The cost of funding pensions is causing havoc for the La Paz County Budget for fiscal year 2019-20
Finance Director Terry Krukemyer is still working on a county budget for the 2019-20 fiscal year. He said all of the county funds except for the general fund show more revenues than expenses, and there’s enough from the other funds to create an overall positive fund balance.
However, he said employee pension costs, especially those from the Public Safety Personnel Retirement System, are making it difficult to balance the county’s expenses with revenues.
“Pension costs are killing the budget,” he said.
As an example, he noted how most county employees are on the Arizona State Retirement System. The county pays the equivalent of approximately 20 percent of each employee’s salary into the ASRS each year. This is addition to paying a full salary and the employer’s share of the Social Security tax.
By contrast, the Sheriff’s Office is required to pay the equivalent of 75 percent of each employee’s salary into the PSPRS each year. The county also pays more than the ASRS rate for elected officials’ and detention and corrections officers’ pensions.
Krukemyer estimated that, if all the county employees were on the ASRS, it would save the county $1.67 million each year.
In addition to paying the equivalent of 75 percent of their employees’ salaries to the pension system, the Sheriff’s Office has a “funding ratio” of 35.31 percent. On their website, PSRPS says a funding ratio of 75 percent is needed to cover all present and future obligations.
The La Paz County SO is not alone. According to the PSRPS website, most of their members don’t come close to a 75 percent funding ratio. Among those that fall shorter than the La Paz County Sheriff are the Clifton Fire Department (30.8 percent), the Beaver Dam/Littlefield Fire Department (31.16 percent), the Apache County Sheriff’s Office (31.27 percent) and the Bisbee Fire Department (8.13 percent).
The Arizona Department of Public Safety has a funding ratio of 33.3 percent, which is lower than the La Paz County SO. The DPS is required to contribute the equivalent of 97.5 percent of their employees’ salaries annually to the PSRPS.
The Phoenix Police Department pays has a funding ratio of 42.3 percent and pays the equivalent 64.4 percent of their employees’ salaries to the PSPRS.
As for other local public safety agencies, the Parker Police Department contributes 35 percent of their salaries and has a funding ratio of 72 percent. The Quartzsite Police Department contributes 18.8 percent of the salaries and has a ratio of 87 percent. The Quartzsite Fire Department contributes 19.9 percent and has a ratio of 79.3 percent. The Buckskin Fire District, whose woes with the pension system were in the news a few years ago, contributes 48.66 of their salaries and has a ratio of 39.3 percent.
Krukemyer said part of the problems was the PSPRS was badly managed.
“The system doesn’t work,” he said. “The PSPRS chickens are coming home to roost.”
An Arizona Republic story from April 2017 said the Pew Charitable Trust concluded the PSPRS was the third-worst performing government trust fund during a ten-year period from 2005 to 2015. Pew also found PSPRS paid the highest fees to outside management than any of the 73 largest public retirement systems in the country. Only the retirement systems of Indiana and South Carolina fared worse.
PSPRS stated on their website they started to move away from investing in stocks after the “dot com” collapse of the early 2000s cost them approximately $1 billion. These investments have included real estate.
Pew found that, in 2016, PSPRS spent $129 million in management fees while receiving a less than 1 percent return ($49 million) on investments. They had less than 50 percent of what they would need to fund present and future obligations. Many of their costs were being passed on to local governments.
“Some communities have been hit with such steep increases in pension obligations that they have been unable to hire additional police officers of firefighters,” Pew reported.
By contrast, Pew found the Arizona State Retirement System was in the top third of public pension plans around the nation. They had 78 percent of what they needed to meet their obligations, and they paid much lower management fees.
Another problem was early retirement. In the PSPRS, an employee could retire with a full pension after 20 years. This led to some employees retiring in their early 40s and possibly receiving a pension for longer than they contributed to the plan. New rules now state employees can’t start collecting their pensions until they turn 60 years old.
One of the other problems with the government pension plans is the Arizona Constitution. Article 29, Section 1, Paragraph D states pension payments can be increased but never decreased. It took a Constitutional Amendment in 2016 for the state legislature to make changes to the PSPRS to make it more viable, and another Constitutional Amendment in 2018 for the legislature to make changes to the Corrections Officers’ Retirement Program (CORP) and the Elected Officials’ Retirement Program (EORP) to make them more financially viable.
Krukemyer’s solution would be to bring Article 29, Section 1, Paragraph D to the voters. He also recommended doing away with the public safety, corrections officers’ and elected officials’ pension plans and putting all public employees in the Arizona State Retirement Plan. He added he would keep all the promises already made to state employees regarding their pensions.
“I don’t believe in complaining if you can’t offer a solution,” he said.
The new fiscal year started July 1.