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City of Phoenix Pension Reform Initiative (2014)

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A City of Phoenix Pension Reform Initiative ballot question will likely be on the ballot in 2014 for voters in the city of Phoenix.

The Pew Charitable Trust did a study in 2009 that estimated the Phoenix public employee retirement system had $5.115 billion in liabilities and that $1.399 billion of this fund was not backed by city assets, making the retirement fund only 73% funded.[1] The city of Phoenix 2013 Actuarial Value Report showed that the unfunded liabilities of the city's pension system now equal $1.5 billion, with the pension fund having dropped to 56% funding.[2] Moreover, the pension costs of the city have risen by 40% since 2011, resulting in a 2013 payment of $253 million.[3][4][5]

A group called Citizens for Pension Reform working with The Arizona Free Enterprise Club[6] announced that they began circulation of signature petitions in September of 2013 in order to put an initiative before voters that would entirely change the pension system for public employees going forward. On March 11, 2014, two days before the submission deadline, the group turned in more than 54,000 signatures, which is more than double the 25,480 valid signatures required to put the initiative on the ballot.[7]

The initiative focuses on two things:[8]

  • First, it would change the city's retirement system from a defined benefit system, in which retirees are guaranteed payments despite investment performance, to a 401(k) style defined contribution plan, in which the city contributes a set amount and the retiree's benefits depend on his or her own contributions and investment performance.
  • Second, it would take steps to put a stop to pension spiking by implementing limits on the pension benefits available to current employees.

The Phoenix City Retirement Plan cost taxpayers $28 million in 2000 while it cost $110 million in the 2012 fiscal year and $253 million in 2013.[9][10] In the face of this ballooning of city pension costs, Phoenix voters overwhelmingly approved two propositions that reformed the retirement system of city employees, Proposition 201 and 202, in 2013

Background

Props 201 and 202

Propositions 201 and 202 were referred to the March 12, 2013 ballot on October 31, 2012 through a unanimous (9-0) vote of the Phoenix City Council, despite many who did not believe the reform found in these two measures was adequate to deal with the city's pension debt.[11]

The Phoenix City Retirement Plan cost taxpayers $28 million in 2000 while it cost $110 million in the 2012 fiscal year and $283 million in 2013.[10]

The rapidly rising costs of the retirement plan is what led to the decision of the Phoenix City Council to push for pension reform.[8] The City Council released a list of goals for pension reform which consisted of rebalancing contributions and making a 50/50 partnership with employees, attracting high quality workers with a competitive pension plan and saving money. To accomplish these goals, a "Pension Reform Task Force" was appointed in January of 2011. The task force was charged with the responsibility of working with management, consultants and other stakeholders to propose recommended changes.[12]

The Pension Reform Task Force held 13 public meetings and several public input sessions. On February 14, 2012, the final recommendations were presented to the City Council. The Pension Reform Task Force made these recommendations:

  • A continuation of the city's Defined Benefit Program.
  • A 50/50 contribution split between the employees and the city
  • An increase in retirement age.

The Task Force, however, was opposed to having the city move from a "defined benefit" plan to a "defined contribution" plan.[9]

In May 2012, the pension reform options available to the city were limited by a Maricopa County Superior Court judgement. This judgment held that municipalities in the county, including the City of Phoenix, are not allowed to change the pension plan of any existing employee or retiree. This meant that any changes to the city's pension plans could apply only to newly-hired employees. With that constraint, the City Council developed three reform models, each of which only applied to new hires. The first model mostly adhered to the changes recommended by the Pension Reform Task Force. This model is the one that was finally selected by the Council and was placed on the ballot as Propositions 201 and 202.

The second model put forward for deliberation by the council was the same as the first model except that it added caps on the city's contribution at 10%, 7% or 5%. The addition of a contribution cap was voted down in a six to three vote. Model three proposed a mandatory 401 system with matching 10%, 7% or 5% contributions from the city. Council member Sal DiCiccio, along with backers of the new pension reform initiative, did not believe Props 201 and 202 did enough to save the city from a pension payment induced financial crisis.[13]

Spiking

Objections to the use of "pension spiking," a practice in which city employees convert certain benefits such as unused sick time or saved vacation pay to boost the salaries on which their pensions are based or extend their credited length of city service. Some were further upset by the fact that some employees, such as firefighters and police officers, are allowed to use pension spiking while other rank-and-file employees are limited or restricted from the practice. Some city employees filed suit against the city when they were denied the ability to spike their pensions when other employees were permitted to use the increasingly controversial practice. The city argued in court that it is not legally bound to let employees include unused sick time in their pension-benefit calculations but began allowing it voluntarily in 1996 and can change their position at will.[3]

DiCiccio and his wife

Several reports released by the Arizona Republic highlighted the pension spiking of executive-level public-safety officers and managers. The reports featured 10 public-safety retirees that had increased their lump-sum retirement benefits to over $700,000 and their annual pension payouts to more than $114,000 per year. According to backers, the proposed pension reform initiative would prohibit the practice of pension spiking.[3]

A study by The Republic estimated a $12 million dollar cost to the city tax payers per year from spiking practices, when using overtime and premium pay to boost pensions was counted as spiking. City officials denied the study because they claimed overtime and premium pay were part of base salaries and not a "perk" and, therefore, should not be counted as spiking.[14]

Council plan

The City council, on October 31, voted 5-4 to approve new spiking regulations that some say are adequate and legal while some say they are essentially useless and will not solve the problem. The plan was developed by the city's Pension Fairness and Spiking Elimination Subcommittee and prohibits applying cellphone, car allowances or lump-sum payments for sick and vacation leave from being applies to pension salaries. Employees are still allowed, under the plan, to use pre-existing sick and vacation leave balances toward boosting their pensions.[15]

The votes in favor were from Stanton, Valenzuela, Johnson, Tom Simplot and Thelda Williams while Councilmen DiCiccio, Waring, Gates and Michael Nowakowski cast the four dissenting votes. DiCiccio, Waring and Gates objected that the biggest spiking factor was the lump-sum payouts received at retirement for unused sick and vacation leave and that this plan does nothing to stop such practices. A more strict proposal was rejected 6-3.[15]

Councilman Daniel Valenzuela said, "For those who say that it is not enough, it is what can be legally done," and he called it “morally and ethically right and legal.”[15]

DiCiccio said, “It does not stop the spiking — it just does not do that. The council is going to be able to declare this huge victory today when, in fact, all it does is keep the spiking.”[15]

Sal DiCiccio

Councilmember Sal DiCiccio has consistently been a strong advocate for drastic pension reform, financial responsibility and debt control. Expressing his opinion in 2013 that Propositions 201 and 202, while helping a little, were not nearly enough to solve the problems with Phoenix's retirement system, he advocated for strict city contribution caps and further limitations on city pension payouts.[13] On August 27, 2013, DiCiccio was re-elected to the City Council, serving District 6, after a rather heated battle with union groups, who fired hundreds of thousands of dollars in their campaign against him and in support for his opponent, Karlene Keogh Parks.[16]

Referendum 1 Part B
Candidates: Votes %
Incumbent Karlene Parks 15,120 45.80%
ApprovedaSal DiCiccio 17,892 54.20%

Election results from Phoenix City elections office

DiCiccio has also been a very outspoken anti-spiking advocate and began his own online petition, garnering signatures in order to pressure the mayor, Greg Stanton, into ending pension spiking practices for all city employees.[10]

Text of measure

Full text

The title of the proposed ordinance reads as follows:[17]

This text is quoted verbatim from the original source. Any inconsistencies are attributed to the original source.

An initiative measure amending the Phoenix City Charter Chapter XXIV, relating to employee retirement system plans, by adding Part V and adopting The Phoenix Pension Reform Act of 2014; Preventing pension spiking; Providing a retirement plan for future hires; Protecting certain rights of current employees in the city of Phoenix Employees' Retirement System; Providing for future termination of City of Phoenix Employees' Retirement System when it has no more participants or liabilities.

The full text of the ordinance proposed by this initiative is available here.

Support

PhoenixPensionInitiative.png

Supporters

  • Citizens for Pension Reform[2]
  • City Council member, Sal DiCiccio[10]
  • The Arizona Free Enterprise Club[6]

Arguments in favor

Council Member Sal DiCiccio has argued that the $2.4 billion in unfunded liabilities and the increasing city pension payments require a long term solution. DiCiccio was not satisfied by the reform in Proposition 201 and 202 and has written that he thinks Phoenix has a chance to become a standard for fiscal responsibility needed throughout the nation. He also has said that municipal stability is essential for a thriving businesses and jobs. He wrote: "If you want to create a model for business growth, you must create an environment of stability. Businesses and jobs will begin to follow those cities, regions and states demonstrating financial stability. Imagine the message we send to the nation if we successfully tackle our long-term financial obligations. Imagine the message we send to Washington D.C. if we solve our long-term debt. And, imagine the message we send to job creators that our fiscal house is in order."[10]

Opposition

Opponents

  • City Pension Reform Task Force[9]

Arguments against

City officials have said that if this initiative goes on the ballot and is approved, the taxpayers would not see savings for years and that in the short term it will cost them large sums because because the city would have to pay off the $5 billion dollar fund in an expedited time frame and without contributions from future employees, who would be part of the new system.[8]

Path to the ballot

See also: Laws governing local ballot measures in Arizona

Citizens for Pension Reform needed to collect 25,480 valid voter signatures before March 14 to get their initiative on a 2014 ballot. On March 11, 2014, the group turned in over 54,000 signatures, which is more than double the required threshold. This means that even if only half of the submitted signatures are found to be valid, the proposed Pension Reform Initiative will still go before voters. Moreover, the Citizens for Pension Reform Committee double checked the signatures with the city of Phoenix's own voter lists to ensure the validity of the submitted signatures.[18][7]

The city clerk had until April 15, 2014, to certify that a sufficient number of signatures are valid. Now that signatures are verified and the petitions are certified by the city clerk, the city council has 25 days to call for a special election to be held within 120 days of the council's decision or put the initiative on the next city general election, provided it is within 6 months of the council's decision.[19] The remaining special election dates allowed by state law in 2014 are May 20, August 26 and November 4. Because the Pension Reform Initiative seeks to amend the city charter, the city council cannot directly approve the initiative but must present it to the city voters.

City of Phoenix seal.PNG

The initiative process in Phoenix:

See also: Laws governing the initiative process in Phoenix

The signature requirement percentages for valid petitions, as established by state law, are based on the number of voters in the last mayoral election. For petitions to be valid, they must contain valid signatures equal to 15 percent of the votes cast in the last city mayoral election. Petitions must be filed within two years from the date on which the official number is assigned and signatures obtained more than 6 months prior to the date of filing shall be invalid and certified so by the clerk (Phoenix Charter, Chap. XV). After the city clerk has certified that the petition for ordinance initiative is valid and sufficient, the Council must either:

  • Pass the initiative unaltered within 20 days of petition certification. For initiatives seeking to amend the city charter, the council cannot pass the initiative themselves but must submit it to the city voters.
  • Within 25 days, either call a special election less than 120 days after the council's decision on the initiative or resolve to place the ordinance on the next regular city election if that election is less than 6 months after the council's decision on the petition. Petitions to amend the Charter cannot simply be adopted by the council, but must be submitted to a decision of the electors. (See above for state prescribed initiative process)
Phoenix City Charter

See also

External links

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Suggest a link

Additional reading

References

  1. Pew Charitable Trusts, "Cities Squeezed by Pension and Retiree Healthcare Shortfalls," March, 2013
  2. 2.0 2.1 Phoenix Pension Pension Reform Act website, accessed February 27, 2014
  3. 3.0 3.1 3.2 Azcentral.com, "Phoenix pension ‘spiking’ rules vary for city employees," September 14, 2013
  4. Pew Charitable Trust, "A Widening gap in Cities," January, 2013
  5. Arizona Free Enterprise, "Stop Pension Abuse," accessed January 30, 2014
  6. 6.0 6.1 Free Enterprise Club website, accessed February 19, 2014
  7. 7.0 7.1 Ahwatukee Tea Party, "Phoenix Pension Reform Act Files Petition Signatures," March 11, 2014
  8. 8.0 8.1 8.2 Azcentral.com, "Phoenix ballot initiative would overhaul pension system," September 16, 2013
  9. 9.0 9.1 9.2 Pension Reform Task Force Presentation Document
  10. 10.0 10.1 10.2 10.3 10.4 Ahuwatukee Foothill News, "DiCiccio: Why we need real pension reform — you decide," September 17, 2013
  11. Phoenix Pension Reform FAQ
  12. See the Pension Reform Task Force Document here for a list of the members of the task force
  13. 13.0 13.1 Intellectual Conservative Arizona, "Phoenix Pensions: No Reform/Slightly Better," September 27, 2012
  14. AZCentral.com, "Pension spiking may cost Phoenix $12 mil per year," October 17, 2013
  15. 15.0 15.1 15.2 15.3 AzCentral.com, "Phoenix takes modest steps to fix pension ‘spiking’ rules," November 1, 2013
  16. Ahwatukee Foothill News, "DiCiccio wins District 6 City Council seat," August 30, 2013
  17. Maricopa County Libertarian Party website, "Phoenix Pension Reform Act text," accessed January 30, 2014
  18. Ballotpedia Staff Writer Josh Altic interview with Paul Jacob, January 22, 2014
  19. Ballotpedia, "Laws governing local ballot measures in Arizona," accessed March 12, 2014