As Budget Nears, Council Grapples With $111 Million In Unfunded Public Safety Pension

A little more than $30 million over the past four years. That’s how much Councilmember Charlie Odegaard said he has seen Flagstaff’s unfunded pension liability grow since he entered public office.

As of this year, the city owes the fund, which pays the pensions for public safety personnel such as firefighters and police officers, a whopping $111.8 million.

And the number appears to only be growing.

However, while the pension is likely to be a headache for the city’s leadership as they draw up next year’s budget, the issue is very different for the city’s police officers and firefighters.

“This is our long-term livelihood,” said Casey Gonzales, president of the Flagstaff Firefighters Union. “It’s the only retirement that we receive. As public safety personnel, we don’t receive any social security benefits.”

Gonzales said the issue of unfunded pensions is one faced by countless cities across the state. But while some, such as Prescott, have taken the challenge head on, in Flagstaff the issue has often been relegated to the back burner.

As far back as 2009, Gonzales said the city had a better handle on the pension plan, but a mix of factors including the Great Recession caused the unfunded portion of the pension to increase drastically. The city hasn’t taken the proper steps to catch up since.

Still, Gonzales said the union hopes that changes this year.

“[Flagstaff] has been pretty good about kicking the can down the road,” Gonzales said. “I hope it gets taken a little more seriously. You know, we’re sitting right now with the last actuarial report that came out saying that the city, with police and fire, are at $111.8 million in liability.”

Previous plans

Flagstaff is entering the third year of a 20-year plan to pay off the unfunded pension, but the plan does not appear to be working out as expected.

As the city has been putting money into the plan, the true value of the unfunded portion continues to reveal itself. Just last year, the unfunded portion of the pension plan increased by about $4 million.

The size of the unfunded section is based on numerous factors which can change from year to year, said city management services director Rick Tadder.

Those factors include how well the investments that pay into the plan are doing, the life expectancy of those within the plan and the number of public safety personnel paying into the plan versus the number retiring, Tadder added.

As those factors change, with retirees living longer and investments not bringing in the expected returns, the amount the city owes has increased.

“This is debt. This is debt that we owe for future obligations for those in our pension plan,” Tadder told the Flagstaff City Council during the February Budget retreat. “The question is not if the unfunded liability will be paid off, but by who and when are we going to pay off these unfunded liabilities.”

Tadder added when council passed the 20-year plan to pay of the unfunded liability, it obviously didn’t foresee the changes which increased the unfunded portion.

Next steps

Council has yet to determine exactly what the city will do to address the issue, but they did discuss some possible solutions at their budget retreat on Feb. 3.

Odegaard has long said finding a way to address the unfunded pension liability is one of his top priorities. On Monday, he suggested the city manager bring council a variety of options which it can then choose between if the council has the desire to do so.

Flagstaff Mayor Coral Evans, and other councilmembers, agreed but added that she thinks council has clearly shown an interest solving this problem, referencing the 20-year plan the city currently has in place.

Councilmember Jamie Whelan said solutions boil down to asking voters to pass a new dedicated sales tax or a bond funded by the secondary property tax. Alternatively, Whelan said council could try to find the money within the existing budget and direct as many dollars as they can find toward paying down the pension. Whelan added it may take a mix of solutions to fully address the issue.

City Manager Greg Clifton said there is not a lot of room for error as the city moves to address the unfunded pension, and that doesn’t lead him to be optimistic.

Council’s discussion of the pension issue comes as it grapples with several financial challenges and coincides with ongoing conversations about its goals.

Clifton said the pension problem will make achieving many of those goals much more difficult.

“What [the unfunded pension] is doing for us in this budget process, and will continue to do, is greatly constrain us on doing other things,” Clifton said.

Clifton pointed to the conversation council had just a week prior when the body moved forward with a resolution declaring a climate emergency. At the time, councilmembers said the city needed to put more money into addressing climate change.

“I think those are very laudable goals but frankly, as your manager, I hear those conversations and within a week’s time I hear this conversation and I worry,” Clifton said.