Phoenix, Mesa finances earn low grades in annual report

The Valley’s two largest cities earned D grades in an annual review of government financial health because they don’t have enough money to pay their bills.

Truth in Accounting, a national fiscal watchdog non-profit, this week released its “Financial State of the Cities” report, which analyzes the financial audits of the 75 most populous cities in the country.

According to Truth in Accounting’s calculations, Phoenix has a $2.3 billion

“The report appears to focus on pension liabilities in particular. This is a topic that cities across the country are working to address, and Phoenix has been working publicly on this issue over the past six years.” Ed Zuercher Phoenix city manager, on Truth in Accounting report

budget shortfall, which equals $5,300 of debt per taxpayer. Mesa’s shortfall is $784.6 million, or $5,900 per taxpayer. Tucson also earned a D for its $1.3 billion shortfall, equal to $8,700 of debt per taxpayer.

Ballooning pension debts are most to blame for Phoenix’s and Mesa’s financial woes, according to the report. Phoenix’s pension liability is nearly $4 billion, and Mesa’s liability is almost $700 million.

Mesa also has a hefty unfunded retiree health-care liability of $646 million, which adds to its problem, Truth in Accounting CEO Sheila Weinberg said.

“We can’t ignore that,” Weinberg said. But cities have tried to in the past, she added.

Cities often consider their budgets “balanced” even though they have millions — and sometimes billions — of dollars in unfunded pension and retiree health-care liabilities, because they consider it a debt that can be paid down the road.

That’s “phony government accounting,” Weinberg said. “Would you consider your budget balanced if your creditcard balance increased?” she asked.

Phoenix City Manager Ed Zuercher said Phoenix’s budget is balanced, as required by law, because the city pays 100 percent of its annual pension obligation. This is the sliver of the pension debt that is due each year.

“The report appears to focus on pension liabilities in particular. This is a topic that cities across the country are working to address, and Phoenix has been working publicly on this issue over the past six years,” Zuercher said in a statement. “The City Council and the voters have implemented pension reform to reduce the city’s ongoing pension costs. This has resulted in saving over $1 billion over the next two decades in the city’s pension plan.”

But the City Council this past summer made a move that might cost taxpayers in the long run.

The council voted to ask the staterun public-safety pension system to give the city 30 years, instead of 20, to pay down its debt for the retirement benefits of public-safety workers. The drawn-out timeline lowers the city’s annual pension payments, but it will cost taxpayers an estimated $2.3 billion more over time.

Mesa Chief Financial Officer Michael Kennington said the city responsibly manages all of its expenses, including pension and retiree health-care costs.

“While we applaud the Truth in Accounting group’s effort to provide ‘easyto-understand’ financial information about local governments, we don’t agree with the methodology used or with several of the subjective assumptions made and don’t really understand the purpose of this report,” Kennington said in a statement.

Weinberg said it’s critical that residents be educated about their city’s financial health and understand the consequences of growing debt.

“If they knew the city was running deficits, maybe they would have voted for somebody different,” she said. “(Bad accounting is) really undermining our democracy’s ability to knowledgeably participate.”

Zuercher in December warned the City Council that it would have to make some tough decisions this year to address the pension-cost issue. He predicted the city would need to either cut services or raise taxes.

Looming elections for a new Phoenix mayor and at least two new council members could impact the outcome of that discussion.

Phoenix voters may also get a more direct say in how the city addresses its pension issue. Councilman Sal DiCiccio is backing a proposed ballot measure that would end pensions for elected officials, change how the city calculates its pension debt and require cities to spend almost all excess general-fund revenue to pay down the debt.

Backers of the proposal must gather about 20,000 signatures in order to get the initiative, dubbed the “Responsible Budgets Act,” on the ballot. DiCiccio has said he will donate $25,000 of his excess campaign funds to jump-start the signature campaign.