Prescott Councilman to PSPRS: ‘We don’t trust you’
Pension presentation turns into forum for local complaints
The message from Prescott City Council members to top officials of the state’s public-safety pension system was succinct and sometimes angry this week.
“We don’t trust you; you haven’t earned our trust,” Councilman Jim Lamerson told Public Safety Personnel Retirement System (PSPRS) Chair Will Buividas and Trustee Scott McCarty during a Tuesday, Aug. 13, update from the PSPRS Board.
Other council members offered similar frustrations.
Over and over again during a nearly two-hour exchange with the PSPRS officials, council members maintained that while Prescott taxpayers were doing their part to deal with the local pension debt, actions by the PSPRS were hurting those efforts.
“We took this on,” Mayor Pro Tem Billie Orr said, referring to the 0.75% sales tax increase that Prescott voters approved in 2017 to help pay down the city’s millions in pension debt.
But, she said, “You guys are not performing. I’m so frustrated to sit here and listen.”
Specifically, Orr pointed to Buividas’ presentation on possible future actions by the PSPRS Board to help deal with the $8.8 billion system-wide debt.
Among the possibilities is adoption of new mortality tables, which PSPRS officials say would more accurately reflect reality by adding one or two years to the life expectancy of firefighters and police officers.
Buividas said after the meeting that the actuarial change would likely add 1% to 1.25% to the employee contribution rates for PSPRS members. Ultimately, he said such a move would add to the unfunded liability total of Prescott (as well as other PSPRS members), although he said the projected increase was not yet available.
Another change under consideration would reduce the “interest rate assumption” on the amount of the projected investment returns. For every 1/10 of one percent reduction, Buividas said a 1.25 percent increase in the employee contribution rate would be expected, along with the accompanying increase in unfunded liability.
Mayor Greg Mengarelli questioned the PSPRS officials about the rate of investment returns, pointing out that the system has consistently performed below its assumed earning rate of 7.3%.
That performance, in turn, hurts the city’s chances of paying down its own unfunded liability within the expected 2025 timeframe, Mengarelli said.
PENSION DEBT TOTALS
Currently, Prescott’s unfunded liability stands at about $69 million – down from $86.4 million the previous year. The reduction is due, in part, to the revenue from the 0.75% sales tax (Proposition 443).
Prescott Budget and Finance Director Mark Woodfill has estimated that the city should have its PSPRS debt paid down to within $1.5 million or less by December 2025, which would be two years earlier than the city projected during its lead-up to the Proposition 443 election.
The Proposition 443 ballot wording stated that the 0.75% sales tax would end either in 10 years (on Dec. 31, 2027), “or at such time as the city’s PSPRS unfunded liability is at $1.5 million or less.”
If the PSPRS performance were to cause the city to be unable to pay off the pension debt within the 10-year timeframe, Mengarelli said, “Quite literally, we’ll have a revolt up here.”
Buividas and McCarty stressed that the PSPRS Board has taken a number of recent steps to improve the system. Among them: termination of the former administrator; hiring of a new actuary firm and legal counsel; approval of new asset allocation; and mostly new board members.
“We have a brand new board,” Buividas said. “We did not get in this problem overnight. The makeup of the board is a lot different than it has been in the past.”
McCarty commended the city for taking on its pension debt by approving the 0.75% sales tax increase. He referred to the move as a “tool” that other municipalities in similar unfunded-liability situations should take as well.
“We have a tremendous amount of respect for that tool that you created,” McCarty told the council.
Mengarelli maintained, however, that the sales tax increase was a financial necessity for the city, rather than a tool.
“I supported (Proposition) 443 because I thought we were going to go off a cliff financially,” he said. “You call it a tool, but I see it as a parachute.”
City Manager Michael Lamar said the PSPRS trustees should be urging other communities in similar pension-debt situations to also come up with a new source of revenue. He maintained that without putting additional money (beyond the Annual Required Contribution), communities will never get their PSPRS debt paid off.
After the meeting, Buividas said a number of system changes are “on the table right now,” and the details will be discussed during an Aug. 28 PSPRS Board meeting. Decisions are expected to be made by about October, he said.
The PSPRS should be telling other members: “You have your own debt because nobody’s going to fix it for you,” Lamar said.
In conclusion, Mengarelli told the PSPRS officials: “I think you got a pretty good flavor of where Prescott’s at right now. The trust levels are pretty low.”