BY LINDA BENTLEY | SEPTEMBER 11, 2013
Initiative addresses underfunded government pension problem
In 2010, the Goldwater Institute published a report uncovering Arizona’s $50 billion unfunded pension liabilities
PHOENIX – Last week, Phoenix resident Roy Miller filed an application to have the “Responsible Budgets Act” placed on the November 2014 ballot as a citizen’s initiative. The treasurer of the initiative’s political action committee is Cave Creek resident James Moorer.
The narrative on the Arizona Secretary of State’s website states, “Arizona's government retirement pensions are billions of dollars underfunded, leaving taxpayers with liabilities that could cause a severe financial crisis. The Responsible Budgets initiative ensures annual public disclosure of government retirement pensions funding, so the politicians cannot hide the pension debt, limits government growth to inflation plus population growth, until the government pensions are adequately funded, and ends pensions for politicians, as a first step to find the savings needed to fix the government pension problem. The Responsible Budgets initiative will ensure Arizona addresses its pension problem before we face a Detroit-style financial crisis.”
The initiative seeks to amend Title 38 – Public Officers and Employees by adding Article 2 to Chapter 1 with four new sections.
Miller proposes A.R.S. § 38-111 as the Preamble to the Responsible Budgets Act “in order to ensure that governments at all levels in Arizona abide by existing constitutional requirements for balanced budgets, offer full public transparency, pay for obligations already incurred before increasing spending, and to ensure adequate funding of retirement pensions and healthcare benefits, the Responsible Budgets Act shall be enacted as law in Arizona.”
In February 2010, the Pew Center issued a report warning of a $1 trillion funding gap for state retirement systems.
In 2010, the Goldwater Institute published a report uncovering Arizona’s $50 billion unfunded pension liabilities.
Recommendations made years ago to help lower the funding deficit included making elected officials pay more for their pensions, restrict double-dipping and eliminate pension spiking, cost of living allowances and pensions for those convicted of felonies while performing their duties.
In 2011, Arizona was $13 billion short of the $48 billion needed to cover its total pension obligation, up from the $12 billion it came up short in 2010.
From 2007 to 2011, Arizona’s public pensions have declined from a funded ratio of 82.8 percent to 75 percent.
Figures for 2012 indicate Arizona’s deficit has grown to $18.4 billion, placing the state system at a ratio of 69 percent, public safety system at 49.2 percent, corrections officers system at 57.7 percent and elected officials system at 48.7 percent.
Funding ratios of 80 percent or higher are considered healthy while funding ratios between 70-79 percent are considered fair. Funding ratios below 70 percent are considered poor.
Meanwhile, Phoenix City Councilman Sal DiCiccio and other council members have been pressuring Mayor Greg Stanton for more than 600 days to bring the elimination of pension spiking to a public vote.
The practice, which has been ruled illegal by a Maricopa County Superior Court judge, still occurs in Phoenix among public-safety employees, whereas they pad their pay by cashing out unused sick and vacation time just prior to retiring, thus “spiking” the amount of their retirement benefits.
The mayor has finally agreed to form an ad hoc committee to review pension spiking and deliver a report to council by Oct. 4 with a public meeting scheduled for Oct. 22.
The committee will be tasked with three things: 1) Identify current practices that qualify as pension spiking; 2) Identify changes that can be made administratively and which reforms require different fixes; and 3) Create a timeline for implementation.
Additional pressure came last month from the Goldwater Institute, which filed a lawsuit against the city of Phoenix to halt the illegal practice of pension spiking.
Pension spiking, a popular practice among public safety employees, has allowed some police and firefighters to become millionaires upon retirement, while allowing several others to increase their lump sum distributions by more than $700,000.
Public safety retirement costs have increased from $7.2 million in 2003 to $129 million for fiscal year 2014, with a growing deficit created by both investment losses and pension spiking.
The lawsuit asserts the city is allowing public safety employees to illegally pad their salaries with payments for sick leave, vacation, unused time off and other benefits, including uniform allowances, just prior to retirement to boost the amount on which their pension benefits are calculated.
The union and city officials contend the practice is a negotiated benefit, despite state law which specifically states “unused sick leave, payment in lieu of vacation, payment for unused compensatory time or payment for any fringe benefits” is not to be included for the computation of retirement benefits.
Although Stanton and city council members asked former City Manager David Cavazos to put an end to the pension-spiking practice in July, it remains in place to fulfill the city’s labor contract that runs through next year.
Miller’s initiative seeks to limit government budget growth until there is adequate funding to ensure it can pay its financial obligations already incurred before increasing spending, beginning with the fiscal year starting July 1, 2015, limiting growth of any political subdivision that participates in a public pension and retirement system general budget that has not adequately funded its obligations to inflation and population growth until adequate funding is achieved.
Miller included a provision for a one-year waiver in the event of a natural disaster or other emergency, whereas an entity may petition the governor for a waiver under such circumstances.
The initiative also seeks to put an end to taxpayer-funded retirement pensions and healthcare benefits for elected officials, including all officials elected by ballot but excluding those subject to a retention vote (judges).
Miller needs to collect a minimum of 172,809 valid signatures by July 3, 2014 to place the initiative on the November 2014 ballot.