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Updated May 16, 2014 - 4:59 pm

Arizona voters may see pension-overhaul plan

PHOENIX — A major pension-overhaul proposal floated by police and fire
unions could make it to the Arizona Legislature during a special session in the
coming weeks and then be referred to voters in the November general election.

The proposal is designed to deal with a massive underfunding of the state’s
pension program for public safety employees only. One of its goals is to avoid
huge increases in contributions that employers must make to the Arizona Public
Safety Personnel Retirement System.

That would lead to service cuts or tax increases by municipalities and county
governments so severe that voters could revolt and throw out the entire state
pension system.

Nothing is yet set in stone, and the proposal could still collapse.

Many key Arizona lawmakers have been briefed on the plan. A firefighters’ union
official said the lawmakers generally support the proposal and backers plan to
meet with Gov. Jan Brewer’s staff on Friday afternoon.

Brewer spokesman Andrew Wilder said Friday that governor is aware of the
proposal and is not averse to the idea. But he said a special session would not
be held at the same time as one planned to deal with a child-welfare overhaul,
the governor’s key priority this year.

“We are in the very preliminary stage of dialogue regarding this issue,”
Wilder said. “No decisions or commitments have been made.”

As proposed, police and fire department retirees statewide would give up
cost-of-living increases for the first seven years of their retirement unless
they were 60 years old and then see smaller increases than they now receive.
They would also take responsibility for funding their own yearly pension
increases by separating out money for that part of their pensions.

A similar proposal that would address shortfalls at the state pension system
for corrections officers is close to action as well.

Part of the impetus for the overhaul is a ruling by the state Supreme Court in
January that said the state Constitution prevents the Legislature from cutting
pension benefits. That decision sidetracked a 2012 overhaul by the Legislature
and put added pressure on the unions to propose changes before the system headed
to insolvency or was eliminated by voters altogether.

Firefighters and police in Arizona generally receive no Social Security
benefits, so major cuts to pensions could be devastating for retirees.
Addressing the problem now makes more sense, said Mike Colletto, legislative
director for the Professional Fire Fighters of Arizona.

“The firefighters and police officers realize that the way our pension was
structured worked for a long time when the markets were returning a lot of
money,” Colletto said. “But that’s not the case today.”

Talks on the proposal have been underway for weeks. While advocates of the
proposal would like to have the Legislature deal with it during a special
session held at the same time as one planned late this month to overhaul the
state’s child welfare system, the governor’s office has firmly rejected that
idea.

The proposal envisions a bill making the changes being enacted that would not
take effect until the voters passed in November a constitutional amendment
allowing the pension changes.

“I believe the unions recognize that there needs to be some concessions made,
both economically to get these pensions on a better footing and politically
because there’s clearly a lot of public uproar concerning some of the more
outrageous abuses,” said Rep. John Kavanagh, R-Fountain Hills. “They may also
want some sweeteners for their side, and that could be a little bit of a
problem. But things seem to be proceeding smoothly, so it could happen.”

The state runs four pensions systems, although the plan for judges and elected
officials was closed to new members last year because it was heavily
underfunded.

The main Arizona State Retirement System for most line workers has enough money
to pay about 75 percent of its expected pensions and would not be affected by
the proposal. The plan, which is not part of the current proposal, has $30.6
billion in assets as of 2012, more than $9 billion short of liabilities, but
it’s generally considered healthy. As of June 2013, it had about 207,000 current
members and 122,000 retirees drawing pensions. Retirees have not had a
cost-of-living increase since 1995.

The plan for public safety officers has funding for just 57 percent of its
expected liabilities, with $6.2 billion in assets and $10.8 billion in
liabilities, a balance considered very low. It uses a different formula for
cost-of-living increases that requires the state to put any excess earnings into
a fund for just that use and doles out automatic increases in most years.

The problem is that when the fund sees losses, as it did during the Great
Recession, excess cash in flush years can’t make up the difference because it is
sent to the cost-of-living-adjustment fund.

The state’s plan for prison guards is at 67 percent funding, with $1.6 billion
in assets and $2.3 billion in liabilities.

Some lawmakers are leery of the proposal because of how it would change pension
formulas.

“There’s some reluctance on my part to codify a pension formula in the state
Constitution,” said Sen. Adam Driggs, R-Phoenix. “But what are the
alternatives? That’s what we need to discuss.”

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