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Arizona voters may see pension-overhaul plan

PHOENIX (AP) — A major pension-overhaul proposal floated by police and fire unions could make it to the Arizona Legislature during a special session in the coming weeks and then be referred to voters in the November general election.

The proposal is designed to deal with a massive underfunding of the state’s pension program for public safety employees only. One of its goals is to avoid huge increases in contributions that employers must make to the Arizona Public Safety Personnel Retirement System.

That would lead to service cuts or tax increases by municipalities and county governments so severe that voters could revolt and throw out the entire state pension system.

Nothing is yet set in stone, and the proposal could still collapse.

Many key Arizona lawmakers have been briefed on the plan. A firefighters’ union official said the lawmakers generally support the proposal and backers plan to meet with Gov. Jan Brewer’s staff on Friday afternoon.

Brewer spokesman Andrew Wilder said Friday that governor is aware of the proposal and is not averse to the idea. But he said a special session would not be held at the same time as one planned to deal with a child-welfare overhaul, the governor’s key priority this year.

“We are in the very preliminary stage of dialogue regarding this issue,” Wilder said. “No decisions or commitments have been made.”

As proposed, police and fire department retirees statewide would give up cost-of-living increases for the first seven years of their retirement unless they were 60 years old and then see smaller increases than they now receive. They would also take responsibility for funding their own yearly pension increases by separating out money for that part of their pensions.

A similar proposal that would address shortfalls at the state pension system for corrections officers is close to action as well.

Part of the impetus for the overhaul is a ruling by the state Supreme Court in January that said the state Constitution prevents the Legislature from cutting pension benefits. That decision sidetracked a 2012 overhaul by the Legislature and put added pressure on the unions to propose changes before the system headed to insolvency or was eliminated by voters altogether.

Firefighters and police in Arizona generally receive no Social Security benefits, so major cuts to pensions could be devastating for retirees. Addressing the problem now makes more sense, said Mike Colletto, legislative director for the Professional Fire Fighters of Arizona.

“The firefighters and police officers realize that the way our pension was structured worked for a long time when the markets were returning a lot of money,” Colletto said. “But that’s not the case today.”

Talks on the proposal have been underway for weeks. While advocates of the proposal would like to have the Legislature deal with it during a special session held at the same time as one planned late this month to overhaul the state’s child welfare system, the governor’s office has firmly rejected that idea.

The proposal envisions a bill making the changes being enacted that would not take effect until the voters passed in November a constitutional amendment allowing the pension changes.

“I believe the unions recognize that there needs to be some concessions made, both economically to get these pensions on a better footing and politically because there’s clearly a lot of public uproar concerning some of the more outrageous abuses,” said Rep. John Kavanagh, R-Fountain Hills. “They may also want some sweeteners for their side, and that could be a little bit of a problem. But things seem to be proceeding smoothly, so it could happen.”

The state runs four pensions systems, although the plan for judges and elected officials was closed to new members last year because it was heavily underfunded.

The main Arizona State Retirement System for most line workers has enough money to pay about 75 percent of its expected pensions and would not be affected by the proposal. The plan, which is not part of the current proposal, has $30.6 billion in assets as of 2012, more than $9 billion short of liabilities, but it’s generally considered healthy. As of June 2013, it had about 207,000 current members and 122,000 retirees drawing pensions. Retirees have not had a cost-of-living increase since 1995.

The plan for public safety officers has funding for just 57 percent of its expected liabilities, with $6.2 billion in assets and $10.8 billion in liabilities, a balance considered very low. It uses a different formula for cost-of-living increases that requires the state to put any excess earnings into a fund for just that use and doles out automatic increases in most years.

The problem is that when the fund sees losses, as it did during the Great Recession, excess cash in flush years can’t make up the difference because it is sent to the cost-of-living-adjustment fund.

The state’s plan for prison guards is at 67 percent funding, with $1.6 billion in assets and $2.3 billion in liabilities.

Some lawmakers are leery of the proposal because of how it would change pension formulas.

“There’s some reluctance on my part to codify a pension formula in the state Constitution,” said Sen. Adam Driggs, R-Phoenix. “But what are the alternatives? That’s what we need to discuss.”

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