FLAGSTAFF — The city of Flagstaff is making progress toward 100% funding for its Public Safety Personnel Retirement System (PSPRS) unfunded liability. PSPRS is a retirement system for Fire and Police staff.
Since 2003, the city’s unfunded actuarial liability has grown to $112 million, a debt owed by the city. The city’s public safety pension is managed by the Public Safety Pension Retirement System (a statewide program). There are many conditions that impacted PSPRS funds in Arizona. The biggest issues were related to the 2008 financial market crash, the formula for the Pension Benefit Increase (PBI), payroll growth, and changes in actuarial assumptions.)
The city adopted several policies to provide additional contributions to the pension plan. The city pays its annual contributions based on the budget at the beginning of each fiscal year. This allows the pension plan to invest at a higher rate of returns and provides excess funding when vacancies exist. The city makes excess annual contributions for the Police plan of approximately $630,000 due to the longer amortization period. The city pays approximately $850,000 annually out of Use Tax revenue collections toward the liability. The FY 2019-20 excess contributions are estimated at $2 million.
This year, staff engaged Pension Bond Underwriters to discuss opportunities to address the City’s continually growing debt. Together, they have developed a plan to have a 100% funded pension plan for the Fire and Police staff. By issuing Certificates of Participation debt at a lower interest rate than what is being incurred in our PSPRS plans, the city is able to:
- Reduce its annual contributions
- Level off future contributions
- Pay off the debt in 20 years versus the current 28-year plan
- Set up a reserve fund to mitigate the risk of changing markets and actuarial assumptions
- Provide for nearly $55 million in net present value savings.
All of this will be done without increasing sales taxes or property taxes in the community.
“This is great news for the Flagstaff community, especially now during these uncertain times,” said Mayor of Flagstaff Coral Evans. “This solution that Council provided direction on will not raise taxes for our residents but will save taxpayers interest money and reduce the burden on the city’s general fund. The fact that we were able to identify a viable solution that, unlike other cities in Arizona, does not rely on an increase in taxes was a critical factor in council being able to bring resolution to this long-standing issue.”
Council provided direction for staff to move forward with the plan to become 100% funded in the city’s PSPRS plan and staff will bring forward an ordinance in June to authorize the issuance of debt. This will be followed by issuing a Certificate of Participation debt later this summer.