Calling it the “elephant in the room,” Prescott Mayor Harry Oberg said solving the City’s $81 million shortfall with the Public Safety Personnel Retirement System (PSPRS) is the foremost issue facing city government.
“It’s bigger than anyone had imagined it to be,” he said.
Currently, the Prescott City Council is analyzing various options to address sustainability of the PSPRS and payment of the multi-million-dollar-deficit obligation.
Oberg says local voters will be asked to consider a 0.75 sales tax increase at the polls on Aug. 29, the same day as the primary election for City Council and mayor.
Explaining that the PSPRS was established in 1968 by the Arizona legislature as a special retirement system for certain full-time certified police and fire department personnel, Oberg said the system was solvent until the interest return rates on investment began falling far behind what was required to pay pensions as more and more people retired.
“After 2000 – a critical year – actuarial analysis showed that return rates were consistently below the amount going out. Since then, return rates never kept up with the amount being distributed as pensions,” he explained.
In 2003, Prescott was able to pay 100 percent of its pension obligations. But in 2017, that payment is only at 31 percent. “It is likely to get worse,” said Oberg.
Town and city officials involved in the Arizona League of Cities and Towns have been working together to try to find solutions to the growing problem.
Stressing that Prescott was not unique in facing a shortfall, Oberg said dozens of leaders from throughout the state have been meeting with Arizona legislators to demonstrate that it will take state-level action to solve the funding issue.
Actions earlier taken by the Arizona legislature to allow new police and fire employees to opt into a pension system similar to a 401-K style plan have no impact on reducing the existing outstanding debt.
National Authority Stresses Complexity of Pension Issues
Leonard Gilmore, who consults with community leadership throughout the country, says the pension problem is a massive issue that needs major solutions nationally.
“What happened was that in the 1960s and early 70s, interest rates were high and investments yielded good returns. But when fiscal crises happened nationally and internationally, money did not generate interest. Yet, payments continued to go out. It’s like a major chemical spill. We simply have to put a cap on it,” Gilmore said.
He cited the major challenges that made solving the problem more difficult:
- Massive reductions in federal and state support, and increases in unfunded benefits;
- Skyrocketing employer costs;
- Legislative reforms, which have been struck down by the courts, or yet remain in litigation.
He also said that promises of pension reform did not reduce benefits or eliminate unfunded liabilities.
City Manager Suggests Options
Recently named Prescott City Manager Michael Lamar says solving the $81 million deficit is a tremendous challenge to the budget for the next several years.
Lamar suggests passing a sales tax increase and reducing city spending through alternative service delivery. For instance, he said some duties of firemen and police officers could be assigned to civilian employees not enrolled in the PSPRS.
He also mentioned selling or leasing city properties that have minimal use or are not needed for the regular functioning of city services or operations. Lamar said that likely would not involve a huge amount of money.
And, he suggests shifting some tasks to qualified volunteers such as the COPS (Citizens on Patrol) who assist with various city activities.
“We will be as creative as we can to shift what seems an unmanageable problem to one that is manageable,” he said. QCBN
By Ray Newton, QCBN
Photo caption:
#1-2 Pension Integrity Project Senior Managing Director Leonard Gilroy of the Los Angeles Reason Foundation and Prescott City Manager Michael Lamar presented detailed analysis last month of challenges the City of Prescott faces in resolving the $81 million deficit in the PSPRS pension shortfall.
Photo by Ray Newton