Council adjusts payouts to retirement system

“In April the house passes a law which requires cities to adopt a pension funding policy for the Public Safety Personal Retirement System,”

Glendale councilmembers recently discussed methods of bringing their contributions to the fully funded levels that are now required by law.

Staff plans to update the Public Safety Personal Retirement System (PSPRS) payments from a 20-year plan to a 25-year plan. The decision is slated to be approved at the June 25 council meeting.

“In April the house passes a law which requires cities to adopt a pension funding policy for the Public Safety Personal Retirement System,” said Lisette Camacho, interim director of budget and finance. “It must be adopted by July 1, 2019, and must include funding objectives that address how stability will be maintained for the required employer contributions. Funding ratio targets state that the retirement assets would be at 100% funding.”

Taxpayers, through city and county budgets, are required to make up whatever it costs to fund public safety pensions. The new legislation requires them to cover expenses and must include funding that addresses stability for employer contributions and how and when they will be met.

Glendale’s current contribution requirement for the fire department is 46.4% versus the police department’s 50.3%.

“Fire department assets and unfunded liability is almost $117 million, and unfunded just short of $90 million,” Assistant City Manager Vicki Rios said. “It is a projection based on the actual study on what would be required to be there to pay out all those benefits over time and could change.”

Contribution requirements for fiscal year 2020 are projected at $10.3 million for police and $18.5 million for fire. Police decreased by just over $750,000 this year. The police department currently has $156 million in assets and an unfunded liability of $173 million.

But councilmembers asked how long they have to bring it up to 100% funding.

At the selected 20-year rate it would be fully funded in 2036, Rios said.

Staff showcased 20-, 25- and 30-year payoffs, which could save the city money in the long term, with higher annual payments in the shorter term. At 20 years the annual payment for fire would be $10,231,436 for a total amount of $204,628,720. The police payout per year would be $19,221,165, with a 20-year total of $384,423,300. If the city extends payments to 25 years, fire’s total would decrease to $9,135,291 (at a total of $228,382,275) and police to $17,075,287 (or a total of $426,882,175). Over 30 years fire would cost $8,574,929 (at a total of $257,248,170) and police $15,978,416 (a total of $479,352,480).

“Even if we have vacancies in the fire or police, the city still pays their contribution into the system, which is a form of prepayment to help lower that each year,” Rios said. “We have seen our liability decrease a little, not much, but every penny helps.”

Council struggled with the decision to change from the current 20-year rate of paying the PSPRS.

Sahuaro Councilman Ray Malnar suggested creating a policy that would result in paying it off earlier.

But City Manager Kevin Phelps pointed to budget authority.

“Getting to a $50 million fund balance was a goal of council, and we built it into our budget,” he said.

But he acknowledged how some people have asked what would be the result if future councils were not as frugal.

“If you have good discipline, then have it at 25 years and have an aggressive payment schedule,” Phelps said.

Council gave consensus to begin a 25-year payment plan for PSPRS, which could save taxpayers $3,242,023 annually if council does not pay more than required each year.