Bits and Pieces

Council approves new police agreement 

Wednesday, the Oro Valley Town Council unanimously (5-0 Vote) approved a new Memorandum of Understanding (MOU) with the Oro Valley Police Officers Association. The Council’s vote followed several weeks of behind-the-scenes discussions after negotiations had reached an impasse in early May. While speakers praised the agreement as fair and competitive, the final version of the MOU and its supporting documents were not made available to the public prior to the vote, so no further details can be reported at this time. We reported regarding the various options being consider and will report the final agreement once we receive the materials.

Water rate increase approved—effective July 5

Also Wednesday, the Oro Valley Town Council unanimously approved increases to the town’s potable water base and commodity rates, effective July 5. The average residential customer using 7,000 gallons per month will see a monthly increase of $1.81, or about 3.6%. The primary driver is a sharp increase in the cost of Central Arizona Project (CAP) water. The Town continues to cash-fund its capital improvement program without issuing new debt, which also contributes to the rate hike. Reclaimed water rates remain unchanged, and the town notes that Oro Valley still offers some of the lowest water rates in southern Arizona for typical residential customers.

Council targets chronic building and litter violations with stronger enforcement tools

And Also Wednesday, the Oro Valley Town Council adopted Ordinance No. (O)25-03, changing how the Town enforces certain code violations. The ordinance reclassifies issues such as illegal construction, unpermitted electrical or plumbing work, and failure to remove accumulated litter from criminal to civil offenses for initial violations. This change allows Town code enforcement officers—not just police or legal staff—to issue citations directly, making enforcement faster and more efficient. To address ongoing noncompliance, the ordinance also introduces a mechanism to escalate repeat violations to criminal charges after three offenses within 24 months. A new maximum civil fine of $1,000 per day was also established.

Town stays on track to fully fund police pensions

And, once again, Wednesday, the Oro Valley Town Council unanimously approved fulling funding the town's Public Safety Personnel Retirement System (PSPRS) obligation. The policy is a continuation of prior year policies under Winfield's leadership. The contribuion reflects the most recent actuarial data, showing that the town’s police pension fund improved from 95% funded in FY 2023 to 98.6% in FY 2024. With this year’s additional budgeted contributions, staff expects to reach full funding—potentially exceeding 100%—by the end of FY 2025–26, assuming stable investment returns. The new policy maintains the town’s commitment to responsible, long-term pension funding.

Oro Valley has more than fifty commercial sites available for development
The Town of Oro Valley’s economic development website lists over 50 sites available for commercial activity, including both land parcels and existing buildings. Specifically, there are 19 sites designated for high-tech and bioscience development, some located within Innovation Park’s expedited development zone. Additionally, there are over 30 commercially zoned sites ranging in size from under an acre to nearly 15 acres. These figures encompass both vacant land suitable for new construction and existing buildings available for adaptive reuse. Most of the existing buildings are along Oracle Road. Most f the vacant land is west of La Canada. [See Panel right]. (Source: ChooseOroValley.com )

No congressional funds for Oro Valley in 2026...Overreached in FY25?

Congressman Juan Ciscomani has no community project funding requests for Oro Valley in the FY2026 federal appropriations cycle. That’s a sharp contrast from last year, when he sought $17 million for Oro Valley bridge repairs—a figure that now appears far higher than necessary. According to the Town’s own FY26 Capital Improvement Program, total bridge-related spending over the next ten years is budgeted at just $7.2 million. That includes specific repairs to La Cañada, Rancho Vistoso, and First Avenue bridges, as well as ongoing annual maintenance. (Source)

Red light therapy, juice bars, and high-tech optics highlight May's business openings

Oro Valley welcomed several new businesses this month, with a notable focus on wellness and innovation. Two red light therapy studios—Diviti Adora and Red Light Method—have opened on Tangerine and Oracle, offering treatments that blend fitness with infrared light technology. On the tech side, Transformative Optics brings cutting-edge imaging system development to town, while Talon Analytics offers engineering solutions to Fortune 500 firms. Also new: Oranju, a fresh juice bar, and a branch of Tucson Federal Credit Union inside Walmart. (Source: The OV Edge)

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Bits and Pieces

BFC review of 2026 Town Manager’s Budget checks a box for town manager, but adds little value to the budget process
Oro Valley’s Budget and Finance Commission (BFC), established in 2019, has not consistently participated in the review of the Town Manager’s Recommended Budget (TMRB). While it was not involved in last year’s FY 2025 budget process, it has occasionally received presentations in prior years without playing a formal advisory role. This year was much the same as that, as staff presented the TMRB to the Commission on May 20.

The BFC did not make a substantive contribution to the development of the TMRB at the meeting. This is because the budget had already been developed and finalized for presentation by the time the BFC reviewed it. The Commission’s role was limited to reviewing and asking clarifying questions. While their discussion helped reinforce certain priorities, like fiscal sustainability and transparency, their comments led to no changes in the budget. Thus, their involvement seemed more like checking a box in the process of completing the TMRB, rather than seeking meaningful input during its development.

Town exploring new taxes to fund future capital needs
At the May 20 meeting of the Budget and Finance Commission, Town Manager Jeff Wilkins introduced a discussion about three potential new revenue sources that are not currently part of the Town Manager’s Recommended Budget. These include a use tax, a telecommunications tax, and a commercial rental tax—all of which are common in nearby municipalities like Tucson, Marana, and Sahuarita but are not currently levied in Oro Valley. Wilkins described these taxes as a way to diversify the town’s revenue base, enhance financial stability, and create a dedicated funding stream for capital needs such as roads and public safety infrastructure.

Although these proposed taxes are not included in the fiscal year 2025–26 town manager recommended budget, Wilkins used the budget presentation to make the case for exploring them. He emphasized that the town’s five-year forecast shows a capital funding shortfall by year five, and that relying solely on existing revenue sources may not be sustainable. According to Wilkins, the proposed taxes could generate between $900,000 and $1.8 million annually, and Wilkins suggested dedicating all proceeds to capital—possibly even restricting it further to public safety. Commissioners responded with questions about operational costs associated with capital projects and whether future councils would be overly constrained by strict earmarking of these new revenues. 

Budget and finance commission recommends approval of $2.84 million contribution to fully fund PSPRS for FY 2026
At its May 20 meeting, the Oro Valley Budget and Finance Commission voted unanimously to recommend Council approval of the FY 2026 PSPRS pension funding policy. The policy includes a total contribution of $2.84 million to the police retirement plan—$738,817 as required by actuarial valuation and an additional $2.1 million in excess of that requirement. This extra payment is intended to eliminate the plan’s remaining unfunded liability and bring the plan to 100% funded status by June 30, 2026. Commission members supported the action after confirming the plan was financially feasible and aligned with the Council’s long-standing goal to fully fund the police pension plan.

New signs, tours, and research projects featured in OVHS May update
The Oro Valley Historical Society’s (OVHS) May newsletter highlights several new initiatives. Eight interpretive signs for Steam Pump Ranch are now in production and expected to be installed by early June, offering year-round self-guided tours.  The Society also launched a redesigned website in April and is seeking volunteers to help with content and outreach. Additional efforts include digitizing historical audiovisual materials, creating an educational display about George Pusch, and continuing research on the families who shaped Oro Valley’s early history.

Disc golf returns with summer vibes and mountain views
Oro Valley’s Pusch Ridge Disc Golf Course is reopening for summer play starting  this Saturday, Nestled at the base of the Santa Catalina Mountains, the 18-hole course offers daily play from 7 a.m. to 7 p.m. through September 21. New this year: weekend golf carts, short tees for novice players, and PDGA-sanctioned league play every Friday at 4:30 p.m. Tee times are required on weekends (7–11 a.m.) via PlayOV.com, while weekday play is first-come, first-served. At $10 per round, it’s a fun, affordable way to enjoy the outdoors—and the scenery can’t be beat. (Source: Town of Oro Valley Press release)
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Fully Funding Town's Public Safety Pension Obligation Is A Moving Target

In 2021, The Town of Oro Valley fully funded police pensions
In 2021, the Town of Oro Valley, under council direction, paid almost $28 million into the state's Public Safety Personnel Retirement System (PSPRS) to fully fund the town’s public safety pension. Ten million dollars of these funds were from the town’s general fund. The town borrowed the remaining amount, $17.6 million, at an interest rate of 2.39%, with the anticipation that the funds would be invested by the state at a target rate of 7.2%. The town pledged its sales tax revenues to back the bond. The borrowing will be fully paid by 2038.

“Leveraging Debt" and paying down reserves to save big money

Borrowing funds at a low rate of interest and then investing the borrowed funds at a much higher rate is called “debt leverage.” The favorable interest rate environment of 2021 allowed the town to achieve this strategy successfully. According to the town’s financial advisor, Stifel Public Financing, the move enabled the town to save millions in future pension funding costs. Stifel estimated that the combination of a $10 million cash contribution and $17.6 million in debt financing allowed the town to generate savings of $17 million from 2021 to 2038.

Barrett support of action in 2021

What was initially successful in achieving 102% funding is now at 95% 

Initially, that contribution resulted in the town’s PSPRS being funded at a higher level of 102%. However, whether the fund remains fully funded depends on three factors: the state’s seven-year rolling average calculation of funding requirements, the actual return on invested funds, and the actual pension payouts to retirees. It is the last of these factors that has caused the current shortfall.

Upcoming 2024 budgeted PSPRS contribution of $2.5 million should return funding to 100% level 

At present, the PSPRS fund is now calculated to be 95% funded, according to state figures. As a result, the town is making a $2.5 million contribution this fiscal year to return to a 100% funding status. The shortfall arose because of increased pension payments to Tier 1 and Tier 2 retirees, increases that were greater than the actuary’s assumption. Despite the fact that the PSPRS fund earned an 8.6% return, which is above its 7.2% target, these factors led to an underfunded status.

Keeping PSPRS fully funded is "a moving target" 

Town Finance Director David Gephart noted in his discussion with the council at the May 9 TMRB study session: “We have to live with the reality: Police are living longer and their benefit increases. We're shooting at a moving target all the time. We got to 100. It’s going to be like doing a pull-up. You're going to get over the bar, and you're going to be under the bar.”

Like this link to follow LOVE’s previous coverage of the PSPRS investment.

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About PSPRS 

As of 2023, the Arizona Public Safety Personnel Retirement System managed approximately $19.5 billion in total assets. The system has been recognized for its transparency, earning the 2024 NCPERS Transparency Award. Despite facing challenges such as underfunded liabilities, PSPRS continues to work towards ensuring the long-term solvency and stability of the retirement system for Arizona’s public safety personnel.

Oro Valley Seeks To Fill Four Board and Commission Vacancies

Town seeks to fill four vacancies

Want to make a real difference in our community? Then apply for one of the following openings on a Town of Oro Valley voluntary board or commission. 

There are four vacancies
Historic Preservation Commission has one open position
Council Member Steve Solomon is the council liaison to this commission. "The Historic Preservation Commission (HPC) promotes the education, cultural and economic welfare of Oro Valley. The HPC works to preserve historic buildings, districts, landmarks, structures, documents and photographs. The commission has one open position that serves a three-year term. The HPC meets on the first Monday of every month at 5 p.m."

Planning and Zoning Commission has one open position

Vice Mayor Melanie Barrett is the council liaison to this commission.  "The Planning and Zoning Commission has one open position that serves a two-year term. The commission holds public meetings and makes recommendations to the Town Council on matters relating to the General Plan, zoning code amendments, rezoning’s and other land use requests. The Planning and Zoning Commission meets on the first Tuesday of every month at 6 p.m."

Tucson-Pima County Bicycle Advisory Committee Representative has one open position
"The Town of Oro Valley provides a representative to be part of a joint committee that acts as the official advisory body on bicycling matters in Pima County and the City of Tucson. The Tucson-Pima County Bicycle Advisory Committee meets at 6 p.m. on the second Wednesday of the month."

Public Safety Personnel Retirement System Board has one open position
"The Public Safety Personnel Retirement System (PSPRS) board has one open citizen position that serves a four-year term. PSPRS is governed by State guidelines. The local PSPRS board was created to provide a uniform, Consistent and Equitable statewide retirement program for public safety personnel who are regularly assigned hazardous duty in the employ of the State of Arizona or a political subdivision of the state. The Public Safety Personnel Retirement System board meets at 2 p.m. on the second Tuesday every other month."

How to apply

"To serve on any board, commission or committee, members must be residents of Oro Valley, be able to attend the designated meetings and complete the Town’s Community Academy within their term. Those interested in applying can visit the application process” by visiting the following this link.

(Source: Town of Oro Valley Media Release 1-18-23)

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Guest View-Mayor Winfield:Fiscal Responsibility-Fixing The Police Pension Debt

In early July, Oro Valley voters will be receiving ballots for the 2022 election of a Mayor and three town council members. LOVE plans to keep you informed regarding each candidate. In this regard, we’ve offered the pages of LOVE to each candidate. We’ve asked that they submit guest views. Mayor Winfield has provided the following views. The words are his. The subheadings are ours

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Fiscal Responsibility - Fixing the Police Pension Debt
Town government must provide services and amenities in a fiscally responsible way. I would like to share with you actions your Council has taken to provide current and future Town services to residents, while ensuring that we avoid raising sales taxes, or recommend a property tax.

 

Last year your Council voted 7-0 to solve the $27.6M of underfunded police pension debt by transferring $10M from reserves, and bonding $17.6M at 2.4% interest. We accepted the recommendation of consultant Stiffel, Town Manager Mary Jacobs, Town Finance Director David Gephart, and the Budget and Finance Commission. The OVPD police pensions are now fully funded, the Town’s investment is projected to save up to $30M over the life of the bond, and we will save $700,000 this year.

 
In essence, we replaced a $27.6M debt growing over 7% each year with a $17.6M bond at 2.4% interest. My opponent, a benefactor of the now fully funded police pension, did nothing either as police chief or as acting town manager while this debt grew. [chart above] Further, he still advocates doing nothing, and “kicking the can down the road”. Were we to follow his course of inaction the police pension debt at a 7% expected return would double in 10 years to $56M, and in 20 years to $112M.

 
I would like to commend Pima County for placing a $300M bond and Golder Ranch Fire District for placing a $28M bond to fix their police and fire pension debt. These actions like ours will protect Oro Valley property owners from future tax increases from these two property taxing authorities to “bail out “ county and fire district unfunded but obligated pension debt. In all, 27 Arizona municipalities and fire districts wisely chose to pay down public safety pension debt by using low interest bonding.

 
Fully funding the pensions that our sworn officers and staff have earned protecting us is our obligation, and a way to show that we appreciate their success in making Oro Valley the safest town in Arizona.

 
Joe Winfield

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Oro Valley's Police Pension Has Gone From Underfunded To Overfunded

Funding at 105% of anticipated need

The Town of Oro Valley’s public safety pension retirement fund (PS PRS) is now at a 105% funded position. This the result of a one-time contribution the town made on July 6, 2021 to the fund of $27.6 million; and some portion of an excellent return on investment on the funds. That return for last year was al all time record for PSPRS of 27%.

The one-time contribution came from two sources: The issuance of $18 million in pension bonds and $10 million from the town's cash reserve. The bonds have a face interest rate of 2.39%. (source)

Substantial improvement over prior years

As of June 30, 2021, and this is prior to the submission of $27.6 million to fund the PSPRS, the net unfunded liability was $24 million. The plan was funded and a 66% level ("funding ratio"). That is: The amount of value in the fund as of that date was less than the liability estimated by the State. Even though that is less than the estimated needed amount, that result was an improvement over the prior year. Then, the unfunded liability was $25.7 million in the funding ratio was 61.7%.

Fund now has a small funding cushion

"You've got some cushion that has been built," according to PSPRS representative Clark Partridge speaking to the town's Budget and Finance Commission at its February 15 meeting. "You're also saving approximately $2 million a year on your employer contribution. That $2 million in savings is going allow you the budget capacity to be able to pay for that financing [on the bond] that you have going forward.  But once that financing is paid, you're really going to be in a much better position."

Headwinds ahead because of high inflation

The projections made by PSPRS are sensitive to changes in two areas. The projection assumes that the fund will return 7% in the long term. This has held true for the past seven to ten years, according to Partridge. 

The other area is inflation and its impact on current wage levels. The plan projections assume a 2% rate of inflation. Inflation is currently running at 8%. That's four times the level assumed in the projections.  "That growth rate has been higher than what it has been historically but [the PSPRS Board] are also looking at and will be paying attention as inflation happens. If current salaries increase more than what the 2% inflation rate, the PSPRS Board may consider some other course of action," according to Partridge. 

An increase in salaries of current employees increases the amount of annual contribution towns are required to put in the fund. Annual contributions are based on a percent of current salaries. The town is undertaking a staff compensation study as part of it's 2022-23 budget process. It is highly likely that the town manager's recommended budget will include substantial wage increases as it did the last time a study was done in 2014.

Future contributions to the fund

Partridge recommends the town continue to fund PSPRS so that the funding ratio is around 100%. "That's the sweet spot."

Bits and Pieces

Pusch Ridge Golf "Off to a great start"...But no "lessor" in sight
At Wednesday's Town Council Meeting, Town manager Mary Jacobs' reported activities that have been taking place at the Pusch Ridge golf course. The course opened in November and is "off to a great start." Among other things, she noted that the course has hosted two successful frisbee golf tournaments. 

Tony D'Angelo, President of the "Friends of Pusch Ridge Golf", discussed the remarkable success of the course. 3,958 rounds of golf were played on the course in November and December.  That is equal to total rounds played in 2020, the last year the course was open. "We are confident that we are going to more than exceed the budget."

Neither speaker reported on whether and how the town is taking on the challenge or reducing the enormous amount of drinking water used to irrigate the course.

The town has yet to find someone to lease the course. "Per Town Council’s direction, the Town issued a Request for Proposals (RFP) on November 1, 2021, to competitively solicit proposals for an operating lease at the Pusch Ridge Golf Course. The Town received one proposal from HGM Golf. The proposal was evaluated by Town staff relative to the requirements of the RFP and the specified evaluation criteria. At its conclusion, the proposal was deemed to insufficiently demonstrate that HGM is capable of successfully leasing and operating the Pusch Ridge Golf Course, and as a result, the Town will not proceed with further contract award actions with this firm. The Pusch course continues to perform well and is ahead of revenue projections for the season." (Source: Town Manager January 2022 Executive Report, P1)

Financial Update: "Things continue to look positive"
"Things continue to look positive in all our funds." This was the opening comment of Wendy Gomez, Oro Valley Finance and Budget Administrator, as she covered the town's financial situation through November.  According to Gomez, all general fund revenue sources are trending positive. Expectations are that actual revenues will exceed budget by $4.8 million. That's a 10% increase over budget.  At the same time, expenditures are expected to be $1.1 million under budget. The net result is an almost $6 million over budget result for the General Fund.

Other funds, including the Community Center Fund, are projected to be either on budget or slightly better than budget.

Town undertaking staff compensation study
The town is undertaking a study its compensation to employees. "The Town is finalizing its evaluation of proposals for the planned employee classification and compensation study. The City of Tucson, Town of Sahuarita and Town of Marana have all conducted similar studies recently that have led to some adjustments in their respective employee pay structures, either planned or implemented. The Town will be following the same process. Being the final municipality in the region to do this puts us in an advantageous position regarding salary comparisons. We expect to have the study completed by this summer and I plan to include funding in my FY22/23 Recommended Budget for implementation once finalized and approved by Council. Based on our counterparts’ changes or planned changes to pay structures, we do anticipate our own pay plan adjustments will be necessary to keep pace and remain competitive." (Source: Town Manager January 2022 Executive Report, P1))

The last compensation study that Town did in this area several years ago. It resulted in significant increases in employee compensation.

PSPRS Investment performed at "historic levels" in 2021
The town invested $27 million last year remind insurance in the Public Safety pension fund. Responding to a question of Vice Mayor Barrett at Wednesday's council meeting, Town finance Director and Gephart stated that the investment performed at historic levels in 2021. "The return for the fund was over 27%." 

This result is a tremendous win for the town. Town borrowed the $27 million they invested in the fund at an interest rate of approximately 3%. That investment earned a return far greater than that. 

$18 Million in Pension Bonds Priced at 2.39% to be issued July 1

“S&P affirms Oro Valley's AA+ rating; PSPRS bond issuance at 2.39% 

S&P Global Ratings has affirmed its AA+ rating for the Town of Oro Valley's upcoming $18 million in pension obligation bonds (Public Safety Personnel Retirement System, or PSPRS). Among other things, S&P noted that the Town of Oro Valley has strong economic fundamentals, extraordinarily strong maximum annual debt service coverage, and low volatility of its sales tax collections. This rating helped the Town obtain a highly competitive interest rate of 2.39% for the bonds, which ultimately lowers the amount the Town pays for its chosen method of reducing its PSPRS unfunded liability. Bonds are projected to be issued July 1, 2021, and will be combined with $10 million in reserves, resulting in 100% funding for its public safety pension systems.”

(Source: Town of Oro Valley Press Release)

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Council Targets Nagging Problems In 2021-22 Record Budget

2021-22 budget cap: $162 Million

Oro Valley will roar into the post pandemic era. Last week, the town council unanimously approved the largest budget cap it the town’s history: $162 Million.

The approved cap is intended to be used to fix nagging problems

An underfunded public safety plan and long needed investment in Naranja Park; Golf Course Irrigation; the town’s trails system are the drivers of the spending.

The council has seized the opportunity to fix these problems now because the town has received free federal money, seen an unexpected surge in sales tax revenues and fees, and has the opportunity to take advantage of cheap interest borrowing rates.

Town Manager’s requested budget: $107.5 million 

The Town Manager’s recommended budget starts the formal budget process. We reported our build up of that budget in April. The town manager submitted a budget of $107.4 million. She was instructed by council to ad $27 million for the pay down of the town’s underfunded public safety pension (“PSPRS”).

Town Council problem fix: $54 million

PSPRS: $27 million 

The budget cap includes $27 million in spending that the council directed the town manager to include in the budget. That amount is to be used to pay-down the town’s underfunded PSPRS.

Parks: $25 million 

Since that budget’s submission, the council directed the town manager to add spending of about $24 million to pay for parks. Half of that was directed by council to be spent on Naranja Park. (Our report on the town $42 million in bonds to cover the PSPRS pay down and parks investment.) 

Annexation of Westward Look: $700,000 

The Westward Look annexation, also a council decision, caused the addition of about $700,000 to the budget. This amount is needed for the town to complete promised improvements and for added funding of $160,000 for “Visit Tucson”. 

The town is required to designate a percentage of its bed tax revenues for tourism attraction. According to Town Manager Mary Jacobs: “We currently utilize Visit Tucson as our primary marketing group.” Visit Tucson had been receiving about 50% of Westward Look’s bed taxes through an agreement with Pima County. The town manager’s budget had included $250,000 for Visit Tucson. So, the total in the budget for Visit Tucson is $410,000

Former Vistoso Golf Course: $1,000,000 

Another council decision will be its role in possible grant funding of $1 million if The Conservation Fund is successful in purchasing the former Vistoso Golf Course from Romspen LLC; and then gifting a permanent conservation easement of the property to the town.

The council will conduct a second hearing on the budget at its June 14 meeting.

Bonds To Pay Down Unfunded Pension Liability Could Exceed $18 million

Fixing the unfunded pension liability

The town council will discuss and likely approve the structure of the bonds to be issued to fund the town’s PSPRS liability at tonight’s council meeting. The resolution pending approval authorizes the Mayor, Town Manager and Chief Financial Officer to move forward with negotiating, finalizing and issuing the bonds this July. 

The total amount of the borrowing is not to exceed $18.13 million

That is $1.33 million greater than the $17 million payment the town will make from these borrowings to the PSPRS. We suspect that this additional amount represents fees paid the financial advisor, Stifel Nicolas and Company, and others to register (with the SEC) and syndicate the bonds.

The bond will be in denominations of $5,000

The bonds will not be sold directly to the public. Rather, the town will engage an underwriter who will likely sell the bonds to institutional investors. A bond issue of this size is very small and should be easy to place, especially give the town’s excellent credit rating. Some portion of the bonds will mature each year, on a schedule starting as early as 2022. Per the resolution, the total borrowing must be repaid by 2039.

These are taxable revenue bonds, secured by the town’s unencumbered sales tax revenues and fees

This feature allows the town to seek the most favorable interest rates on the market. The resolution also gives the town finance director the option of purchasing insurance that would guarantee interest payments. This option is rarely executed in today’s markets.

The interest on these bonds will be taxable. This is because the activity of using the funds to pay for pension shortfalls does not meet IRS requirements to be a non taxable bond. To an extent, the taxable status broadens the market for selling the bonds by making the bonds more appealing to investors who can’t take advantage of tax free interest. For example, a University endowment may be interested in these bonds.

 

Other Arizona governing entities doing the same

The practice of issuing taxable bonds to pay for pension shortfalls came into being when the State of Illinois did so in 2010 to cover its massive pension shortfall. This now seems to be the “standard method” in Arizona. Three examples are Cottonwood,  Pinal County and Kingman.  Flagstaff is also working to reduce its pension liability by selling and leasing back municipal facilities.

Issuing these bonds is a major step in reducing the town’s unfunded pension liability.

Bits and Pieces

Westward Look annexed

The Oro Valley Town Council voted 4-1 on three measures to annex the Westward Look Resort. This happened at Wednesday’s council meeting. Council Members Nicolson and Solomon were absent from the meeting. Mayor Winfield, Vice Mayor Barrett and Council Members Joyce-Ivey and Green voted in favor. 

Council Member Bohen voted against the measures because the annexation did not include residents who live east and west of the resort. Indeed, as town manager Jacobs confirmed, the town had never considered bringing these residents into Oro Valley. Bohen noted that the town was violating its own annexation policy of only annexing continuous areas, and not annexing “islands.” Bohen is also fearful that these residents, having participated in a rather rancorous process, will not be interested in joining Oro Valley in the future.

Impact of big payment to PSPRS won’t be seen until fiscal 2024
As previously reported, the Oro Valley Town Council approved an additional budget item to be included in the tentative 2021-22 budget. It regards using $10 million from the general fund and using the proceeds from a $17 million pension ob bonds to be issue to fund the PSPRS underfunded obligation. 

If this item is included in the council approved budget, the payment will occur the first week of July. The plan is to then continue to fund PSPRS at State determined annual contribution levels. For the next two years, those payment amounts will be determined as though the $27 million was never contributed. This is because the funding requirement is determined as of June 30 and any change takes place starting the following July 1.

Single family residents permits issued set record
The Town of Oro Valley is on its way to issuing almost 400 single family residence building permits this year. That level is an historic high, an increase of 43% over last year. Projected revenues from permits to the town this fiscal year is $2.8 million.

Projected sales tax revenues set record
One of the unexpected consequences of the Pandemic is seen in the town’s sales tax revenues. Oro Valley sales tax collections were more than 15% higher than the prior year, This was “...helped greatly by an increase in online purchases.” Total sales tax revenues are projected at $14million this year. This extrapolates to $553 million in resident purchases.

“Ghost” golf course in Oro Valley

“We discovered an abandoned, formerly luxurious golf course in Oro Valley that we dubbed the “ghost golf course.” We meandered along the paved cart path wondering what had happened to change this oasis in the desert into a peaceful yet scrubby eyesore to the advantage of walkers and bikers.”  This quote appeared in an Colorado Springs  online publication. We suspect that the writer is referring the former Vistoso Golf Course.  We love the referfence to the “scrubby eyesore”.

Oro Valley wins Distinguished Budget Presentation Award” for 13th consecutive year

“For the 13th year in a row, the Government Finance Officers Association (GFOA) has awarded the Town of Oro Valley the Distinguished Budget Presentation Award for its 2020 budget. The award represents a significant achievement by the Town of Oro Valley. It reflects the commitment of Town Council and staff to meeting the highest principles of governmental budgeting. the conservation” (source)

Former Purchase Golf Course negotiations continue 

Negotiations between Rompsen LLC and The Conservation Fund regarding the purchase the former Vistoso Golf Course continue. Romspen is getting an appraisal of the property for negotiations with the Fund.  Romspen is also in negotiations to sell the parcel of the property that is zoned for multi-family residential.  This according to Town Manager Mary Jacobs, speaking at  this weeks Oro Valley Town Council meeting.

Oro Valley Town Council Salutes The Blue

 

Oro Valley Town Council Approves Plan To Eliminate Public Safety Pension Unfunded Liability

6-0 Approval Vote
The Oro Valley Town Council voted 6-0 ( Council Member Greene abstaining) on a plan to fully fund the towns public safety pensions by 2036. It is a plan that will need to be implemented by the council if it chooses to include it in the annual budget.

Plan combines general fund money and bond funds
The plan will have the town issue $17 million in pension obligation bonds and earmark $10 million in general fund monies towards the pension obligation. According to consulting firm CBIZ,  this option is the least costly to the town.

Pension obligation bonds do not require voter approval
It is the expectation that the interest rates that the town will pay on these bonds will be far less than the rate of return the funds will earn on that money. The consultant assumed that the town could borrow the funds at 2.75% and invest them at 5.25%. The difference, according to Council Member Nicolson, is, in and of itself, sufficiently significant to warrant borrowing as a solution because Interest rates are at historically low levels. Indeed, that seemed to be the motivation of others on council to support a July implementation of the measure.

Prior Added $1 million contributions to PSPRS had small impact on underfunding

The aggregate funding ratio for all 264 plans in PSPRS is 48%. Ore Valley police funding is better than the average, at 61.7%.

Both the Hiremath and Winfield councils recognized the need to increase funding of the plans. Both contributed $1M annually for the past three years in addition to the required annual contribution. The result was a small dent in the unfunded liability total of $24 million.

Plan implementation requires that it be included in 2021-22 budget 
According to Town Manager Jacobs, the motion that the council approved directed her to “...incorporate into the recommended budget the capacity to move forward with this type of an option in the budget.” It did not direct her to implement the plan. As a consequence, the efficacy of implementing the plan will undergo much vetting over the next two months as the council and the public opine on the budget. 

Plan implementation in July if it is included in budget

If it is included in the budget, the town will deposit $10 million from the general fund into the PSPRS in July. Bonding will require a council resolution in July. The town will then issue $17M in pension obligation bonds in July, the proceeds of which will be contributed to the PSPRS. 

 

According to Jacobs, there is some urgency to move forward with the plan in order to take advantage of low interest rates. “I think the Vice Mayor is correct. If we’re going to do this the sooner that we can take advantage of the interest rates and shoot for as early in July as possible or sometime in that timetable. I think would be the best.”

Council Member's Green and Solomon question wisdom of implementing the plan

Council Member Mo Greene abstained from voting on the plan. He had asserted that there is no urgency to fund the plan. Greene stated that he had met with police union officials. They told him they were not concerned about the underfunding and that none of their member payments have been impacted by it. 

Council Member Solomon said that the plan must be considered in light of other town needs; that it should not be considered in isolation. He referenced other needs such as upgrades and improvements to town facilities and funding that may be required for parks and recreation. He also felt that obligating future councils to pay interest on and to pay off pension bond debt principal was a statement that future councils were not capable of dealing with the underfunding problem.

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Oro Valley Council To Set Strategic Priorities Tonight

Two year horizon

Tonight, the Oro Valley Town Council will review and set strategic priorities for the town for the next two years. The document they are reviewing is called “The Strategic Leadership Plan.” It covers a two-year period of time. The plan sets priorities in seven areas (See panel that follows).
  
Part of the budget process

Approving the strategic leadership plan is part of the process that Town Manager Mary Jacobs developed while she was working with Mayor Hiremath. At that time, Jacobs used the council’s annual January strategic leadership retreat to introduce the concept of developing operating priorities based on that counsel‘s interpretation of the intent of the general plan. That is what the leadership plan includes. The last leadership plan was developed two years ago. The Winfield Council was in office for less than two months. COVID-19 had not yet happened.  So a new plan really is appropriate given these changes in circumstances.

Planning a "post pandemic" Oro Valley 

One of the goals of the plan is to transition the Oro Valley economy to a post pandemic era. Of course, no one knows what that will be so the plan will provide directions to proceed but not necessarily direction that the town will proceed in areas like economic development and in activities to attract retail and hospitality businesses to the community. These businesses that have been particularly hard hit by the pandemic.

Focus on ESLO

Another area focus is to look at the towns “Environmentally Sensitive Land Ordinance (“ESLO”). It was passed in 2011. You can read its history here.

To some extent the ESLO is a barrier rampant, unbridled growth. This ordinance was approved by counsel encourage the wise use of land, avoiding the obliteration of hillsides for example. One of the objectives of the proposed strategic leadership plan is to evaluate the ordinance in relationship to “unintended consequences”. We’re not sure to what unintended consequences they refer, since these not stated in the document. It seems that perhaps the ordinance, if evaluated at all, should be evaluated against what it has accomplished. That is: How has the ordinance prevented the wanton distraction of land?

Funding police pension key financial focus area

In the area financial sustainability, and objective is to find a solution to the funding town's public safety retirement fund (PSPRS). This fund is managed by the State. Oro Valley’s pension is. underfunded.  Oro Valley would lead the entire state if it funded its plan completely, since 95% of our communities have severely under funded there public service pensions. The State should lead this effort for all communities.  For example, the State has the financial capacity to fund the plan and deduct each town’s share over, say 20 years, from State shared revenues.

The "buildout" bogeyman to drive annexation

Also included in the objectives in the financial area are to more fully understand what the “build out” of the town actually means financially. There are some on council who have said that the town will need a property tax to support itself is buildout is achieved. They assume that the town can’t find more efficient ways to deliver the same level of service. It also a promotes a “grow or die” philosophy. Thus, one of the areas the plan discusses is the continuing pursuit of high priority annexations.

 

Could be the final opportunity for some council members to opine

What the town Council decides this evening matters because it sets what town will pursue past the next council election. It may well be the last time that some members of council will have the opportunity to shape the future. I hope they do so and that they will do so wisely.

2020-21 Budget Approved Unanimously

A cautious approach to spending
The Oro Valley Town Council unanimously approved a $105.4 spending budget for this fiscal year. The timing of the spending will depend on the financial impact of the pandemic. Hopefully, according to Town Manager Jacobs, the town will have an idea of how things will play out financially by mid year.

The town has taken a conservative position in this years budget because of the uncertainties of revenues. For example, the budget includes $6.1 million in unallocated spending. In addition, potential spending on capital improvements is being "phased in" during the year. How quickly these projects will happen will depend on the stability and predictability of the town's revenue streams.

           Watch LOVE's one minute budget summary

Budget includes elevator for community center
One of the needs that was unfunded by the Hiremath administration was the need to make the Oro Valley Community Center ADA complaint. One of the compliance measures is an elevator. This is now in the budget. The timing however is a bit unsure. According to Town Manager Jacobs, the location of the elevator will be determined based on the result of the towns Parks and Recreation Master Plan Study. This study is to be completed this fall.

$500K added contribution for PSPRS
The budget includes spending $500k as an additional payment to the State of Arizona Public Safety Pension Retirement Fund ("PSPRS"). This is the same as the added amount paid the past two years under the Winfield Administration. The timing of this payment will depend on the financial impact of the pandemic.

Public Safety challenge gets spending priority
Council was in agreement that public safety funding is critical to maintain. They agreed that public safety spending should be first priority. Town Manger Jacobs staid that "It is my obligation to fix a problem" if she learns of one from Chief Riley. She noted that the town does have contingency reserves to cover unforeseen events.

There were no public hearing discussion
The meeting was a public meeting. No hands were raised.

Effusive thanks to staff
Several times during the discussion, council members thanked staff for their work on the budget. Mayor Winfield summarized the comments: "I want to thank Ms. Jacobs and staff for their incredible work in putting the budget together for this fiscal year...during these unprecedented times of Covid pandemic."

Council Chases The PSPRS Moving Target

Target: Fully fund by 2036
The Oro Valley Town Council voted unanimously last week to continue their plan to fully fund the Public Safety Retirement Fund by 2036. It is funded at 60.8% of anticipated liability this year. Last year it was funded at a 59.9% level.

Winfield: "We're losing ground".
Unfunded balance grew in 2019
Mayor Winfield observed that the town is "losing ground" when it comes to funding this estimated liability.  Though the funding ration is greater this year than last, the unfunded liability increased to $24.4 million from $22.8 million in 2018. The amount of the unfunded accrued liability is increasing, even though the town added $500,000 in payment last year.

Reason: Poor PSPRS investment returns
The problem, according to town Finance Director David Gephart, is that the investment return has been lower than anticipated. "It's not going to get better unless we see some strong investment returns."

Funded status improved in 2019
but the liability and the contribution rate grew

The reason is that the Arizona Public Safety Personnel Retirement System  (PSPRS) invests the pension funds. PSPRS took a very conservative investment stance in 2008 and returns have been "abysmal".  They target a 7.4% return. "The return on the market value of assets for the year ending June 30, 2019 was 5.4% for Tiers 1 and 2".  (Source: PSPRS Oro Valley Report, 2019).

Tier 1 and Tier 2 are the culprit
Some years back elected officials across the nation decided to give defined pension benefits away instead of giving wage increases. It was easy for them to do because none of them would be around when the pensions had to be paid. Now, the problem is squarely in front of municipalities.

According to Gephart, what we are now seeing is the impact of this giveaway.

"It was an unsustainable plan of PSPRS. Because it was unsustainable, they created Tier 2, which was Tier 1 with basically less benefits" for employees hired after 2011. "They decided that even Tier 2 was unsustainable so they created Tier 3" for employees hired started in 2018.  "The only way this turns around is when Tier 1 employees start rolling off." Even then, according to Gephart, "Tier 2 needs to roll off."

Our thinking...Underfunding PSPRS is a Statewide problem that needs to be addressed by PSPRS
We've said it before but we will repeat it again. There is no benefit to paying more than the minimum required annual contribution. The State will make payments to recipients even though a town's funding is less than 100%. . Paying more simply bails out a very bad PSPRS investment scheme.

The State of Arizona created the program. 
The State created the problem.
Here's how the State can fix the problem.
The State has the borrowing power and the ability to fix the problem. It could borrow the funds to "buyout" Tier 1 and Tier 3 participants. The State could probably borrow the funds at 3%, pledging the amount it recovers from a pro rata share of the funding each town would pay over the life of the bond, which is usually 30 years. That "buyout" could be an option for each participant to take a lump sum payment, rollover the sum to another tax deferred account, or settle for a lifetime annuity paid by an insurance company. This, by the way, is the solution used for years in the private sector.

Regardless, we suspect that this council and all future councils will always be chasing this moving target... and they will only catch it when all members of tier 1 and tier 2 have "rolled off", as Gephart has so gently put it. He means, of course, they have died.
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Oro Valley's Public Safety Pensions Funded at 61% Plus Level

About the same as last year
The Town of Oro Valley has funded approximately 61% of its future payout from the public safety pension fund ("PSPRS"). This valuation is as of June 2019, the latest valuation date per the State.

The PSPRS is managed by the State of Arizona. The State pays the pension to Oro Valley's police officers. Each member entity, like a town, is required to contribute to the fund. The contribution is determined based on town's enrolled employees. The fund has 228 member entities.

Oro Valley's  61% 2019 funding level is about the same as the 59.9% level last year. It is also before consideration of the town's added payment last June of $500,000. So, the actual funded level is a bit better than 61%. Last year, Oro Valley's pension funding level was above the average among members. (See chart here). We suspect that that will remain the same.

The underfunding is about $25 million
"The current Town Policy established a funding ratio goal of 100% by June 30, 2036. The Council identified the following actions to achieve the 100% funding ratio:

• Maintain Annual Required Contribution payments from operating revenues. 
• Retain 20-year amortization period. Review Local board practices annually. 
• Apply adopted financial policies dedicating surplus funds at year-end toward reducing the unfunded liability. 
• Budget an additional payment toward the unfunded liability. For FY 19/20, $500,000 was appropriated in the budget." (Source)

No town can ever assure itself that it will fully fund its PSPRS liability

Determining the exact amount of the PSPRS funding  liability is tricky. It involves many assumptions. These assumptions are "mixed together" by actuarial accountants to determine the underfunding.  So, the funded ratio is a "moving target."

Underfunding presents no problem to the officer

There is no scenario that we can envision in which the State will not pay a pension to an officer, even if their town member has underfunded the pension. Non payment is not going to ever happen.

There is no danger to a town as long as it pays is minimum required contribution. Oro Valley's goal of a 20 year period to make up the underfunding is aggressive. The State statute allows for a selection of a catchup-period of 25 or 30 years. 

Future should be brighter
Many of the 140 Oro Valley police officers covered by the plan are still active. 43 of these are currently drawing from the plan. An additional 8 will be retiring within the next 5 years. Their replacements will not be on the same defined benefits plan. 

Defined benefit plans like those once offered by PSPRS are no longer offered. Officers hired after July 1, 2018, participate in a retirement plan that requires their own contribution to their retirement, supplementing the town's contribution (Tier 3) This aligns with best practices in retirement funding. 

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Winfield Led Council Takes On Police Pension Funding Shortage

Police safety plan is 61% funded
The Town Of Oro Valley has provided for 61% of future projected disbursements for its police. This, according to a year-old report to the town by the Arizona Public Safety Pension Retirement System ("PSPRS"). PSPRS manages the pension. Each member, and there are 228, is responsible its pensions. In other words, Oro Valley's liability is solely the town's problem.

Underfunding is a long-standing problem
The prior council did not deal with this problem as it continued to develop over the years. The town is assessed an annual minimum contribution to the plan. With the exception of one year (2015), when the town paid an added $300,000, the minimum is what the town paid.

Winfield council acted
This year that minimum amount is approximately $2.8 million. Recognizing the shortfall, town council included a $500,000 added contribution in this year's 2020 budget.

Oro Valley is mid pack
There are 228 public safety related entities in PSPRS. Only 21 have plans that are fully funded.  63% of the entities are funded at less than 70%, even though average funding coverage is 70%.  In Southern Arizona, only Sahuarita is above the average. Golder Ranch Fire District is at the state's average.

$22.9 million shortfall
How much shortfall are we talking about? $22.9 million, according to last year's PSPRS report to Oro Valley. It will likely be even more this year because the market, though performing well, did not perform at the levels the PSPRS used in creating their underfunding analysis.

What will Oro Valley do?
There is question as to what the town should do about the shortfall. Should it behave like most communities, making the minimum payment annually?

Or should it act as Vice Mayor Barrett believes (panel left).

Visit the PSPRS web site if you want to learn more about the public safety pension plan.

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."
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Source: Oro Valley Town Council Meeting, June 5: Mark 1:25 to 1:32