City seeks to save up to $4M on pension costs

The city will save millions of dollars by changing its payment plan on the underfunded police and fire pension system.

The city will pay about $40 million of its $54 million pension bill upfront instead of making a smaller payment every two weeks, said City Manager Mike Ortega.

The move takes advantage of the Arizona Public Safety Retirement System’s favorable interest rate and could save the city $1 million to $4 million in interest, Ortega said.

The $40 million will come from the city’s cash flow and reserves, and the city will reimburse that account over the year.

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“It’s basically cash management, trying to figure out every possible way to reduce that liability, and that translates into a reduction in our future years’ costs,” Ortega said.

The savings helps, but Tucson’s unfunded liability is $770 million and it’s an ongoing challenge to find enough money to cover the growing pension costs.

Next year’s bill is expected to be $81 million and could be bigger depending on the timing of the ruling in an ongoing lawsuit.

The police and fire pension funds are underfunded due to asset losses during the recession, an Arizona Supreme Court ruling that voided a state pension reform bill and increasing retiree payouts.