Wednesday, June 12, 2019

Winfield Takes Reigns In Fixing Town's Unfunded Public Service Pension Liability

The unfunded public service pension liability is $23 million
Mayor Joe Winfield made it clear at last week's Oro Valley Town Council meeting that his council is going to both recognize and work to pay down the town's unfunded public service pension liability ("PSPRS" [Arizona State Public Safety Personnel Retirement System]) of approximately $23 million.

Approximately $2 million is allocated in this year's budget to do just that. There is also an added $1 million that is being paid to cover this year's liability.

Oro Valley is not unique in having an unfunded pension liability problem. According to the PEW Institute, Arizona has funded only 63% of its pension liability. Unfunded pension liabilities are significant for most communities in the US, What is unique is that our town, under Winfield's leadership, is going to do something about it. 

The Question: Pay less now or more later?
Council Member Nicolson wants the liability paid sooner rather than later. He emphasized that paying the liability down sooner rather than later saves the town money because the amount paid in will immediately start accruing compound interest, thus reducing the amount of future payments. The money is expected to earn over 7% once invested to fund the liability. The actual return, however, can vary significantly depending on how the private sector is doing economically.

Council member Rhonda Pina agreed for the need for a paydown, though perhaps disagreed with the timing. "We do need to make a pay down." She, and Council Member Rodman, want to be sure that the pay down does not impede the funding for other services. Regarding future budgets, she emphasized that "we're cutting back on future services and need the ability to be flexible" when it comes to paying down this pension liability.

Winfield provides direction
Winfield became aware of this unfunded liability last October. "This is a significant issue that we as a council...are taking ownership of," he noted at the council meeting. "I believe that the budget that has been presented that includes payment towards the principal is a wise move." Winfield is depending on staff and the town's budget commission to study this situation to provide future direction. "I believe that once that occurs, then it will be a natural next step for the staff to begin to look at...a variety of options of how to address this unfunded liability which we know has grown significantly."

"I want to go on the record that this is a significant issue for us as a council and a first step is to define the PSPRS policy, to really articulate what the problem is and then to give to our very capable staff some options..." on how to deal with this liability. "We may have to be thinking out of the box" to solve this problem.

Specifically addressing the police, Winfield said the police "...put their lives on the line. We want the pension to be there for them."

Council Member Rodman summed it up: "I agree with everything you just said...Every pension plan in this country is underfunded."
Source: Oro Valley Town Council Meeting, June 5: Mark 1:25 to 1:32