Lesko’s odyssey: State senator takes turbulent journey toward pension reform

Flanked by representatives of a broad coalition that include fire and police unions and the municipalities, Sen. Debbie Lesko, R-Peoria, unveiled a pension overhaul proposal at a Feb. 2 media briefing. (Photo by Luige del Puerto, Arizona Capitol Times)

In her quest to reform the state’s public safety pension system, Sen. Debbie Lesko has been credited with accomplishing a Herculean task.

Much like Hercules facing the Hydra, Lesko has charged into a fight that many though she could not win, facing a multi-headed monster that seemed unbeatable.

At the Capitol, everybody agrees that the Public Safety Personnel Retirement System, the state’s pension plan for fire, police and other emergency workers, is stuck in a messy crisis. Put simply, the system’s unfunded liability stands at roughly 48 percent, and at $6.6 billion (as of fiscal year 2015), it is threatening to send local governments into a fiscal tailspin.

Many had been agitating for a resolution for a several years. But fixing the problem has been like facing a hydra. It has multiple heads, several layers of complexity, and a chorus of discordant voices. That’s not even mentioning the ever-existent threat of litigation, which had already derailed one attempt at forcing a solution.

Senate President Andy Biggs, who has watched the problem grow through the years, tapped Lesko, a Republican from Peoria, to face the hydra.

“I thought, ‘Who in the Senate could I task with this job, which will be virtually impossible?’ It will draw the ire from every side, and will be extremely difficult to accomplish,” Biggs said. He was flanked by Lesko, several mayors and a host of public safety employees at a Feb. 2 press conference, where the pension reform legislation was publicly unveiled. “And I thought, ‘I’ll pick somebody who I like and trust,’ and that’s Debbie Lesko.”

The legislation is tantalizingly close to approval. The Senate OKd the reform package on Feb. 4 with unanimous, bipartisan support. On Feb. 11, the House approved it after some resistance, sending it back to the Senate to approve relatively minor changes in the House. Election officials advised lawmakers to approve it by the middle of February so it can be part of the May 17 special election ballot.

Forging the deal

In her eight years at the Capitol, Lesko has earned a reputation as a staunch conservative who isn’t afraid to negotiate or compromise with liberals to find middle ground on contentious issues. She has also shown propensity to take on some of the state’s biggest and most complex problems, and a rare ability to wrangle antagonistic stakeholders into negotiations, hammer out deals, and then forge the same type of consensus among her colleagues at the Capitol.

But it wasn’t enough for Lesko to simply take on the Herculean task. She wanted to forge a deal that could get unanimous support from lawmakers in both chambers.

“I told the governor months ago that my goal was to have a unanimous vote out of the Legislature on pension reform. And everybody thought I was absolutely crazy. They would just laugh and say, ‘I’d just settle for a majority,’” Lesko recalled.

Just as Hercules had help from his cousin Iolaus in slaying the mythical beast, Lesko had her own backup in her endeavor.

Lesko reached out to the Reason Foundation, a libertarian-leaning research group that has been working on pension reform. The move was aimed at assuaging concerns from her conservative colleagues that unions would get a sweetheart deal.

The group sent Pete Constant, the director of its Pension Integrity Project, to Arizona. He has since become the reform legislation’s go-to expert and explainer-in-chief.

Constant, based in California, is well-equipped to tackle the pension hydra. After all, he had seen it from multiple perspectives, having served as a councilman in California, a police officer, a retiree and pension board trustee, and a union leader.

During a break in his testimony in the House this month, Constant described how it became apparent that getting people on the same page wouldn’t be a cakewalk.

Some groups held a mutual distrust for each other and an atmosphere of “protectionism” initially pervaded the initial talks.

“The walls were obvious almost immediately,” he said. “When Reason Foundation was introduced, we were introduced as opponents to the unions… You could almost see and feel the silos around us.”

Complaints from local governments

The first meetings, which occurred in the early months of 2015, revolved around getting a handle on what exactly the problem is.

Ken Strobeck, executive director of the League of Arizona Cities and Towns, said his group had been hearing from city elected officials demanding action on the public safety pension system.

“Cities were having to pay ever-increasing amounts of money without any prospects of that turning around,” he said.

In response to the chorus of complaints from local governments, the league put together a Public Safety Personnel Retirement System task force, studied the issue and came up with a list of best practices for reforming the system, which they called their “yardstick” for measuring proposed reform plans.

The yardstick had five major points, all of which the league thought were essential, Strobeck said. But after a year of meetings with Lesko and various stakeholders, the proposed pension reform plan still didn’t quite measure up.

“The bill contains most of the principles that we felt were important in the yardstick,” he said. But the league also compromised on several key provisions, and at the end of the day, fully supported the package as a good, if not perfect, plan.

“That’s the nature of a compromise bill,” Strobeck said, adding that in order to make it work, all sides had to give up something.

Narrowing the options

Soon, the negotiators settled on an approach: Once the problem was defined, they surveyed the possible range of solutions, including the unpalatable ones.

Constant described the progression of the talks as a “funnel.” Possible solutions were laid out on the table and the groups, by a process of elimination, arrived at a narrower set of options.

What was eye-opening to some, he said, was learning that his group wasn’t out to slash pension benefits.

“And that’s kind of surprising to a lot of people,” he said. “Our goal was to preserve benefits and to create a sustainable system that provides those benefits.”

Constant said between phone conferences and in-person meetings, he alone – not counting his other colleagues at the Reason Foundation – met with stakeholders more than 150 times.

Initially, a larger group of people showed up at Lesko’s stakeholder meetings. But not everybody was invited back to be a part of the negotiations.

The Arizona Tax Research Association and the Goldwater Institute were early participants of the information briefings, but both eventually played no role in the talks that produced the final deal.

Both groups have openly criticized the final plan.

Kevin McCarthy, president of the Arizona Tax Research Association, said supporters’ savings assumptions are too generous, and questioned why the proposal would increase the pension costs for new hires under a new employee tier that’s being created.

Under the proposal, hires after July 1, 2017, have the option of choosing between a new defined contribution plan and a new defined benefit “hybrid” plan, depending on whether they’re also getting Social Security benefits.

“I don’t find any policy basis for it,” McCarthy said, referring to the “hybrid” plan.

One foot on the plank

At several junctures, stakeholders nearly walked out on negotiations.

Last July, as stakeholders were locked in the middle of negotiations, Brian Jeffries, president of the Professional Fire Fighters Association of Arizona, joked that his time as leader of the union might be coming to an end.

By that time, stakeholders had nailed down the broad strokes of what he was calling a “very, very good plan” to reform the pension system. But still, Jeffries felt that during negotiations, he had given all, and maybe a little more, than his membership would stand.

“To be perfectly honest, I am on the end of a plank, and I may only have one foot on the plank,” he said.

Jeffries said that a significant chunk of his membership feels that by negotiating with Republican lawmakers and the libertarian leaning think tank, the association had essentially sold them down the river. But the majority of the association’s membership understands that without reform, their pensions and the pensions of firefighters who came after them would be in jeopardy, he added.

Jeffries said the key to not being pushed off that plank was to ensure that his members knew what he was doing at every step of the process, “and what the downside would be of inaction.”

Close to the breaking point

Throughout the months, the negotiations progressed circuitously. All sides were, at one point or another, pushed, some close to the breaking point, and Constant sometimes found himself in the role of mediator.

There were times when people began to “drift away,” he said.

On at least one occasion, the labor unions had threatened to walk out. They had set deadlines that, if unmet, would force them to go to the ballot and go it all alone.

Constant said it helped that he could empathize with and see where each stakeholder was coming from. His broad experience allowed him to tailor his conversations, depending on his interlocutor’s background, and successfully mediate points of contentions.

He remembered one instance where he asked the unions to view a tricky issue as a contract negotiation, a process that’s quite familiar to union leaders.

“We all know that’s interest-based. Let’s not talk about the numbers,” he had told them, asking that they, instead, articulate the interests they’re striving for, while he would do the same.

“We found out the interests were the same, the very same,” he said, adding this approach eventually allowed the parties to look at proposed solutions through their combined filters of interests.

On another occasion, he found the League of Arizona Cities and Towns and the firefighters at each other’s throat.

Apparently, the firefighters had asked all the mayors to vote against a league resolution, upsetting the organization that represents municipalities.

He and others resorted to “shuttle diplomacy,” and talked to each side to figure out what the conflict exactly was, Constant said.

“We said, ‘My God, you guys are talking about the exact thing. You’re just using different terms,’” he said.

When an overwhelming majority of stakeholders agreed to a final deal and the Senate unanimously approved the legislation, Lesko still faced opposition from some Republican leaders in the House.

And the clock was ticking. Because the proposal required a constitutional amendment, lawmakers needed to approve it by Feb. 15 in order to give elections officials enough time to put it on the May special election ballot. A few key lawmakers in the House, including Appropriations Committee Chairman Justin Olson and Majority Whip David Livingston, pushed back against Lesko’s plan, before the full House approved the legislation.