Unfunded Paradise Valley public safety pensions continue to linger

Paradise Valley Town Council took a second stab at paying down its unfunded liability of public safety pensions during a Sept. 22 study session, where a consensus was reached on trying to pay off the burden as quickly as possible in order to save money in interest.

The town officials discussed multiple options during the public meeting held at Town Hall, where all members expressed interest in paying down the liability reasonably soon.

Vice Mayor David Sherf voiced his opinion of choosing a 5-10 year plan; while others said they’d like to see it paid off as aggressively as possible if there were some safety nets that could be implemented.

“We’re taking a different approach here,” said Town Manager Kevin Burke during the Sept. 22 meeting. “Last time, we came at it from a reserve angle. This time we’re looking at it purely from public safety and how we can save money and different ways we can do it.”

During a Sept. 8 study session, town officials discussed the option of tapping into its General Fund reserve balance in an effort to pay down the fees. The Town of Paradise Valley fiscal year 2016-17 operating budget is about $26 million.

Municipalities throughout the country have for a long time provided pensions to their public safety personnel — including the Town of Paradise Valley.

Paradise Valley Town Hall is at 6401 E. Lincoln Drive.

Paradise Valley Town Hall is at 6401 E. Lincoln Drive.

Pensions were meant to attract quality workers and the promise to provide that pension when a worker retired served to reward employees for years of service to the public.

The Arizona Public Safety Personnel Retirement System is a 236-member organization managing the pension plans for eligible public safety personnel entities statewide of which Paradise Valley participates.

The Arizona Constitution recognizes public employee pensions, while PSPRS and its duties were established in the late 1960s to ensure public safety employees equal footing in terms of pension eligibility, contribution rates and benefit formulas.

The problem:

  • The Town of Paradise Valley has 33 retired police officers collecting a pension totaling, on average, about $45,000 annually. However, there are only 23 active members contributing to the pension plan along with taxpayer dollars.
  • Paradise Valley, because of the PSPRS formula, is paying 62 percent of a police officer’s salary toward his or her state pension plan, which carries an estimated annual total financial obligation of about $1.5 million.

The underlying push to change the General Fund reserve fund policy, local leaders say, is to pay that unfunded liability to PSPRS — for Paradise Valley that number is about $18 million — and eliminate the eight percent assessment that the town must pay each year on any outstanding balance.

How to pay off the unfunded liability

Paradise Valley Administrative and Government Affairs Director Dawn-Marie Buckland presented multiple options to the town council ranging from making minimum payments; to paying the liability off in 10 years; to paying it off in three years.

Town officials previously discussed lowering its 90- to 110-percent threshold of General Fund reserve policy in order to pay down the unfunded liability. At the Sept. 8 meeting, a consensus was not reached by town officials.

Moving forward, the town is now exploring how low its threshold could go, and how quickly it could re-cover.

Michael Collins

Michael Collins

“I think what led us here to bring this back tonight – because we remember we’ve had the conversation about PSPRS before, we’ve had the conversation about reserve thresholds before,” said Mayor Michael Collins. “So this tonight was an attempt to try to be able to look at the policy question of how quickly do we want to pay down this unfunded liability and what does this do to us in 2027, what is the lowest operating balance that we’ll see?”

The option that the town council leaned towards is paying the unfunded liability off in three years. With this option, the final year of payment would be 2020, and the town would be paying off only $2.3 million in its eight percent assessment fees.  This route could save the town about $4-6 million.

Option D, as Ms. Buckland coined it, would decrease the General Fund reserve threshold down to its lowest of 48 percent in 2020 but it would quickly rise back up to 67 percent in 2021, and then steadily increase from there.

“It largely drops to 48-49 percent because we have the costs of repaving Tatum and Lincoln over that three year window,” said Mayor Collins.

“So combined, that’s the reason it drops to 48 and 49. Immediately after we recover from those expenditures, we rise back up to 67 and 77 percent.”

Another positive aspect of paying off the liability aggressively is that the fiscal-year 2027 fund balance estimate would be around $36 million.

“What I found very interesting is we have almost restored that 2027 fund balance of $36 million versus the $37 million by 2027,” said Ms. Buckland.

Other options to pay off the liability slower estimated a lower projection of the 2027 fund balance of around $32 million.

“The other piece that led us to this conversation was that paying down this liability sooner rather than later was a benefit to the town in a financial perspective,” said Mayor Collins.

Mr. Burke aligns with the option the Town Council chose.

“That would be my recommendation, so you guys are right on,” said Mr. Burke. “$4 to $6 million is a lot of money to be used elsewhere for things like roads.”

News Services Editor Melissa Fittro can be reached by e-mail at mfittro@newszap.com or follow her on Twitter at www.twitter.com/MelissaFittro

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