City of Phoenix Pension Reform Initiative (November 2014)
|Voting on Local|
|Local Ballot Measures|
|June 27, 2014|
|Original Case study|
|San Jose & San Diego|
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. City Councilman Sal DiCiccio reports that the unfunded liabilities have nearly doubled and now stand at $2.4 billion in pension debt not backed by city assets.
A group called Citizens for Pension Reform announced that they are beginning circulation of signature petition in order 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.
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. 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
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.
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.
The rapidly rising costs of the retirement plan is what led to the decision of the Phoenix City Council to push for pension reform. 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.
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.
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.
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.
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.
A new 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 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.
Sal DiCiccio is a strong advocate for drastic pension reform and financial responsibility and debt control. Expressing his opinion 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. On August 27, 2013, DiCiccio was reelected 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.
|Phoenix Council - District 6, 2013|
- These results are from the 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.
- Citizens for Pension Reform
- City Council member, Sal DiCiccio
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."
- City Pension Reform Task Force
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.
- Pew Charitable Trusts, "Cities Squeezed by Pension and Retiree Health Care Shortfalls," March, 2013
- Azcentral.com, "Phoenix pension ‘spiking’ rules vary for city employees," September 14, 2013
- Pew Charitable Trust, "A Widening gap in Cities," January, 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
- Phoenix Pension Reform FAQ
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- See the Pension Reform Task Force Document here for a list of the members of the task force
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- Intellectual Conservative Arizona, "Phoenix Pensions: No Reform/Slightly Better", September 27, 2012
- AZCentral.com, "Pension spiking may cost Phoenix $12 mil per year," October 17, 2013
- Ahwatukee Foothill News, "DiCiccio wins District 6 City Council seat," August 30, 2013