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City pays down pension debt to $69M
Council attributes ‘unfunded liability’ drop to Prop 443; debt decreases by 16.2%

Prescott City Hall on Friday, Nov. 23, 2018. (Les Stukenberg/Courier)

Prescott City Hall on Friday, Nov. 23, 2018. (Les Stukenberg/Courier)

Prescott’s pension debt is finally on a downward trend.

After years of dramatic increases in the amount of “unfunded liability” that Prescott has with the Public Safety Personnel Retirement System (PSPRS), the city is now reporting a $17 million debt decrease.

The drop is being attributed to two main factors: The $11 million lump-sum payment that the city made to the PSPRS out of its reserve fund in September 2017; and the $6 million that was generated through the first six months of Prescott’s new 0.75 percent sales tax.

City officials received its latest funding levels from the PSPRS late last week and gave an update to the Prescott City Council at the start of the Tuesday, Dec. 18, voting session.

Budget and Finance Director Mark Woodfill told the council that the city’s unfunded PSPRS liability dropped from its previous level of $86.4 million to $69 million.

Overall, the pension decreased by $17.4 million, or about 16.2 percent. That brings the city’s funding level of its police and fire pension fund to 46.3 percent, compared to 30.1 percent in 2017.

IMPACTS OF PROP 443

Mayor Pro Tem Billie Orr credited the voters’ August 2017 approval of Proposition 443 — the ballot measure that asked for a 0.75 percent sales tax increase to pay down the city’s pension liability — with the reversal in the city’s debt trend.

The sales tax went into effect on Jan. 1, 2018, and since then, about $1 million a month has been generated through the tax and paid to the PSPRS debt.

Orr pointed out that the approval of Proposition 443 ultimately led the council to put $11 million of its unassigned reserve funds toward the debt.

At the time, a majority of council members supported the lump-sum payment as a way of showing the community that they were serious about paying down the PSPRS debt as soon as possible.

The latest PSPRS report covers the past fiscal year, which ended June 30. Sales tax revenues from the second half of 2018 will go toward next year’s PSPRS report.

Along with the sales tax revenue and the $11 million lump-sum payment, the city also put about $600,000 from the sale of Fire Station 7 and the Hotshot buggies toward the PSPRS debt — for a total additional payment of $17,604,625.

ANNUAL REQUIRED CONTRIBUTION

Overall, however, the city paid a total of $26.3 million to the PSPRS in the past fiscal year. Woodfill’s report shows that the city paid $1.9 million for the “normal cost” of pensions for police and fire retirees, as well as $6.8 million for its annual cost of the unfunded liability.

Altogether the city’s “annual required contribution” (ARC) to the PSPRS totaled $8.7 million. That is the amount the city would have been required to pay regardless of the additional revenue.

It was that rising (ARC) amount that led city officials to seek the additional revenue from Proposition 443. Leading up to the August 2017 vote, city officials emphasized that the annual payments to PSPRS were absorbing a larger and larger percentage of the city’s budget.

The 2018 debt drop comes a year after the PSPRS debt took an $8 million jump. On Dec. 19, 2017, the city reported that the debt stood at $86.4 million — up from the previous $78.5 million debt of 2016.

A number of factors reportedly contributed to that steep increase, including a change in actuarial mortality tables that more accurately reflected the current longer life expectancy of pension recipients.

In addition, the long-running Parker/Hall lawsuits were resolved in the courts that year — overturning aspects of the pension reform approved by the state in 2011, and requiring employers such as the City of Prescott to make reimbursements to pension recipients.

Based on the current revenue of about $1 million per month from the 0.75 percent sales tax, the city is poised to put about $12 million toward its unfunded PSPRS liability in the current fiscal year, in addition to its annual required contribution.

The impact of that additional payment on the city’s overall unfunded liability is expected to be released in December 2019.

The aim of Proposition 443 was to nearly pay off the city’s PSPRS debt. The ballot wording stated that the 0.75 percent sales tax would end the earlier of Dec. 31, 2027, or at such time as the city’s PSPRS unfunded liability is $1.5 million or less as determined by actuarial valuation.

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