10, during the council’s latest discussion on the tens of millions of dollars in “unfunded liability” that Prescott faces in the Public Safety Personnel Retirement System (PSPRS).
At issue is the growing deficit in the amount that the PSPRS expects the city will need in coming years to cover pensions for police officers and firefighters. In the wake of a recent court ruling, Prescott’s unfunded number grew from the previous $72 million gap to an estimate of an $81 million.
Meanwhile, the annual amount that the city is required to pay to the PSPRS is growing as well. Officials say Prescott faces a $6.3 million payment in the next fiscal year just to service the unfunded liability – up $1.2 million from this year’s payment.
That rising obligation was the cause of last year’s $1.1 million in budget cuts, which affected several city services, including the public library, parks and recreation, and police and fire.
Central to Tuesday’s discussion was whether the city should take a sales tax-increase measure to the voters, and if so, when that question should go on the ballot.
Two main options were on the table: Asking voters to approve a 0.75-percent sales tax, with the total revenue dedicated to paying off the PSPRS liability; or combining the 0.75-percent sales tax increase with an elimination of the city’s portion of property tax, which raises about $1.6 million per year.
Either way, officials say the sales tax revenue would pay off the liability in 10 years or less.
Council and audience members were split on the questions, however, with some saying the pension problem stems from state actions, so the state should solve the issue, and others maintaining that the city must step up to find a new revenue source – in part to mitigate the impacts to its budget.
Former City Councilman Chris Kuknyo, who now serves as vice president of the Citizens Tax Committee, said that while the organization has no formal position on the issue, “We do think the state needs to solve the big-picture problem before we even consider taxation. We need to close the gaping wound first; then we can start physical rehab.”
Mayor Harry Oberg also voiced concerns about moving forward with a city sales tax now – especially before the Legislature has time to take further action on the PSPRS issue in the current legislative session.
Noting that the PSPRS has failed to meet its projected investment returns for years, Oberg questioned the management of the system. “Even though the (stock) market has gone up significantly, our liabilities are still going up significantly,” he said, “The problem is the system, and the system needs to be changed.”
But local resident Daniel Mattson urged the council to take action now, rather than wait for the state. “To build on (Kuknyo’s) analogy, we better start to staunch the bleeding while we wait for (the wound) to get closed,” Mattson said, maintaining that Prescott is “sinking” because of the ongoing pension debt.
Councilwoman Billie Orr, who serves on the council committee that provided the sales tax options, also pushed for taking action as soon as possible.
“The state is not going to pay this debt,” Orr said. “The debt belongs to Prescott. Maybe – with due respect to the mayor – it isn’t our doing, but it’s our debt.”
More than a dozen residents spoke on the matter, offering a variety of views on the issue.
The council also faced a question on timing – whether to take the matter to the voters in a special election in May, or in the regular city primary in August.
At the end of the discussion, Oberg instructed the city’s Strategic Plan Committee to meet again soon to consider the feedback from the council and the public.
Councilwoman Jean Wilcox, who chairs the committee, said the three-member group would schedule another meeting as soon as possible.