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Sat, Dec. 07

Prescott Council debate arises over amount going to pay down pension debt

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

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

Prescott is on track to pay down its multi-million-dollar pension debt within the next seven years by applying the revenue from the 0.75% special sales tax that voters approved in 2017.

That was the word from Budget and Finance Director Mark Woodfill this week during a budget workshop with the Prescott City Council.

In the budget being proposed for the coming 2020 fiscal year, nearly $13 million in revenue generated by the dedicated city sales tax would go toward paying down Prescott’s $69 million “unfunded liability” with the Public Safety Personnel Retirement System (PSPRS).

That payment would be in addition to the $7.3 million of “annual required contribution” (ARC) that the city must pay each year to cover normal pension costs, along with the unfunded-liability portion.

In all, the city proposes paying $20.1 million to the PSPRS in the coming fiscal year.

‘END POINT FASTER’

But at least one City Council member would like to see the city devote even more of its budget toward the PSPRS debt in an effort to pay down the unfunded liability sooner.

Councilman Phil Goode pushed for paying about $1 million more from the city’s general fund this year, and maintaining a similar payment in coming years as well.

Goode’s argument centers on the amount of ARC that the city proposes paying to the PSPRS out of its general fund (separate from the 0.75% sales tax revenue).

“I think we need to maintain our unfunded liability payment in addition to the tax revenue,” Goode said this week. He pushed for keeping the unfunded liability portion at the level it was before the city began using sales tax to pay down the debt.

That way, Goode said, “We would get to our end point faster.”

The “end point” is the level referred to in 2017’s Proposition 443 ballot issue, which stated that the 0.75% sales tax would end either in 10 years (on Dec. 31, 2027), “or at such time as the city’s PSPRS unfunded liability is $1.5 million or less.”

By continuing to pay the unfunded liability amount from before the impact from the sales tax payments, Goode said the Proposition 443 tax could go away sooner.

“Our policy has to be we get this paid down as soon as possible,” he said.

CITY COUNCIL POLICY

Woodfill explained that by current council policy, the ARC must be paid out of the city’s general fund — in addition to the total amount of revenue that is raised each year from the sales tax.

At issue for Goode is the fact that the ARC likely will drop regularly as the city pays down its unfunded liability.

For the coming fiscal year, for instance, the amount of the ARC is expected to drop by nearly $1 million — from about $8.3 million in fiscal-year 2019 to $7.3 million in fiscal-year 2020.

That reduction is based on the drop in the city’s PSPRS debt in the past year — from a high of $86.4 million last year to $69 million this year. As the city increases the “funding level” of its pension account, the PSPRS’s annual required contribution goes down.

Other council members appeared to agree with the current policy.

“Are we paying the ARC?” asked Mayor Pro Tem Billie Orr. Woodfill responded, “Yes, we are paying the ARC per the policy.”

“And that’s what we said we would do when we passed 443,” Orr said.

Mayor Greg Mengarelli also voiced support for the current policy, noting, “Fundamentally, I’m for using the general fund to pay the ARC as it comes to us year after year. The ARC is going to drop year to year. I’m OK with that.”

Several city officials pointed out that the rationale for Proposition 443 was to pay down the PSPRS debt while maintaining the level of city services.

“Let’s not forget we have other obligations to this community besides PSPRS, and one of them happens to be the airport,” said Councilman Steve Blair, referring to the new airport terminal project, for which the city is proposing an allocation of $3.7 million in the coming fiscal year.

Added Blair: “I’m happy with the way it is. We’re doing exactly what we told our constituents we’d do.”

Based on Woodfill’s calculations, the city should have the PSPRS paid down to the $1.5 million unfunded-liability level by December 2025 — about two years before the required sunset of the sales tax in 2027.

No vote was taken on the budget this week. The budget will be on a voting-session agenda on June 11, when the council members will consider tentative adoption of the 2020 budget.

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