Prescott voters increase sales-tax rate

Prescott voters have raised the city’s sales tax rate to help offset a $78 million unfunded liability for the pension benefits of its current and retired police officers and firefighters.

Residents decided by 54 percent to 46 percent in Tuesday’s mail-in election to increase Prescott’s sales tax by three-quarters of 1 percent, starting Jan.1. Just more than 16,000 residents cast ballots.

The tax increase will be dedicated solely to the unfunded pension liability and will stay in place until Dec. 31, 2027, or until the unfunded liability is lowered to $1.5 million or less. The tax hike is expected to raise between $11 million and $12 million a year.

“It says a lot about our citizens that they are willing to tax themselves so that the city can meet its obligation and remain vibrant, providing the services and programming that the public has come to expect from us,” said Prescott City Manager Michael Lamar.

The payments will go to the Public Safety Personnel Retirement System, a statewide program that has less than half the money needed to fund the pension benefits for Arizona public-safety retirees and currently working members.

Although PSPRS is a statewide plan, each member community makes payments to the trust fund based on its liability for the pensions of its local police and firefighters.

Prescott pays PSPRS close to a dollar — 92 cents for fire and 85 cents for police — for every dollar a public-safety officer earns in salary.

Communities that have more retirees drawing benefits than active employees paying into the system must pay more money to PSPRS because of that imbalance.

This occurred in Prescott, where the fire department saw a spike in the number of retirees from 2000 to 2015, while the number of active employees stayed about the same.

In 2000, there were 52 employees paying into the system, while 29 pensioners were being paid retirement benefits. In 2015, there were 51 firefighters, but 62 pensioners were being paid, according to PSPRS records.

“Demographic changes play a massive role when it comes to determining local retirement costs,” said system spokesman Christian Palmer. “You can reach a point where if a demographic swing is steep enough, it won’t matter if you have Warren Buffett making investments and you planted a money tree.”

The vote in Prescott could cause other communities to raise taxes to cover their obligations to PSPRS, said Rep. Noel Campbell, R-Prescott.

Campbell has been leading a special House committee to examine possible reforms at PSPRS. He has been highly critical of the trust’s management, low investment returns and large lump-sum benefits paid to some retirees through the Deferred Retirement Option Plan.

PSPRS officials have said past economic downturns and court decisions that threw out a series of legislative reforms have hurt the trust’s viability.

Campbell said his hometown averted a financial crisis by increasing the sales tax rate, but the vote also took the “wind out of the sails” of his committee, which has had hearings across the state.

“As long as taxpayers pony up the money for the system, it will be sustained,” Campbell said.

Campbell said he planned to have another hearing Thursday at the Capitol in Phoenix, but it was scratched after PSPRS officials told his staff that they would not attend. Instead, Campbell said, PSPRS planned to send one of its lobbyists.

“My gut is, PSPRS does not want to talk with us,” Campbell said. “But this is what they want. They want taxpayers to pony up.”

PSPRS spokesman Palmer said the agency has attended Campbell’s hearings across the state, but the agency didn’t have officials to send Thursday because they were going to be out of town for the Labor Day holiday.

“It didn’t work for the people involved,” Palmer said. “We offered to send our lobbyist, who is qualified to speak about PSPRS.”

Campbell said he likely will still have hearings in Yuma and the MiamiGlobe area in September.