City council proposed a balanced budget for the upcoming year at a policy meeting last week, despite last year’s prediction of a $35 million deficit. However, future challenges remain as public safety pension costs are projected to keep rising in the coming years.
In an effort to reduce spending, the mayor and city council eliminated 162 general fund positions, approved labor contracts that cut employee benefits and pay and reformed the City of Phoenix Employees Retirement System last Tuesday.
“The city council has exhibited a strong leadership over the last year to get us this good news,” said City Manager Ed Zuercher.
The elimination of the positions will save $20 million over the next two years, and the cut to employee benefits and pay will save an additional $26 million.
Councilman Daniel Valenzuela said the balanced budget was no accident; it came from working together and making difficult decisions.
“It’s not the easiest thing to sit here and ask nearly 14,000 employees to take a pay cut,” Valenzuela said. “A lot of this was done on the backs of our employees.”
The city council also put an end to pension spiking by city employees by implementing contracts that outlined new rules on calculating pension, saving $233 million over the next 20 years. The council also reformed the general fund pension costs for city employees by slowing down the rate of pension cost growth.
The balanced budget excludes any possible budget charges or revenue cuts to the city made by the state.
A possible threat to the budget is the pending appeal by the state legislature on the apartment rental tax. The appeal would prohibit cities from taxing renters on homes and apartments, which would affect the general fund by at least $18 million per year.
“We would have to find significant cuts to city services … it would have a devastating impact,” Mayor Greg Stanton said.
The next four years may see other shortfalls as well. Starting with fiscal year 2016-17, the city can face a potential deficit between $31 and $58 million.
Vice Mayor Jim Waring said even though the budget is balanced this year, now is not the time to be optimistic.
“A cautious look at the future might be more in order when we’re telling citizens what’s going on,” Waring said. “Because this is not a pretty picture.”
The possible deficit in the years to come is predominantly due to the growth of public safety pension costs, which is managed by the state. Public safety pension costs will increase by about $25 million in 2016-17 and jumps again by about $20 million in 2017-18.
“Public safety pension is a big obligation to the city and it’s one that we are committed to,” Zuercher said. “We’re on the very early stages on this so there have been proposals to reform the system.”
The projection of the next four years is not an official budget forecast, instead a tool to help plan for the future.
City of Phoenix Budget and Research Director Mario Paniagua said he recognizes that the future holds challenges, but planning ahead helps guide focus on problem areas.
Stanton said he owes a debt of gratitude to the people and employees of the city for the ability to present a balanced budget.
Contact the reporter at Sara.Vermilyea@asu.edu.
