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Opinion: PSPRS Looms Over Many Arizona Cities
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03 July 2017   Mayor Harry Oberg

Mayor Oberg joins with 18 other mayors in Arizona to ask Governor Ducey for help. 

As the City of Prescott seeks to increase its ability to pay down the massive PSPRS liability that looms over our City, I have been reaching out to mayors in other jurisdictions, all of whom are greatly affected by PSPRS.  In June, I sent a letter to Governor Doug Ducey, requesting his support at the State Legislature for PSPRS reform.  The letter was signed by 18 mayors.   

Here is the full letter:

June 22, 2016 

Governor Doug Ducey
1700 W Washington Street
Phoenix, AZ 85007 

Subject: Request for Executive Support at the State Legislature for PSPRS Reform  

Dear Governor Ducey, 

I am writing to respectfully request your support to encourage the Legislature to adopt further reforms to the Public Safety Personnel Retirement System (PSPRS).  On its current trajectory, the System is an unsustainable burden to our hardworking taxpayers as well as an impediment to economic development.   

I have convened two Mayoral Summits where approximately 25 mayors, mostly from rural municipalities, met and discussed the growing PSPRS unfunded liability and the threat of impending insolvency many of our cities face without structural reform to the System.  The unanimous consensus among these mayors is that the Legislature must take further action to relieve the financial strain the municipalities face with their PSPRS unfunded liability.  They have asked me to write this letter, and have endorsed its content by asking that their names be included below by separate correspondence. 

As you are aware, the Legislature established PSPRS as a required, uniform retirement system for public safety personnel.  Over time, the Legislature increasingly granted even more lucrative benefits into the System when the pension plan was over 100% funded.  I understand that cities and towns were not consulted at any point on the determination or affordability of these benefits, yet were expected to fully fund them.  

While recent legislation has established a new pension category (Tier III) beginning 1 July, 2017, the unfunded liability of Tier I and Tier II members and their beneficiaries will continue for decades. The mayors attending these summit meetings believe the Legislature has no realization the crushing financial burden these pension costs have placed on their ability to provide adequate city services, including police and fire.  For example, Prescott’s pension payment consumes 20% of its general fund budget, in Bisbee it is 22%, in Paradise Valley it is 7%, and in Tucson it is 16.5%.  As you can see, the rural communities are more heavily impacted by their PSPRS burden. Even more alarming, the projected decrease in the Plan's expected rate of return and the ensuing increase in our annual required pension payments will continue to put significant upward pressure on our general fund budgets.  

While the municipalities are currently making their required payments to PSPRS, they are only doing so by greatly reducing staffing in all general fund municipal departments and severely cutting city services across the board, a condition known as “service insolvency”.  In many cases, cities are also raising taxes to stave off insolvency.  But this cannot last much longer.  Just as you are reluctant to raise taxes, so are the mayors who have attended these summit meetings. 

A press release by State House Speaker J.D. Mesnard earlier this spring indicates he is establishing a PSPRS Ad Hoc Committee to study the increasing pension liability issue and to educate members of the Legislature on the serious impact this is having on cities and towns.  We agree this is a first step in the right direction.  We also believe an additional aspect of this committee is to identify reasonable proposals for legislation to provide equitable and sustainable solutions for both the rank and file members and the taxpayer. 

We request your support in the following three areas: 

1. Install the 9th member of the PSPRS Board who is an acknowledged representative of the taxpayer and who will help empower the Board to take a proactive approach to preventing increases in the unfunded liabilities within Tier 3 as well as existing PSPRS members.

2.    Take an active role to support the PSPRS Legislative Ad Hoc Committee and influence the Legislative leadership to address the critical issues of PSPRS. 

3.   Request a review of the PSPRS administration and board is conducted to achieve implementation of greater accountability and cost reduction measures for both. 

Future solutions could include considering the establishment of a PSPRS cost sharing method between the state and municipalities which brings the individual entities’ unfunded liability to a manageable level, as well as supporting a legislative referendum to eliminate the pension clause from the state constitution.   

We greatly appreciate your leadership and support that led to the passage of legislation and the ensuing Proposition 124 in May of 2016, which made some strides in prospective resolution.  Now we ask you once again to lead the effort to address the unfunded liability we face.   

As such, we ask you to please consider attending our next Mayors’ Summit meeting scheduled for 21 July at 11:00 AM.  The meeting will be held in the Crystal Room of the Prescott Valley Public Library.  We believe a proactive approach is best for all our citizens and far surpasses the alternative of dealing with multiple municipal reorganizations. 

On behalf of all Arizonians, thank you in advance for your strong leadership on this issue.  

Sincerely,   

Harry B. Oberg, Mayor 

Mayor David Smith, Bisbee
Mayor Craig Swartwood, Payson 
Mayor Terry Nolan, Dewey-Humboldt 
Mayor William R. Diak, Page 
Mayor Bob Rivera, Thatcher    
Mayor Charles German, Camp Verde  
Mayor Jim Lane, Scottsdale       
Mayor Harvey Skoog, Prescott Valley 
Mayor Frederick W. Mueller, Sierra Vista
Mayor Darryl Croft, Chino Valley  
Mayor Toney D. King Sr., Benson        
Mayor Michael LeVault, Youngtown 
Mayor Craig Sanderson, Tusayan
Mayor Tim Elinski, Cottonwood 
Mayor Cecilia McCollough, Wellton
Mayor Coral Evans, Flagstaff  
Mayor Douglas Nicholls, Yuma 
Mayor Daryl Seymore, Show Low