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Legislative inaction could lead to bankruptcy for small cities

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The Public Safety Personnel Retirement System (PSPRS) is on track to bankrupt Bisbee and Prescott and adversely affect larger cities. Obligatory payments to PSPRS have drained money from cities’ budgets resulting in reductions in basic services such as police and fire protection, garbage collection, and wastewater treatment.

The Arizona legislature bears responsibility for lack of oversight and failure to respond to the problems of the historically mismanaged fund. If continued, Arizona taxpayers could be liable for the huge pension debt.

Fred Miller

Fred Miller

The fund provides pensions for about 59,000 retirees of three groups; police/fire, corrections, and elected officials. It is governed through a cumbersome process of 250 employee groups each with its’ own board.

Just as an example, Bisbee is paying 134 percent of a police officer’s salary in pension costs, according to plan records. For this year about 18.5 percent ($1,435,426) of Bisbee’s general fund budget of $7.7 million goes to PSPRS payments. PSPRS takes 28.3 percent of the total police department budget and 31.1 percent of the fire department budget. The city has millions in liabilities but only about one million in assets on the books.

It is untenable.

Cities have attempted to deal with the legislative dereliction by inadequate bandage solutions: paying lump sums to reduce liability, increasing sales taxes, and extending their payments to 30 years.

What is needed is true reform that protects existing public safety retirees while lifting the obligation on cities.

While it may have made some sense historically, there is no current reason for differing pension funds for public employees; it is duplicative, expensive, and unstable.

Here is a relatively simple fix for the pension problem: Only one pension system for all government employees and new hires. Protect PSPRS by allowing it to wither away but paid for by a dedicated funding source.

All new government hires, as of Jan 1, 2020, would begin paying into the well managed Arizona State Retirement System (ASRS). All current public employees now paying into PSPRS would be shifted into ASRS. Tiered employee categories would be devised to compensate for new and differing jobs.

This would also have a huge impact on ASRS by bringing in new money just as many older employees are retiring. ASRS would remain solvent and likely thrive.

Meanwhile the PSPRS would be allowed to gradually expire, reducing the overhead needed to manage the fund. The current pension obligation would be funded by an increase in the gas tax preferably, or another stable funding source such as rental car tax, auto registration, sales tax exclusively dedicated for PSPRS. Actuaries would figure out how much of a gas tax increase would be needed to pay existing pensions. The gas tax would decrease as pensioners expire, thereby decreasing the fund obligations.

The many well-documented historical failures of the PSPRS board; risky stock choices, illegal staff raises in 2014, millions paid in attorneys fees, outrageous bonuses amidst pension losses, and more, necessitates that the fund should be managed by a different and independent board. The current board has done far too little and it is much too late to rectify fund problems.

This proposal would raise alarms from the police and fire unions as well as the other vested interests (Surprise! Elected officials i.e. the legislature are in the fund). But they have had their opportunity; their poor results have been devastating for smaller cities.  The only reasonable course is drastic reform that protects pensioners as well as taxpayers and cities.

Fred Miller is the owner of Copper City Inn in Bisbee.

2 comments

  1. Great great “issue”
    Thank you
    Saramae teich

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