Arizona Public Retirement Benefits Amendment, Proposition 124 (May 2016)

Arizona Proposition 124
Election date May 17, 2016
Topic Pension
Status a Approved
Type Constitutional amendment	Origin State legislature

2016 measures
May 17
Proposition 123 a
Proposition 124 a
November 8
Proposition 205 d
Proposition 206 a
Polls
Voter guides
Campaign finance
Signature costs

The Public Retirement Benefits Amendment, Proposition 124 was on the May 17, 2016, special election ballot in Arizona as a legislatively referred constitutional amendment. It was approved.

Proposition 124 was designed to preserve the legislature’s ability to modify public retirement benefits for future employees and to replace the benefit system with a compounding cost of living adjustment.

A "yes" vote was a vote in favor of allowing the state legislature to adjust the Public Safety Personnel Retirement System to exchange the permanent benefit increase structure for a compounding annual cost of living adjustment.

A "no" vote was a vote to keep the Arizona Public Safety Personnel Retirement System the same.

Election results

Arizona, Proposition 124
Result		Votes	Percentage
a Yes		719,554	70.42%
No		302,195	29.58%

Election results via: Arizona Secretary of State

Overview

Pension problems

The Arizona State Legislature sought to reform the Public Safety Personnel Retirement System (PSPRS). From 2004 to 2016, pension costs for local government and state agency employers rose. This rising cost redirected increasing amounts of taxpayer money to payments on unfunded pension liabilities.

At least two factors explained why there was not enough revenue to cover the liabilities: the current Permanent Benefit Increase (PBI) and underperforming investment returns. The PBI mechanism had directed half of the PSPRS's investment returns over 9 percent into a separate account from which to pay out benefits. Unfortunately, this separate account could not have been used to reduce unfunded liabilities and did not earn interest. Further, the PBI was not directly linked to inflation, thus poorly accounting for cost of living changes.

Additionally, the poor investment returns of the PSPRS led to unfunded liabilities. The expected rate of return had been between 7.5 and 8 percent, but actual rate of return had averaged 5 percent from 2002 to 2016.

Reform

Legislators passed Senate Bill 1428 to address the pension problems. One change was creating a new retirement plan for new employees hired on or after July 1, 2017. This new plan was designed to give employees the choice of a full defined contribution plan or a defined benefit hybrid plan. It also was designed to reduce the pensionable pay cap and require employees to pay 50 percent of retirement costs and unfunded liabilities in the event that investment returns did not meet expected returns.

A second change was replacing the PBI with a cost of living adjustment (COLA) based on the average annual percentage change in the consumer price index of the Phoenix-Mesa metropolitan area.

Why a constitutional amendment?

A constitutional amendment was required to implement the PBI reform.

Article 29, section 1 of the Arizona Constitution currently prohibits the legislature from reducing future increases in existing public retirement benefits. If Proposition 124 were approved by the voters, it would constitutionally allow the legislature to make adjustments to the PSPRS.

Text of measure

Descriptive title

The official descriptive title was as follows:

“

The proposition and accompanying legislation permit the state to adjust certain benefits in the public safety personnel retirement system to alleviate system underfunding, including the replacement of the current permanent benefit increase structure with a cost of living adjustment that is indexed for inflation, capped at 2% per year.

”

Ballot language

The measure appeared on the ballot as follows:

“

A "YES" vote will allow the state to adjust certain benefits for public safety retirees, including the replacement of the current permanent benefit increase structure with a cost of living adjustment based on inflation, capped at 2% per year. A "NO" vote shall have the effect of maintaining the current benefit increase structure in the underfunded Public Safety Personnel Retirement System and prohibiting the proposed legislative adjustment intended to stabilize the system.

”

Constitutional changes

See also: Article 29, Arizona Constitution

The measure amended Article 29, section 1 of the Arizona Constitution.

Financial impact statement

The financial impact statement was as follows:

Show more

“

State law requires the Joint Legislative Budget Committee Staff to prepare a summary of the fiscal impact of certain ballot measures. Proposition 124 allows modifications to the Public Safety Personnel Retirement System (PSPRS) as approved by the Legislature in Senate Bill (SB) 1428. SB 1428 would revise the formula for providing pension benefit increases for retirees, survivors, and current members of PSPRS. The bill would also permit some current members of PSPRS to add a defined contribution benefit to their existing defined-benefit pension. SB 1428 also makes pension benefit changes for future PSPRS members, but these changes for future members are not subject to voter approval in Proposition 124. Determining the fiscal impact requires relying on actuarial projections of the future employer cost of PSPRS pensions. Actuaries make assumptions about the investment returns of the PSPRS pension fund and the health and life expectancy of current and future members to project the employer cost of pensions many years in the future. The actual employer contribution rates, and the resulting fiscal impact of the bill, could be higher or lower depending on the accuracy of these assumptions. PSPRS used an actuarial consulting firm to project the impact of SB 1428 on employer contribution rates for PSPRS employee pensions. The JLBC Staff used these actuarial projections to estimate the fiscal impact of the bill. The actuarial analysis assumed implementation of all provisions of SB 1428. The fiscal impact of the bill will vary for individual PSPRS employers. PSPRS includes 237 total employers, including towns, cities, counties, state agencies, and special districts, each of whom is financially liable for the pensions of their own employees. Each employer pays separate contribution rates that can be higher or lower than the average PSPRS employer contribution rate. Most of the fiscal impact affects local governments as opposed to the state. The actuaries developed two separate estimates of the impact of the bill depending on the outcome of pending litigation. In 2011, the Legislature enacted SB 1609, which modified PSPRS benefits along with other retirement systems. The changes would have affected the retirement benefits of both current retirees as well as current employees. Changes to the permanent benefit increases for existing retirees have been blocked by a previous court ruling. Litigation is currently pending to block changes for current employees hired before July 2011. The Maricopa County Superior Court has ruled in favor of the current employees and the case is currently on appeal with the Arizona State Supreme Court. In one of their two scenarios, the actuaries assume that PSPRS pension changes made by SB 1609 will be overturned. If SB 1609 is overturned, the actuaries project that the bill would decrease employer contribution rates in Fiscal Year (FY) 2018 from 52.7% to 51.0% of salaries. This decrease would result in estimated Total Fund savings of $(26.8) million for PSPRS employers in FY 2018. In the second scenario, the actuaries assume SB 1609 is upheld. The actuaries project that the bill would increase employer contribution rates in FY 2018 from 45.2% under current law to 51.0%. This increase would result in an estimated $91.4 million in additional costs for PSPRS employers in FY 2018. The current employer contribution rate would pay off the system’s unfunded liabilities. The actuaries project that those liabilities would be eliminated by 2042, including any impact of litigation. At that time, the contribution rate under current law would fall to 13.2%. Under either of the two SB 1609 scenarios, SB 1428 would reduce the rate to 9.8% by FY 2042. This decrease would result in estimated Total Fund savings of $(85.4) million for PSPRS employers in FY 2042.

”

Support

Yes on 124 was the official group supporting this measure.

Supporters

Individuals

The following state legislators sponsored SCR 1019, which was the name of the initiative bill as it moved through the legislature:

A YES on 124 video in support.

• Debbie Lesko (R-21)
• Judy Burges (R-22)
• Steve Farley (D-9)
• Catherine Miranda (D-27)
• Steve Smith (R-11)
• Carlyle Begay (R-7)
• Olivia Cajero Bedford (D-3)
• Katie Hobbs (D-24)
• Lynne Pancrazi (D-4)
• Bob Worsley (R-25)
• David Bradley (D-10)
• Adam Driggs (R-28)
• John Kavanagh (R-23)
• Andrew Sherwood (D-26)
• Steven Yarbrough (R-17)

Organizations

• Yes On 124
• Arizona Fraternal Order of Police
• Professional Fire Fighters of Arizona
• Phoenix Law Enforcement Association
• League of Arizona Cities and Towns
• Arizona Chamber of Commerce and Industry

Arguments in favor

Supporters argued Prop. 124 would:

• Save taxpayers money

Supporters argued that the plan would save taxpayers $1.5 billion by 2045.

• Save the Public Safety Personnel Retirement System (PSPRS)

Supporters said that Prop. 124 would ensure that the PSPRS would be solvent in the future and would continue to be relied upon for pension services.

• Allow local governments to improve public services

They contended that the plan would free up local government revenue to be used on 911 centers and other public services.

Quotes from supporters of Proposition 124:

Bryan Jeffries, on behalf of the Professional Fire Fighters of Arizona, said, “ Prop 124 is the product of years of partnership and productive negotiation between fire fighters, police officers, Gov. Doug Ducey, mayors of cities and towns, Republican and Democrat legislators of both political parties and a prominent conservative think tank. Together, we have crafted a reform measure that will take the pressure off overburdened taxpayers and municipal budgets, while ensuring the middle class retirement of the men and women working on the frontlines of public safety. Your “yes” vote on Proposition 124 will: Save Arizona taxpayers more than $1.5 billion over the next three decades. Shore up the underfunded PSPRS pension fund, to ensure its solvency in the future and relieve the pressure on municipal budgets, thus freeing resources for public safety, education, senior centers and youth programs. Improve 911 response times and allow cities and towns to fill open public safety jobs, improve training for police officers and fire fighters, and purchase necessary equipment to keep the public safe. As a Mesa fire captain and paramedic, I have experienced firsthand how an ongoing lack of resources have made answering 911 calls more difficult and, at times, more dangerous. Prop 124 will help turn this around. That’s one reason among many why your fire fighters support this very necessary measure. ” John Ortolano and Louis Manganiello, on behalf of the Arizona Fraternal of Police, said, “ Supporting a ballot measure which asks men and women on the frontlines of public safety to accept even a penny less in retirement was a tough sell to our members. The thing is, as workers in the business of keeping the public safe, we get it. Arizona’s taxpayers, cities and towns are in crisis when it comes to tax dollars and budgets. If we want to keep families safe, this crisis must be met head-on and solved. Proposition 124 is that solution. Yes on 124 helps alleviate the underfunding of Arizona’s public safety retirement system to take the pressure off taxpayers and our employers. This measure will save money beginning immediately, building to a savings of more than $1.5 billion by 2045. This savings will free up revenue so cities and towns can provide the core services our families rely on. The changes made by the bipartisan pension reform proposal will shore up retirement for police officers so we can protect our families just as we protect your family. ” Glenn Hamer and Dennis Dahlen, on behalf of the Arizona Chamber of Commerce and Industry, said, “ Arizona’s public safety pension system has been unable to keep pace with liability growth. A creaking public pension system that cannot keep up with growing obligations will begin to crowd out core government functions as more and more taxpayer dollars are shifted to pension liabilities, while raises, hiring and equipment upgrades will become extremely difficult. Unless we act, we will be faced with two bad options: Either severely cut services, or dramatically raise taxes. Fortunately, thanks to state Sen. Debbie Lesko and her colleagues in the state Legislature, Gov. Doug Ducey, representatives of public safety employees, local government leaders and the Reason Foundation, a respected think tank, legislation has been signed into law that takes a major step toward stemming the growth in unfunded liabilities. The reform package is a game-changer. The last step, however, is up to us. We must pass Proposition 124 to amend the state Constitution in order to alter the pension system’s future benefit increases. If we want to ensure that our police officers and firefighters have retirement benefits they can count on in the future while protecting taxpayer dollars, then serious reforms are needed now. ”

Opposition

Arguments against

Opponents argued Prop. 124 would:

• Make retention of firefighters and police officers more difficult

Opponents said that the benefits available under Prop. 124 would not be as good and that they could be transferred away, giving public servants less incentive to stay.

• Be unfair and harmful to families of public safety officers who die on the job

They argued that pension payments would begin immediately while the new system proposed by Proposition 124 would delay support for the grieving families.

A separate set of opponents with an opposite perspective argued Prop. 124 would:

• Make the public pension system still too generous

These critics of Prop. 124 insisted on removing the public pension system to make the retirement programs available to public employees the same as those available in the private sector.

Quotes from opponents of Proposition 124:

Nate Gafvert and Glenn Pearson, writing on behalf of the Mesa Police Association, stated: “ Prop. 124 is one piece of a broad pension reform package passed quietly this year by the Arizona Legislature and signed by the Governor. These bills are part of a national, Koch-brother, big-bank supported “reform” that seeks to ultimately eliminate traditional public-safety pensions in lieu of a “defined contribution” plan (think 401K). Our legislature and their lobbyists sold it to many unsuspecting cops and firefighters as giving new hires a “choice.” They explained that when new cops and firefighters are hired, they’ll “choose” between a pension or 401k. Seems swell, right? It’s not. Big banks and their commission-based retirement planners will exploit the doubt we all had entering our profession. They will sell young cops and firefighters on the option to take their retirement with them after five years, if, let’s say, the shine of the badge has worn off. And let’s be honest. After five years of missed Christmases and birthdays, every one of us doubted our decision to enter these professions. Sure, we love the job, but early in our career, times were tough. Our pension served as a motivation to continue to serve 20 or 25 years. Mark our words. Giving young, smart public safety professionals an easy out will make retention even more difficult. It will destabilize police departments. It will be a disaster. In ten years, we will look back on this retirement experiment with regret. But here’s the most disgusting part about the legislature’s scheme. If an officer or a firefighter is killed in the line of duty, pension benefits begin for the survivors, immediately. A 401k is not a pension. A grieving widow would be WORSE off, financially, with a defined contribution plan. It’s simply unacceptable. No, we’re not supporting Prop. 124. And we opposed all of the legislature’s shenanigans that put our financial future in the hands of the very banks that crashed America’s economy. We don’t support “choice” when it comes to a widow’s benefits or a stable, experienced, veteran-led police department. ”

Reports and analysis

Draft analysis

See also: Arizona Constitution

The draft analysis of the proposition was as follows:

Article 29, section 1 of the Arizona Constitution provides that public retirement system benefits shall not be diminished or impaired. The Arizona Supreme Court has determined that this constitutional provision prohibits decreasing a future permanent benefit increase for certain existing retired public employees. Proposition 124 would amend the Arizona Constitution to create an exception to the current prohibition against diminishing or impairing public retirement system benefits by allowing for certain adjustments to the Public Safety Personnel Retirement System ("PSPRS") that are contained in Senate Bill 1428 (a separate piece of legislation already passed by the Legislature and signed by the Governor, and not subject to voter approval). If Proposition 124 is enacted by the voters, Senate Bill 1428 would make the following changes: 1. For a retired public safety member, a survivor of a retired public safety member, a current public safety employee and a public safety employee hired before July 1, 2017, Senate Bill 1428 replaces the current permanent benefit increase for retired members or survivors with a new compounding cost-of-living adjustment (COLA). a. The COLA would be based on the average annual percentage change in the metropolitan Phoenix-Mesa consumer price index, with the immediately preceding year as the base year for making the determination. The adjustment could not exceed two percent of the retired member's or survivor's base benefit each year. b. COLA payments would be made on July 1 each year. The COLA would be prorated in the first year of a member's retirement. c. A participant in a deferred retirement option plan would not receive the COLA during the deferred retirement option participation period. d. The PSPRS actuary would be required to include the projected cost of providing the COLA in the calculation of normal cost and accrued liability for the PSPRS. 2. For a public safety employee who is hired on or after January 1, 2012 and before July 1, 2017, who is not covered by Social Security and who chooses to participate in the new supplemental defined contribution plan, Senate Bill 1428 would require the employee to contribute three percent of the employee's gross pensionable compensation each year. The employer of a participating employee would make a contribution ranging from 4% down to 3%, depending on the hire date of the employee, leveling at 3% beginning July 1, 2024, for the duration of the employee’s employment. The employee would be vested in the employee's contribution immediately and would vest in the employer contribution at a rate of 10% per year. Proposition 124 preserves the Legislature's current ability to modify public retirement benefits for future employees.

Fact sheet

The Arizona State Senate fact sheet for the proposition said:

“

Purpose Subject to voter approval, amends the pension clause of the Arizona Constitution to provide an exception for certain adjustments to the Public Safety Personnel Retirement System (PSPRS). Background PSPRS is a special retirement system created by the Legislature for certain full-time certified peace officers and full-time firefighters in the state of Arizona. The System provides a uniform, consistent and equitable statewide retirement program to these public safety personnel who are regularly assigned to hazardous duty of the type expected of peace officers or fire fighters. The System is designed to meet the special needs of personnel engaged in hazardous duty situations. PSPRS is a governmental retirement plan qualified under 401 (a) of the Internal Revenue Code. It is a defined benefit plan, which means the pension is determined by a formula, rather than by the amount of money in the member’s account. In addition, PSPRS is known as an agent multiple-employer retirement plan. Separate accounts are kept for each employer in the system. Monies in the entire system are pooled for investment purposes, but benefits and refunds are paid for by each employer only from the employer's separate account in the PSPRS. There is no anticipated impact to the state General Fund associated with passage of this resolution. Provisions 1. Provides an exception to the prohibition against diminishment or impairment of benefits. The stated exception is certain adjustments to PSPRS that are provided in S.B. 1428, as enacted by the 52nd Legislature, Second Regular Session. 2. Provides that this modification to the pension clause does not restrict the Legislature’s ability to modify public retirement system benefits for prospective members. 3. Requires the Secretary of State to submit the proposition to the voters at a special election to be held for that purpose on May 17, 2016. 4. Contains technical and clarifying changes. 5. Becomes effective if approved by the voters and on proclamation of the Governor.

”

Campaign finance

As of September 1, 2016, the support campaign for this initiative featured two ballot question committees, Arizonans for Strong Leadership and Yes on 124, which received a combined total of $498,888.29 in contributions. The supporting campaigns had spent $508,926.45.

According to the state's disclosure commission, no ballot question committees had registered to oppose the initiative, as of September 1, 2016.

	Cash Contributions	In-Kind Contributions	Total Contributions	Cash Expenditures	Total Expenditures
Support	$498,888.29	$0.00	$498,888.29	$508,926.45	$508,926.45
Oppose	$0.00	$0.00	$0.00	$0.00	$0.00
Total	$498,888.29	$0.00	$498,888.29	$508,926.45	$508,926.45

Support

The following table includes contribution and expenditure totals for the committees in support of the measure.

Committees in support of Proposition 124
Committee	Cash Contributions	In-Kind Contributions	Total Contributions	Cash Expenditures	Total Expenditures
Arizonans for Strong Leadership	$250,201.84	$0.00	$250,201.84	$260,240.00	$260,240.00
Yes on 124	$248,686.45	$0.00	$248,686.45	$248,686.45	$248,686.45
Total	$498,888.29	$0.00	$498,888.29	$508,926.45	$508,926.45

Donors

The following were the top donors to the committee.

Donor	Cash Contributions	In-Kind Contributions	Total Contributions
Action Now Initiative	$250,000.00	$0.00	$250,000.00
Professional Firefighters of Arizona	$250,000.00	$0.00	$250,000.00

Methodology

To read Ballotpedia's methodology for covering ballot measure campaign finance information, click here.

Path to the ballot

Arizona Constitution
Preamble
Articles
1 • 2 • 3 • 4 • 5 • 6 • 6.1 • 7 • 8 • 9 • 10 • 11 • 12 • 13 • 14 • 15 • 16 • 17 • 18 • 19 • 20 • 21 • 22 • 23 • 24 • 25 • 26 • 27 • 28 • 29 • 30

See also: Laws governing ballot measures in Arizona & Amending the Arizona Constitution

According to Article 21 of the Arizona Constitution, a legislatively referred constitutional amendment can go to the ballot if a majority of members in both the Senate and House approve it. After approval from the legislature, the proposed amendment goes on a statewide ballot for a popular vote of the people, after which, if approved by a simple majority, it becomes part of the constitution.

The Arizona Senate passed Senate Concurrent Resolution 1019 on February 4, 2016, with a vote of 28-0 and two abstainers. The resolution passed the Arizona House on February 11, 2016, with a 49-10 vote and one abstainer. It was transmitted to the secretary of state on February 15, 2016.

Senate vote

February 4, 2016

Arizona SCR 1019 Senate Vote
Result		Votes	Percentage
a Yes		28	100.00%
No		0	0.00%

House vote

February 11, 2016

Arizona SCR 1019 House Vote
Result		Votes	Percentage
a Yes		49	83.05%
No		10	16.95%

Related measures

See also: Salaries of government officials on the ballot

Salaries of government officials measures on the ballot in 2016
State	Measures
Minnesota	Minnesota Board to Set State Legislative Salaries, Amendment 1 a

State profile

Demographic data for Arizona
	Arizona	U.S.
Total population:	6,817,565	316,515,021
Land area (sq mi):	113,594	3,531,905
Race and ethnicity**
White:	78.4%	73.6%
Black/African American:	4.2%	12.6%
Asian:	3%	5.1%
Native American:	4.4%	0.8%
Pacific Islander:	0.2%	0.2%
Two or more:	3.2%	3%
Hispanic/Latino:	30.3%	17.1%
Education
High school graduation rate:	86%	86.7%
College graduation rate:	27.5%	29.8%
Income
Median household income:	$50,255	$53,889
Persons below poverty level:	21.2%	11.3%
Source: U.S. Census Bureau, "American Community Survey" (5-year estimates 2010-2015) Click here for more information on the 2020 census and here for more on its impact on the redistricting process in Arizona. **Note: Percentages for race and ethnicity may add up to more than 100 percent because respondents may report more than one race and the Hispanic/Latino ethnicity may be selected in conjunction with any race. Read more about race and ethnicity in the census here.

Presidential voting pattern

See also: Presidential voting trends in Arizona

Arizona voted Republican in six out of the seven presidential elections between 2000 and 2024.

More Arizona coverage on Ballotpedia

• Elections in Arizona
• United States congressional delegations from Arizona
• Public policy in Arizona
• Endorsers in Arizona
• Arizona fact checks
• More...

Recent news

The link below is to the most recent stories in a Google news search for the terms Arizona Public Retirement Benefits Amendment Prop 124. These results are automatically generated from Google. Ballotpedia does not curate or endorse these articles.

Arizona Public Retirement Benefits Amendment, Proposition 124 (May 2016) - Google News

See also

Suggest a link

• 2016 ballot measures
• Arizona 2016 ballot measures
• Arizona Legislature

External links

• Senate Bill 1428
• Senate Concurrent Resolution 1019
• Arizona Special Election Ballot Guide
• Yes on 124 website
• Yes on 124 Facebook
• Yes on 124 Twitter

Footnotes

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