A recent Arizona Supreme Court decision overturning a 2011 law designed to keep pension costs down could cost Tucson millions of dollars.
Last week, the justices restored cost-of-living raises for retired members of the stateโs Public Safety Personnel Retirement System, which includes police and fire personnel.
The ruling means the board that manages the fund will now reimburse retirees $40 million for past cost-of-living adjustments and will have to shift $335 million to a reserve fund to cover future cost-of-living increases, PSPRS system administrator Jim Hacking๏ปฟ said in a release last week.
As a result, cities and counties will have to bear additional expenses.
The cityโs fretted over ballooning pension costs even with the entire 2011 law in place.
Now that part of it is gone, Chief Financial Officer Kelly Gottschalk ๏ปฟsaid pension costs will climb even higher.
But exactly how much higher isnโt known yet, she said.
โThereโs a lot of unknowns on how itโs going to work,โ Gottschalk said. โThat (decision) makes it an all new ball game.โ
While no one is certain how much the change will cost Tucson, a previous projection showed it could add an extra $11.5 million per year to the cityโs public safety pension funds by 2027.
But the police union said both the state board and the city are manufacturing a crisis.
โWe just donโt feel this is the crisis that some are making this out to be,โ said Jason Winsky,๏ปฟ government-affairs director for the Tucson Police Officers Association.
Winsky said the fund has earned double-digit interest on its investments two of the last three years, and that money could cover the $40 million in retroactive raises to retirees.
Since the rest is a shift from one account to a reserve account that will continue to collect interest, Winsky isnโt buying the pension systemโs assertion that cities and counties will have to pony up significantly more each year to cover the transfer.
โWe just donโt feel that giving retired people a cost-of-living adjustment is going to negatively affect the system,โ he said. โThe numbers to me just donโt add up.โ
Winsky said the pension fund took some licks during the recession, but now that the economy has picked up, itโs returning to health.
Furthermore, the cost-of-living increase was only one part of the 2011 law. Other changes, such as increased employee contributions, remain in effect, Winsky said.
Although the contribution rates werenโt affected by the supreme court ruling, a separate lawsuit challenging those is pending.
Last week, the pension board predicted drastic increases for some municipalities. But this week, they backed off the claims.
A spokeswoman with the retirement system said an audit will be performed this summer to determine what rates municipalities must pay. The new rates will take effect on July 1, 2015.
FIXES NEEDED
Similar to many cities across the country, Tucson wants to reign in its public safety pensions.
Next year, the city anticipates paying $48 million for police and fire pensions, about a $4.8 million increase from a year ago.
Both pensions are below 48 percent funded, which translates into taxpayers being responsible for a combined $580 million in liabilities.
The low funding level means for every dollar the city pays police and fire employees in wages next year, it will have to pay about 50 cents towards their pensions.
Just over a decade ago, when funding levels were high, the city contributed $5 million a year towards police and fire employee pensions.
But that was before the recession struck.
Since then, slumping stocks, hiring freezes and retiring employees combined to put a strain on the retirement system.
Complicating matters is Tucson doesnโt control the public safety pensions, the state does.
But the city does have some options.
It could decide to eliminate allowing police and fire employees to cash in unused sick days, which costs around $2.6 million, and capping overtime, which costs about $9.5 million.
Mayor Jonathan Rothschild ๏ปฟsaid in his State of the City speech Wednesday that the city was ready to make the tough choices to reign in police and fire pension costs.
But what actions are ultimately approved, and whether they will withstand retiree challenges, remains unknown.
Winsky said employees have surrendered many benefits over the last several years to keep the city afloat, but expects they will be willing to discuss pension fixes.
