During the past fiscal year, municipalities in the East Valley took advantage of unexpected increases in general fund revenues to make large additional payments on their pension debt earned by thousands of retired police and firefighters.
But Tempe, Mesa, Gilbert, Chandler and Scottsdale still have a long way to go before they wipe out their huge unfunded liabilities.
These five municipalities still owe a total of $1.4 billion for pensions covering 955 retired firefighters, 1,471 retired cops and hundreds of other firefighters and officers covered by the security personnel pension system. public of Arizona, according to the records.
But that combined debt pales in comparison to the $3.4 billion the city of Phoenix owes — which is almost half of the $8.84 billion in unfunded pension system liabilities that existed at the end of the 2021-22 fiscal year on June 30.
For the entire system, including the pension plans for county and state corrections officers and the plan for judges and elected officials, that figure was $10.9 billion.
Still, the state legislature — along with the county, municipalities, and fire districts — eliminated $2.85 billion in unfunded pension debt in the previous fiscal year.
“I think it’s great,” said PSPRS Administrator Mike Townsend, who has served since November 2019.
“This system has been underfunded for so long and these lingering unfunded liabilities have ended up costing taxpayers more and more money over time,” he said, calling the extra reimbursements from employers the government of “huge movement”.
“I also think it speaks well of the staff we’ve put in place and the changes we’ve made,” he added, referring to both his agency’s investment strategies and other internal movements as well as the dynamism of Wall Street before its current woes.
Although the final results of the PSPRS’s investments for the 2021-22 fiscal year will not be known for a few months, its success in the 2020-21 fiscal year has been hailed in the annual Top 1,000 Plans report. retirement from Pensions & Investments.
He said the combined pension trust assets of the PSPRS plan and the defined contribution plan under Townsend’s leadership grew 44% to $16.1 billion in 2020-21, outpacing the growth percentage of all public pensions in the top 200 of the 1000 largest US pension plans surveyed.
Townsend said his agency’s success was more than just a matter of hiring new auditors, new actuaries, changing “a lot of the actuarial assumptions and money management processes.”
It was also about convincing municipalities and other employer governments of the effectiveness of these changes and showing them options for reducing their retirement debt.
“When you think of policymakers, you’re talking about councils and elected councils across the state,” Townsend said. “These are obviously not retirees, and a lot of them really aren’t financiers. They need to get to a place where they can relate and understand what we are doing.
The agency’s actions have bolstered the confidence of government employers in the system, which was battered more than a decade ago by the Great Recession of 2007-08.
The previous fiscal year of the Legislature applied $1.15 billion to the pension liabilities of public safety and state corrections officers.
Maricopa County over the past two years has invested an additional $10 million in its jail guards’ retirement plan, which is only 56.7% funded with an unfunded liability of $283.7 million. dollars, according to PSPRS records.
Tempe topped all Arizona cities with its incremental police and fire department contributions — $341 million last year alone. Even so, its police and fire pension plans are only about 45% funded with total unfunded liabilities of $341 million.
Over the past two years, Scottsdale has paid $41.1 million to reduce its unfunded liability to $191.1 million for its retired police officers and firefighters. Chandler followed suit, forking out another $37 million on debt that now stands at $154.3 million.
“To wipe this unfunded retirement debt off the books in a single year takes an incredible amount of determination and initiative from employers across the state,” Townsend said. “It’s also about believing in our commitment to protecting members’ pension benefits and helping employers and taxpayers save money.
The $2.85 billion in additional government employer contributions in the last fiscal year exceeded the $1.58 billion in additional payments made in 2020-21 and eclipsed the $120 million in additional payments made in 2019 -2020.
The effort of local governments to repay their unfunded pension liabilities is not just a matter of kindness to the men and women who have spent years putting their lives on the line day after day.
This is a legal requirement with real operational consequences that impact municipal spending decisions and capabilities for everything from supplies and infrastructure to salaries.
Former Phoenix City Manager Ed Zuercher described those consequences for his city council in June 2021.
At the time, he sought permission to borrow $1 billion at a fixed interest rate to pay off some of the city’s total $5.4 billion pension debt — which includes other plans in addition to the $3.4 billion PSPRS debt.
“This burden on taxpayers must be balanced with fiscal responsibility and a commitment to providing retiree pensions,” Zuercher told the council in a memo.
He said the pension fund’s liabilities and costs had already “placed significant budget constraints on the city’s ability to provide wage increases and non-pension benefits, utilities, and maintenance of facilities.” infrastructure”.
And he noted that “although currently manageable, this pressure will continue for the foreseeable future.
“Additionally, rating agencies and lenders place great importance on the funding plan and funding levels of the city’s pension systems when determining their opinion of the city’s overall financial health,” Zuercher said. .
Although several members of the Phoenix Council, including Mayor Kate Gallego, expressed support for Zeurcher’s proposal, it was never put to a vote.
Now, Phoenix — and all other entities with unfunded liabilities — face the likelihood of even higher interest rates on their pension debt.
But Townsend said his agency was working to help governments pay down their pension debt in a somewhat less onerous way, noting that it will take years to eliminate that debt and expressing optimism that cities will at some point in the future have another opportunity to obtain fixed services. interest-bearing loans that will facilitate the repayment of their PSPRS obligations.
He said the PSPRS is recalculating their contribution rates “to bring their payments back to something similar to debt financing where they are on a more even dollar amortization for those unfunded liabilities.”
“They’re coming down,” he said. “They’re going to pay it back one way or another and so we’re changing the system to help reflect that. If they want to put extra money up front, pay it back faster, that just makes them better for them.
“We’re sort of changing the slope of the line because the contributions were going to increase quite significantly within 10 to 15 years,” he continued. “By making these changes, we’re kind of shifting some of that cost to the short term.
“So they will see increased premium rates over the next five years,” but that “will get them to where it’s going to be a more stable line going forward without the huge costs going forward.”