Flawed pension impact calculations derailed the MOU negotiations
Oro Valley’s new police pay agreement is now in place, as we reported last week. With the deal ratified, pay and pension provisions are set through 2029—unless police pay rapidly escalates in Marana. But getting to an agreement was not easy, largely due to flawed estimates of the pension impact of the various proposals. In fact, it took a declaration of impasse by the Oro Valley Police Officers Association to get a meaningful agreement.
How did it get so complicated?
To understand what happened, we requested and reviewed more than ninety emails and schedules from the Town. Our public records request asked for any reports, memos, modeling worksheets, presentations, or correspondence prepared by Stifel & Co related to the pension liability impact of the police union MOU proposals. We specifically asked for documents showing how pension costs were modeled, the assumptions used, and any communications between Town staff and Stifel about adjustments made to the analysis between April 14 and May 7, 2025.
In early April, both the union and Town proposals were far apart on pay and pension impacts. At some point, Town staff had engaged Stifel & Co to analyze how each proposal would affect the Town’s public safety pension obligation. An April Stifel analysis showed the union proposal would have a far greater impact on pension costs than management’s offer. This early analysis indicated the union proposal would increase the Town’s pension obligation by $8.3 million (9.48% of total liability), while the Town’s proposal ranged from $2.2 million (2.55%) to $8.0 million (9.15%), depending on assumptions.
$5 million total impact limit given to town staff
This result came as a shock to Town staff. It was well over the “limit” they had been given: “We have received direction to attempt to keep the total cost of the new agreement, including PSPRS impact, to around $5M which our last proposal did not do. Additionally, our Town Council likes options when it comes to these things.” [Gephart to Daghestani email of April 18, 2025 (Email 47.pdf)]. At one point in the discussions, a Town representative told the union that their proposal could “bankrupt the town”—a comment that reflected how high the early pension impact figures were and set the stage for even greater tension as the impasse loomed.
The April frenzy: A search for affordable options
Between April 14 and April 30, the situation became especially intense. Town staff scrambled to understand the financial impacts of the various options. For example, between April 17 and April 23, Finance Director David Gephart worked with Human Resources Director Andrew Votava to develop and submit new management pay proposals to Stifel for analysis. As a result, staff sent at least two new management pay scenarios for Stifel to cost out, while continuing to refine a third. This period was marked by rapid back-and-forth as staff tried to provide council with multiple, affordable options ahead of the scheduled executive session at the end of April.
The union declares impasse—and uncovers an error
By April 28, negotiations had become so unproductive that the union declared an impasse. One reason was that the union determined Town staff had miscalculated the pension impact by including eight Deferred Retirement Option Plan (DROP) officers. DROP officers are police employees who have entered a program that lets them “retire in place”—collecting pension while still working, but not accruing new pension benefits. Including these officers in the original pension calculations overstated the Town’s true obligation because their salaries no longer affect pension costs.
Two April mistakes in calculating pension impact
This episode surrounding the pension impact was a mess that could have been easily avoided. Town staff made two mistakes that were entirely preventable, had everyone on the negotiating team understood how the different offers would affect pension costs. First, on April 23, Gephart wrote to Stifel acknowledging that his earlier implementation of “Mgmt 3” was incorrect and provided revised weighted averages to bring the PSPRS impact down. Second, the inclusion of eight DROP officers in the analysis was not discovered by the Town, but was caught by the union, which correctly pointed out that DROP officers should not have been counted. While these mistakes were unfolding, negotiations continued using faulty data. It’s no wonder the union declared an impasse on April 28. The Town was not operating in good faith.
What happened in May?
We don’t have documentation of what occurred during May. However, we do know that the final Memorandum of Understanding was agreed upon and adopted by the Town Council on June 6. Based on the timeline, it appears that the council’s involvement, along with the use of accurate and mutually agreed-upon data, enabled both sides to reach a settlement.
The terms of the final agreement are very similar to those under discussion in April, suggesting that resolution would have been possible had accurate pension impact numbers been provided.
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