Arizona voters will have an opportunity to reform Arizona's pension system for cops and firefighters in May.
With overwhelming bipartisan support vote, state lawmakers last week agreed to add a proposition to the May 17 ballot that will also ask them to approve Prop 123, which will bust open the state schools trust to boost education spending.
If approved by voters, Prop 124 would allow the state to limit future cost-of-living increases for pensioners to 2 percent a year.
At the same time, lawmakers passed legislation that is designed to reduce pension obligations for future hires.
All in all, the reform package would require future employees to work at least until age 55 before becoming eligible for a full pension, require future employees to pay 50 percent of their pension cost; and give future hires the option of participating in a 401K-like plan rather than a traditional pension, (which provides them with the flexibility to move out of state without losing their investment in a retirement plan).
It would also prevent the practice of "pension spiking" (when cops and firefighters sell back unused sick leave in their final years to boost their annual pay and future pension payments) by capping the mount of salary considered for pension calculations at $110,000.
The sponsor of the package, Sen. Debbie Lesko (R-Glendale), said she was pleased with the widespread support the package received.
"Pension reform has been a crucial issue in Arizona for several years, and it's become a huge passion project for me over the last year in particular," Lesko said. "So, to see it pass through the Legislature with the bipartisan support of not only lawmakers, but also a broad coalition of stakeholders who once stood on opposite sides of the issue, is a huge victory."
Gov. Doug Ducey said the package was a "bipartisan, well-informed and meaningful plan that will protect our taxpayers while providing a sustainable pension system for the women and men who risk their lives every day to keep us safe."
"Today, we are one step closer to setting our pension system on a path to financial stability while improving the way it serves our brave cops and firefighters," Ducey said in a prepared statement after he signed the legislation.
State Rep. Bruce Wheeler (D-Tucson) said that the changes will stabilize budgets for cities and towns.
"It's about the survival of the pension system," Wheeler said. "It's about the survival of our city budgets and being able to hire police and firefighters."
Pensions for police and firefighters are a knotty problem for cities and towns. The state controls the pension benefits, but the local jurisdictions are obligated to pick up the costs. This year, the City of Tucson is spending $54 million in pension costs alone from a general fund budget of $494.1 million. And in the upcoming budget year, that number balloons to $80 million, which is one of the main drivers of the deficit that the Tucson City Council is now wrestling with.
Part of the reason for that high cost relates to lower payments that the city made in recent years after state lawmakers attempted to change benefits. Public safety unions sued the state, saying that the changes were illegal, and won in court, so now the local jurisdiction have to make up for the smaller contributions that they made as a result of the Legislature's changes.
While the changes will help in the long run, Tucson City Councilman Steve Kozachik warned that the city will still face big expenses for a decade or longer.
"The changes that are being made are probably not going to have much of an impact for a decade, when existing employees and retirees work their way through the system," Kozachik said. "While it's a good thing eventually, immediately it's not going to help us out from a general-fund standpoint. This is going to get worse before it gets better. The voters are voting on something that will have a long-term positive impact, but it's not some magic fix that's going to help us out with the general-fund problem we have for the next two, three, four years.".