Prescott
AZ

Council Memo
1670

Approval of Payments to PSPRS from General Fund Unassigned Fund Balance and the proceeds from the sale of the Hotshot buggies.

Information

Department:FinanceSponsors:
Category:Approval

Attachments

  1. Printout

Document Comments

Recommended Action: MOVE to: 1) Approve the payment of $11 million from the General Fund unassigned fund balance to PSPRS; and 2) Approve the payment of $25,000 from the sale of the Hotshot buggies to the PSPRS Fire trust.

Body

Item Summary

Councilwoman Orr and Councilman Sischka requested that the following items be brought to Council to give staff direction:

1.     Authorize the payment of $11 million from the General Fund unassigned fund balance to the City’s PSPRS trust funds, $5.5 million to each fund.

2.     Authorize the payment of $25,000.00 from the sales of the Hotshots buggies to the City’s PSPRS Fire trust fund.

 

Background

During the FY18 budget process, Council made the following budget appropriations for payments to PSPRS:

 

The refunds of excess contributions related to the Parker/Hall case have been made in the amount of $1,005,844.00, the interest component of the case will be paid as soon as the court makes a final determination.  In addition to the budget appropriations, Council authorized the distribution of the proceeds of $579,625.00 from the sale of Fire Station #7 to PSPRS.

 

With the voter approval of Proposition 443, which created a dedicated sales tax to pay down the City’s unfunded PSPRS liability, we are looking for Council direction to send the $11 million of General Fund unassigned fund balance to PSPRS.

 

Additionally, at the May 23rd meeting the Council authorized the sale of the Hotshot buggies to the Los Angeles County Fire Museum.  The Council has discussed that these proceeds should go to pay down the PSPRS unfunded liability.

Meeting History

Sep 12, 2017 3:00 PM Video City Council Voting Meeting
draft Draft

Mark Woodfill, Finance Director presented the payment of Public Safety Personnel Retirement System (PSPRS) from the General Fund Unassigned fund balance. He said the proceeds from the sale of the Hotshot buggies had been sent in to pay down the PSPRS.

He said the FY18 budget appropriations for PSPRS were:

Description When to be Paid Amount

General Fund Unassigned Fund Balance If Proposition 443 $ 11,000,000

Parker/Hall Refund Court Final Ruling 1,215,250

Dedicated Sales Tax As Collected 6,000,000

PSPRS Normal Pension Cost Biweekly with Payroll 1,331,707

PSPRS Unfunded Liability Amort. Biweekly with Payroll 6,425,622

Total Budget Appropriation $ 25,972,579

Slide....PSPRS Tust Funds.

Police Fire Total City

PSPRS June 30, 2016 Valuation

Unfunded Liability $ 37,690,195 $ 40,755,684 $ 78,445,879

Funded Status 24.9% 36.0% 31.1%

FY18 Required Contributions

Normal Pension Cost $ 659,620 $ 672,087 $ 1,331,707

Unfunded Liability Amortization Payment 3,055,039 3,370,583 6,425,622

Annual Required Contribution (ARC) 3,714,659 4,042,670 7,757,329

Addition Contribution in FY18

Fund Balance $ 5,500,000 $ 5,500,000 $ 11,000,000

Buggies - - 25,000 25,000

Fire Station #7 2 89,813 2 89,814 579,626

Estimated Dedicated Sales Tax Revenue 3,000,000 3,000,000 6,000,000

Estimated Additional Contribution 8,789,813 8,814,814 17,604,626

Total Est. Payment to PSPRS in FY18 12,504,472 12,857,484 25,361,955

Estimated PSPRS Funded Status at FY18 Yearend

Estimated Increase in Funded % per $1 million

of additional Contributions (Source: June 30,

2016 PSPRS Actuarial Valuation Report) 2.2% 1.7%

Estimated Funded Status FY18 Yearend 44.3% 51.0% 48.1%

Estimated Unfunded Liability FY18 Yearend $ 27,979,679 $ 31,207,126 $ 59,186,805

Councilwoman Orr thanked Mr. Woodfill for the information and thanked the Citizens of Prescott for passing Proposition 443. She said thankfully they are having this discussion and not where they need cut next, and thanked everyone who helped support it. She said fifty-four percent of the voters said “Yes” let us get this done, and the other forty-six percent who voted “No” on Proposition 443 half of those the citizens probably voted ‘No” because they were concerned they would not do the right thing with the money. They needed to show the voters they are committed to this and do it.

Councilwoman Wilcox said she felt it was a bit premature to pay $11 million towards the unfunded liability and would like to get a financial advisor to see when the best timing and amount is to pay down the PSPRS and lay out a strategic plan to pay down the unfunded liability. She said with the two major Hurricanes they do not know what the m impacts could be and it could cost a lot of money. She is concerned they could loss all the reserve money and she did not see what the rush is to make the decision without good advice. She voted for the sales tax because she wanted to avoid cutting services. Her preference was to hold on to the $11 million in reserve and work with a financial advisor to guide them on how to pay down the PSPRS.

Mayor Pro Tem Lamerson said he agreed it looked great to pay it down and move forward and including the airport and using the unassigned cash would restrict us to get other things. He said he would feel more comfortable sending $5 million and the $8 million for an even $13 million and still bringing down the unfunded liabiltiy.

Councilman Sischka said it has been premature for years and they had been kicking the can down the road and there has always been a reason why they have not done anything. When the people voted for this they are expecting to pay it down as soon as possible, and hiring someone to do it would give the public a reason once again to not trust their decision to pay down the PSPRS. He said it would be a slap in their face for holding back and they needed to let the public know they were serious about paying down the PSPRS and letting them know what they did could put trust in City government once again.

Councilman Blair said the sooner they pay it the better and the sooner they could give the public back their money. He did not see why they should hire someone to say when the best time to pay when they have a finance director who has won many awards for his work on the budget.

Mayor Pro Tem Lamerson said in FY18 if they send $25 million what would FY19 payment be. Mr. Woodfill said the required contribution would be higher as the money has a two year lag and the rate they are paying for is form the FY16 evaluation, and the money they are sending in FY18 would be setting the FY20 rate and the payment will be higher in FY19 because none of these payments will be reflected until FY17 evaluation but in the FY20 the rate will bring down the rate significantly. Mayor Pro Lamerson said anticipated for FY20. Mr. Woodfill said remember of the $7.8 million contribution $6.4 million was for the unfunded liability.

Mayor Pro Tem Lamerson said if they send $7.8 million next year and continue down that path along with the 443 money they could pay this down to a manageable level in three to four years. . Woodfill said it would be ambitious, but it would definitely come down quicker than the ten years. Mayor Pro Tem Lamerson said $25 million is a lot of money and if they could bring this down and the sooner the better.

Councilman Lazzell said he agreed with the fellow Council and he used this number selling Proposition 443 and it was part of his legacy and he want to go out breaking a promise he was for paying what they had said they would.

Mayor Oberg said he agreed with Councilwoman Wilcox with it being premature to send in the $11 million. They do not know what the economy is going and he has spoken to construction managers who said with Hurricane Harvey’s destruction and federal money going to them would drive up the construction cost all over, and he sees the reduction of houses going down. He said in November they will see what it will bring and he feels it will be a lot. He heard they were going to be adding three years to the amortization table and they were deferring it to FY18 as it would be a much of a hit against the cities and town. He said nothing was built into what they were being presented, and each time there has been a down turn PSPRS has lost one billion dollars. He said the finance advisors in town said there will be a loss in the market much higher than in 2008 and 2009. He thanked everyone for passing Proposition 443, but would like to move forward cautiously, instead of empting out the reserves.

Councilwoman Orr said Scott Macready said to look at unfunded liability as a debt and the sooner the better and they still have unassigned reserve of $4 million in the reserve and the $7.3 million was the allowable 20%. She said that was exactly what they said they would do and not send in the $11 million. She would like to set up a citizen group to look at it on a quarterly basis or twice a year and they could do it and she said the do not need to hire a financial advisor they owe it and no one has a crystal ball and know what the future holds. She said every year they have to look at it she will fight to send down as much money as possible to pay it down to retire the tax.

Mayor Pro Tem Lamerson asked Mr. Woodfill what may be compromised if they use the unassigned fund balance. Mr. Woodfill said they have nothing assigned for the unassigned fund balance. Mayor Pro Tem Lamerson said sending the money would have insignificant impact on their ability to move forward if they pay $11 million. Mr. Woodfill said the $4.6 million for FY18 was not year marked or assigned and Council could assigned it to anything they wanted. Mayor Pro Tem Lamerson said moving forward paying what they can would cost the City far less if they stay the course. Mr. Woodfill said yes.

Mayor Oberg said there were two things he had heard from the ones who voted “No” on Proposition 443 was one of them was they needed to do something at the Capital to get this going and passing Proposition 443 would hurt the efforts and with the passing of three quarters of a percent sales tax would create a slush fund and could be used for other things and they have always said they need to pay the Annual Required Contribution (ARC) and they would also need to send additional money with it. Scott McCarthy from the pension plan did say they owed it and needed to pay it, they had to pay the ARC and the additional money that they are adding on each year. He felt the three quarters of a percent was right on track to get it paid down and he asked the Mayor form Queen Creek how it was going there and he said everyone thinks it stays the same because they keep adding more into the unfunded liability. He could not support the $11 million but could support the $5 million.

Councilwoman Wilcox said all she was asking for was to defer the decision and meet with an financial advisor the whole Council needs to lay out a plan before they get into reactive mode. Mayor Oberg said an independent. Councilwoman Wilcox said yes, it was their responsibility for the City and they have not followed through with the strategic plan and without wasting money and other things that may be coming up.

Mayor Pro Tem Lamerson asked if the Proposition 443 give them enough money to stabilize the General fund or provide the money to pay the bill. Mr. Woodfill said it would free up money for other projects Council brings forward and to clarify for the Mayor the ARC for FY18 budget is $7.8 million $1.3 million for the normal cost and 6.5 the unfunded portion. Mr. Oberg said thank you for your clarification.

Sherry Hanna a co-chair for Stand for Prescott YES on 443 committee, said she was here as a citizen of Prescott, she said an article that appeared in the newspaper had said since they have a dedicated source they should looking at the enterprise fund to see if they could pay a significant down payment unfunded liability. This was not what the voters passed and borrowing from the enterprise funds were very risky and not a good idea. Proposition 443 was a long hard battle and the people put the trust in them to use the sales tax increase to pay down the debt. They should be able to see what is being collected from the sales tax and what they are paying out for the unfunded liability. She implored them to stick to the original plan for what Proposition 443 was passed to do and dedicating the money to pay down the unfunded liability of PSPRS. She said when they did forums they had discussed sending $11 million was put in the budget to make a significant down payment if 443 passed and if they do not send in the $11 million that was said would send a message of mistrust to the Council and the government.

Charles McCabe, citizen, said as a finance adviser said they have to chart a middle course and pay the debt. The needed to get it down and deal with what they know they could do. Working with the legislatures could take years to get them to help pay down the PSPRS.

Phil Goode said he did not support the tax but the voters had spoken by passing it and now it was timing and it would be a mistake not to send the money the best thing to do was to commit the $11 million as suggested and maybe do it over a year's time and doing a dollar cost averaging. He said it would take about 6 to 10 years to pay it down to a manageable level. He applauded them for selling the surplus land to help pay the unfunded liability. Councilman Lazzell thanked Mr. Goode for all his work he had done with Planning and Zoning with Deep Well Ranch Development.

Roger Gragle, citizen, said he is not against paying it but they needed to do their good diligence and pay it.

Terri Christian, citizen, said she put her heart and belief into Proposition 443 and she would be so disappointed with Council if they did not send the money, this was not a PSPRS but for the quality of life of Prescott. Please vote to send in the money.

Stanford Cohen, Citizen, Chamber Board Chairman, said the Chamber supported Proposition 443 provided the City of Prescott makes its maximum effort to retire the PSPRS as soon as possible. He said he was concerned with the growth of the PSPRS. He said financial Advisors were the ones that got them into this mess. He did not know how the rainy day fund got replenished but they do have enough in the there and they need to pay it.

Councilman Blair said from his stand point they owing $80 million and by sending in $25 million it would take it down to $55 million. The Council owes it to their citizens to pay what they said they would pay.

Mayor Pro Tem Lamerson said the Granite 19 added to their liability and asked what the numbers were. Mr. Woodfill said there were six in the PSPRS and it was valued at $5 million and the state legislature approved an annual payment of $1 million a year for five years to help cover the cost and since that time additional eleven beneficiary’s have been added to the PSPRS and are in discussion with Senator Fann and Representative Stringer and Campbell to going back to the state legislature to increase the funding to cover the new unfunded liabilities associated with the Hotshots.

Mayor Oberg asked of the $5 million how much has been received thus far. Mr. Woodfill said about $4 million they do go back and ask for it and are asking the State to pay the additional money.

Mayor Pro Tem Lamerson said they owe the unfunded liability and they needed to pay it. The voters supplied us the ability to pay it and they need to pay it and sooner the better.

Councilman Sischka said he would like to get this taken care of once and for all.

RESULT:APPROVED [5 TO 2]
MOVER:Billie Orr, Councilwoman
SECONDER:Steve Sischka, Councilman
AYES:Jim Lamerson, Steve Blair, Greg Lazzell, Billie Orr, Steve Sischka
NAYS:Harry Oberg, Jean Wilcox