Pension Hotspots: Phoenix, Tucson and Jacksonville
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By Josh Altic
The Pension Hotspots Report is a monthly publication about local pension reform efforts.
Activists have announced the beginning of a pension reform initiative effort in Phoenix. The initiative not only focuses on switching new city employees from a defined benefit plan to a defined contribution plan, but also seeks to prohibit the controversial practice of pension spiking. Also featured in the September report is the recent Arizona Supreme Court decision to boot the Tucson pension reform initiative, Prop. 201, off of the November ballot.
- Legislative pension reform in Jacksonville and Memphis
- State Budget Solutions new report on funded ratio of public pension funds across all 50 states.
- A possible state-wide initiative in California, spearheaded by the Democratic Mayor of San Jose
- Chicago officials looking at a possible $1 billion dollar budget deficit in 2015
Phoenix activists announce the launch of a new initiative to overhaul the city pension system again:
As the city of Phoenix sees its unfunded pension liabilities grow to $2.4 billion and its annual payments into the public pension system balloon from $28 million in 2000 to $110 million in fiscal year 2012, followed by $283 million a year later, some citizens are worried that the pension reform that was approved in 2012 will not be enough to get a handle on the city's retirement fund debt. Propositions 201 and 202, which established higher employee contributions and a higher age of retirement, were referred to the March 2013, ballot by the city council and overwhelmingly approved by voters. But recently a group called Citizens for Pension Reform announced that they are beginning circulation of signature petitions to put an initiative before voters that would entirely change the pension system for public employees going forward. The initiative would focus on two things:
- 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.
Citizens for Pension Reform must collect 25,480 valid, voter signatures to get their initiative on the 2014 ballot, and any one signature cannot be over 6 months old when the petitions are turned in.
Arizona local pension reform measures:
- City of Phoenix Pension Reform Initiative (2014)
- Proposition 201: City of Tucson Pension Reform Initiative
- Proposition 201: City of Phoenix Pension Reform
- Proposition 202: City of Phoenix Pension Reform
Pension reform court cases
Tucson pension reform initiative unable to beat the clock, Arizona Supreme Court boots measure from ballot:
With just days before ballots had to be mailed, the Arizona Court of Appeals issued an injunction blocking Proposition 201 from the November ballot. This decision overturned Judge James Marner's previous decision in Pima County Superior Court, in which condemned signatures were thrown out but more valid signatures than the required threshold remained.
The Committee for Sustainable Retirement released a statement after the Arizona Supreme Court's ruling to block Prop. 201 from the ballot:
|“|| The Arizona Supreme Court has determined that the Committee’s petition for review of the court of appeals decision in PARKER et al v TUCSON/COMMITTEE FOR SUSTAINABLE; CV-13-0288-PR will be considered at a later date, presumably after the court of appeals issues its written opinion. In the meantime, the Supreme Court has concluded that the initiative should not be on the November ballot. Once the court of appeals issues its opinion, the Committee will consult with its attorneys as to next steps.
Regardless of how the Court eventually rules, pension reform is of critical importance to Tucsonans and we will continue this effort.
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Cincinnati pension reformers sue county commission over altered ballot language for their initiative:
On September 11, Cincinnati For Pension Reform filed a lawsuit against the Hamilton County Elections Board seeking to change the language that the board approved for the ballot. The Elections Board altered the language before voting to put it before voters and the lawsuit claims that the ballot question misrepresents the wording of the full proposed charter amendment and illegally adds to the text of the amendment through "conjecture and partisan argumentation." Initiative supporters especially disapprove of a section that states that the proposed pension reform amendment would “require the city of Cincinnati to pay forecasted pension obligation shortfalls by creating new revenues, which may include new or additional taxes or fees, and/or other revenue sources ...”. The group behind the initiative have requested an expedited ruling.
Chicago stands at the edge of a possible $1 billion budget shortfall, hoping that growing pension payments will not drag it down:
City officials stated in August that the city could be over budget by nearly $1 billion dollars in 2015 if the pension system does not go through a major overhaul.
Laurence Msall, president of the nonpartisan Civic Federation budget watchdog group, had this to say about Chicago's financial situation: "The greatest concern is the growth in 2015 of a $1 billion budget deficit that's being driven by a growing contribution for the police and fire pension funds." He went on to blame state officials for not acting more quickly on pension reform, saying, "It is very difficult to see how the city could possibly close a billion-dollar budget deficit without severe cuts in services and dramatic increases all just to keep up with the pension requirements due to Springfield's inaction."
The mayors of troubled cities team up with pension reform advocates to consider a state-wide pension reform initiative in California:
San Jose's Democratic Mayor, Chuck Reed, is at the front ranks of those looking to amend the California Constitution to allow cities the ability to alter pension plans of city employees. Moreover, Reed is leading the mayors of many other troubled cities in the charge. Reed stated that he has been meeting with mayors across the state, as well as big pension reform advocates such as Dan Pellissier. The language of the proposed ballot measure to change the constitution is still being developed, but its general objective would be to explicitly allow state and local governments to change pension benefits for current employees going forward. Mayor Reed noted that with the sudden economic spike, the pressure to reform pensions has been reduced but that he still believes it is of the utmost importance to reform the retirement systems in California and lessen pension costs. Reed said, "I'm not seeing signs that the public thinks this isn't a problem that has to be dealt with."
In October, Ballotpedia will release a case study of two local pension reform measures that were approved by voters in San Jose and San Diego in June 2012, featuring exclusive interviews with Mayor Reed, former San Diego Mayor Jerry Sanders, pension reform advocate and Congressional candidate Carl DeMaio, among others. Stay tuned for further details.
Pew Charitable Trust gives assistance in Jacksonville pension reform:
The Pew Charitable Trust, which has researched and worked on state and city pensions around the country, may be helping Jacksonville, Florida, reform its pension plan. In several other places, especially Kentucky, Pew Charitable has pushed pension plans toward a hybrid between a defined benefit plan and a defined contribution plan. Jonathan Trichter, a public sector pension expert working with the Pew team, said that ideas such as a hybrid will be considered with the Jacksonville pension plan, but that the team is not entering the arena with a pre-formed plan. “We have no specific agenda,” he said. “This is important to really hammer home. We believe pension reform is a unique project; no one size fits all.”
Memphis looks to cut back pension payouts, unions fight back:
When Memphis officials proposed dialing down retirement benefits for new employees and those with fewer than 10 years of service, the union representing Memphis firefighters were outraged and called the proposed changes a "barrage of attacks" on public employees. The planned pension reform would change benefits by implementing an algorithm that averages salaries to determine pension payments and imposing a minimum retirement age. Thomas Malone, a former firefighter, said that about 600 union members have less than 10 years of service, meaning the new changes would apply.
The city experienced an increase in pension costs of over $220 million over the last 7 years, with the city's pension contribution equaling $310 million in 2006 and shooting up to $531 million in 2013. Human Resources director Quintin Robinson said, "We are not saying they don't deserve this benefit, or haven't earned this benefit through their services to city government. We are simply saying that we cannot afford it today and without some changes, the plan is not sustainable long-term."
A State-wide view
State Budget Solutions (SBS) has been running calculations on pension liabilities and assets for states with various projected investment return rates, usually much lower than the rates assumed by governments for their own liability reports. Most recently SBS released an estimate on all fifty states using the 15-year treasury bond yield rate of 3.2 percent. Using this rate, it calculated that public employee pension plans nationwide are only 39% funded and that they have made $4.1 trillion in pension promises not backed up by assets. Wisconsin took first place with the best funded pension fund at 57% and Illinois had the worst funded system at 24%. A map showing by what percent each state's pensions are funded according to this report is below:
List of 2013 local pension measures
- Pew Charitable Trust, "Cities Squeezed by Pension and Retiree Healthcare Shortfalls," March, 2013
- Pew Charitable Trust, "A Widening Gap," January, 2013
- Moody's website
- Standard and Poor's credit ratings website
- Governmental Accounting Standards Board website
- AFL CIO now, "1 Victory on Local Pensions, 5 Battles to Watch," September 23, 2013
- Azcentral.com, "Phoenix ballot initiative would overhaul pension system," September 16, 2013
- Pension Reform Task Force Presentation Document
- Ahuwatukee Foothill News, "DiCiccio: Why we need real pension reform — you decide," September 17, 2013
- Laws governing local ballot measures in Arizona
- Pima County Arizona Superior Court ruling case number C20134029, September 3, 2013 (available at courthouse)
- Arizona Daily Star, "City pension initiative officially makes ballot," September 3, 2013
- Arizona Daily Star, "Appeals court rules city pension overhaul off ballot," September 13, 2013
- Statement Released by the Committee on September 16, 2013
- Cincinnati.com, "Pension reform group sues to change ballot language," September 12, 2013
- Chicago Tribune, "Absent pension reform, city faces $1 billion hole," August 1, 2013
- The New York Times, "Struggling, San Jose Tests a Way to Cut Benefits," September 23, 2013
- The Sacramento Bee, "San Jose mayor backing ballot measure to roll back pensions," September 23, 2013
- Jacksonville Business Journal, "Pew’s Jacksonville pension reform plan could be ready by January," September 16, 2013
- The Commercial Appeal, "Memphis firefighters protest proposed pension cuts, April 3, 2013
- Tax Foundation, "Monday Map: Funded Ratio of State Public Pension Plans," September 16, 2013