(Derek Hall/DD)
District 6 Councilman Sal DiCiccio filed a ballot initiative requiring the city’s budget surplus to go toward paying out the debt in order try solving the city of Phoenix’s pension debt.
The measure would require that every dollar of Phoenix’s budget surplus above inflation, plus population growth, go toward paying down public safety pensions, the official statement said. It will require 20,000 valid signatures to reach the ballot.
The impact this will have on the city’s ability to pay for other services is unknown.
The city council voted last year to extend the amount of years it plans to pay down the estimated $3 billion it will take to pay for the retirement of the city’s police and firefighters. By extending this period, the city effectively adds more debt to its pension bill.
DiCiccio said he believes the difference will have to be picked up by taxpayers.
“They think you and your family are doing just fine and it is okay for you to be saddled with higher taxes rather than propose real solutions to solve the ever-growing pension debt problem,” DiCiccio said in his statement.
The amount of money paid into the pension fund was reduced, which allowed for increased spending on other things, but this created a growing fiscal cliff according to Diciccio’s Chief of Staff Sam Stone.
“It’s just like a credit card,” Stone said, “You can keep pushing your balance off and making the minimum payments, but eventually you reach a point where the credit card company says, ‘the bill is due,’ and you don’t have enough to pay, and that’s the problem we have. This is a chance for us to start addressing that before Phoenix falls off that cliff.”
The challenge with pension costs grew during the recession, as the investments that fund the public safety personnel pension declined in value, said city Budget and Research Department spokesman Matthew Heil.
“With that decline, cities had to make up the difference between investment balances and what’s required to pay pension costs in the future with larger pension payment,” Heil said.
Phoenix is using the option to extend the amount of years it plans to pay down the debt in order to ensure it can meet obligations for pensions and for services, Heil said.
Arizona has two retirement systems: the Arizona State Retirement System and the Public Safety Personnel Retirement System, or PSPRS. Though both are pensions, they have different benefit structures under state law which have had a big impact on the disparity of their funding levels.
“The dot-com crash and the Great Recession inflicted enormous damage to the PSPRS trust while unsustainable benefits, employee attrition and overturned pension reforms all but prevented recovery,” said PSPRS Communications Director Christian Palmer. “This has put a tremendous strain on many employers, including Phoenix, that wind up having to make some serious and difficult budgeting decisions.”
Arizona passed a number of pension reforms within the last five years, including Senate Bill 1428 and Proposition 124. Both measures cap cost of living increases for retirees, among other things.
“Last year, PSPRS made $1 billion because of past legal changes that allowed us to invest in all sorts of opportunities, not just stocks and bonds,” Palmer said. “Proposition 124 passed in 2016 and was also a game-changer in terms of delivering long-term sustainability to the pension and lower employer contribution rates. The hard part is that it is going to take some time to see the real benefit of the reforms.”
It is unclear how DiCiccio’s measure will fit in with the existing reforms.
Contact the reporter at hplotnik@asu.edu.
