City of Prescott One Approach to PSPRS

Prescott’s Numbers

Contribution Rates

PSPRS Contributions

Discussions with Council Started discussing the issue as part of the budget process in FY 2006. PSPRS became an increased part of our strategic planning process starting in FY 2010. Council workshops started in FY 2015 Council formed a sub-committee in FY 2017

The First Election Council put a 0.55% dedicated sales tax on the August 25, 2015 primary ballot. In addition to the PSPRS tax, Council put two other sales tax issues on the ballot. Dedicated road tax increase from 0.75% to 1% Open space acquisition and maintenance tax 0.08% Most Council members were in favor of the PSPRS tax but did not do any campaigning. A local watch dog group and one Mayoral candidate were against the tax and did campaign. All public information meetings had to be done by City staff. PSPRS dedicated tax failed 44% to 56%

After Election Mid-year budget cuts were done, reducing many service levels. Reduction of library hours Fire station rolling brownouts Police services reduction Elimination of special events Continued working with League and State Legislature on PSPRS reform. Worked with Council on other options to bring PSPRS liability down. Council formed sub-committee to work on solutions in FY 2017.

Areas Explored by Sub-Committee Business tax Increase property tax Increase City utility rates Bankruptcy Municipal income tax Get out of PSPRS Borrowing Dedicated sales tax Reduce spending and alternative service delivery Use fund balance reserves Selling unneeded property Continue to work with State for further reform and relief of unfunded liability

Areas Moved Forward by Sub-Committee Dedicated sales tax Reduce spending and alternative service delivery Use fund balance reserves Selling unneeded property Continue to work with State for further reform

The Second Election Council put a 0.75% dedicated sales tax on the August 29, 2017 primary ballot. No other tax issues were on the ballot All Council members were in favor of the measure except the Mayor. Two Council members aggressively campaigned for the proposition with the political action committee (PAC) they formed. Council and PAC did all public meetings, staff provided information as requested. A local watch dog group, Reason Foundation, seated Mayor, one Mayoral candidate, and both State Representatives were against the tax and campaigned aggressively. PSPRS dedicated tax passed 54% to 46%

Since the Election Council moved forward and re-established Library hours that were cut. Sent money from the sale of unneeded properties to PSPRS. Sent $11 million of unassigned fund balance from the General Fund to PSPRS. Continued to keep the public informed of actions taken and changes happening at PSPRS

Gilbert PSPRS Case Study

Gilbert Public Safety PSPRS Participation ~250 Sworn ~200 Sworn

? Gilbert’s Unfunded Liability Historical Perspective $36m $39m $60m 2014 2015 2016 2017

Rate Increases (Tier 1 and 2) $3m increased cost in FY2018 24.36% 33.69% 2017 Police 2018 Police 15.33% 23.49% 2017 Fire 2018 Fire

Gilbert Decisions To manage costs Rate Increases UL Amortization Keep 20 years instead of extending to 30 years Budget ongoing funds for additional contributions Buydown Ratio Hall/Parker Refunds Use same ratio between police and fire as current Unfunded Liability Paid upfront, in addition to the regular contributions

Four Policies/Practices To reduce PSPRS Unfunded Liability 1 Send all contributions July 1 2 Remit budgeted amount, EE&ER 3 Additional $2m ongoing 4 Under/Over from prior year

Gilbert Results $17k Interest Earnings

Gilbert Results $17k Interest Earnings

Gilbert Results $17k Interest Earnings

Gilbert Results $17k Interest Earnings

Gilbert Results $1.7m Interest Earnings $17k Interest Earnings

Gilbert Results $1.3m vs. $11.9m paid toward UL

Pay Off the Unfunded Liability by 2021 Buydown Goal Pay Off the Unfunded Liability by 2021

Questions? Kelly Pfost Budget Director Kelly.Pfost@gilbertaz.gov

What Are Cities Doing to Address Their PSPRS Costs What Are Cities Doing to Address Their PSPRS Costs? Scott McCarty, Chair – League of Arizona Cities and Towns Pension Reform Task Force Finance Director, Town of Queen Creek scott.mccarty@queencreek.org GFOAz Budget Forum November 2, 2017

Taxpayer Perspective A Taxpayer Pays for PSPRS Numerous Times Police / Sheriff (via Local Taxes) Fire / Fire District (via Local Taxes) County Jail (via County Taxes) State Agencies (i.e. DPS via the Gas Tax, Income Taxes, Sales Taxes)

FY 18-19 Actuarial Valuations Contribution Rates and Unfunded Liabilities Will Mostly Likely Increase – Why? $551M of Unrecognized Investment Losses Exist and Remain to be Smoothed 7-Year Smoothing Period Hopefully Will Be Offset by FY 16-17 Investment Returns

FY 18-19 Actuarial Valuations (concluded) Board Adopted New Mortality Tables People Are Living Longer so the Number of Years a Pension Is Paid Will Increase Estimated Impact 3 Percentage Point Increase to Normal Cost 2 Percentage Point Increase to Unfunded Liability

What Can You Do to Address Your PSPRS Costs?

Additional Interest Earned What Can You Do? Prepay Your Annual Contribution on July 1st to Earn Additional Interest Income # of Plans Amount Paid 7/1 Additional Interest Earned FY 15-16 47 $363M $480K* FY 16-17 37 $421M $11.6M** *0.6% Investment Return ** ~12% Investment Return as of May 31, 2017

What Can You Do? (concluded) Pay Down Your Unfunded Liability Faster Do Not Take the Credit for the 2% Fire Insurance Premium Tax Against Your Annual Payment (Fire Plans Only) Re-Direct Tier 3 Savings to Your Tiers 1 and 2 Unfunded Liability

Tier 3 Phoenix PD Example: Less Cost Current System Tier 3 Normal Cost 18% 10% Unfunded Liability 50% 0% Total 68% ER Cost (on $50K Salary) $34K $5K Savings per New Hire $29K

Employer Actions: Queen Creek Background $1.5M Unfunded Fire Pension Liability Action Adopted Pension Funding Policy Unfunded Liability Paid Off Annually

Employer Actions: City of Globe Background Unfunded Liability (Police and Fire):$12M Funded Status: Fire 39%, Police 37% ER Contribution Rate: Fire 61%, Police 63% Action Council Approved 0.3% Dedicated PSPRS Sales Tax Increase (to 2.3% Local Rate) Sunsets When Paid Off $1M One-Time Payment from Savings

Employer Actions: Coconino County Background Unfunded Liability: $30M Funded Status: 25% ER Contribution Rate: 62% Action $10M One-Time Payment from Jail District $25M Savings $15 ROI

Employer Actions: Paradise Valley Background Unfunded Liability: $22M Funded Status: 32% ER Contribution Rate: 67% Action $1M One-Time Payment in FY 15-16 $5M One-Time Payment in FY 16-17

Discussion and Questions