PSPRS Ad Hoc Committee Testimony

The following is the written testimony submitting by Supervisor Buster Johnson to the State’s Ad Hoc

 

Dear Chairman Campbell:

I have been a County Supervisor for Mohave County for the past twenty years.  For the last two decades I have seen the State Legislature try and perfect our state retirement system.  I do believe our state lawmakers understand the importance, and necessity, of wise stewardship of taxpayers’ dollars. They know that a balanced budget is common sense in that only fools spend more than they take in.  With that said though I must ask why has this allegedly Conservative elected body left Mohave County taxpayers on the hook for up to $80 million caused by poor management at the state level?

Mohave County’s unfunded liability amounts for the Public Safety Retirement Pension System are over $20 million.  The cities within our County are far worse off, owing over $100 million.  Fire districts within our county are already maxed on their property tax rate.  I am not sure how they will even afford to pay their portion of the debt without going bankrupt.  It’s important to note that these are just preliminary numbers, and we could end up owing even more.  Statewide the total liability is $7.7B, but once interest is added that total will double and total liability will be probably around $15B.  Counties, cities and fire districts don’t just have millions lying around to pay off this debt.  We are going to have to pay this amount off over time and by doing so accrue interest on the payments which could double the amount taxpayers owe.

Counties were also notified that the State needs the Counties to pay up front for their portion of the refunds due to employees because PSPRS has outdated computer systems.  Municipalities were told in April to stop the overpayments yet the State continued to incur interest because they had no way to stop the overpayment on their computer system.  This is just another example of the State’s lack of financial responsibility coming back onto the counties.

Over the past eight years, counties and cities have also been hit with state cost shifts.  In fact, some have gotten so use to being mugged by our state officials that they are praising lawmakers this year for not taking more funds from us.  This year, the state swept close to $750,000 from Mohave County’s General Fund and more than $100,000 in our county’s Highway User Revenue Funds (HURF).  The State’s annual sweeps of local governments’ funds have been an ongoing problem that many local elected officials have learned to live with. They say, “We can cover it; just don’t rock the boat or they might take even more.”

State sweeps added onto the $7.7 billion elephant in the room are forcing local municipalities to cut services and raise taxes while state lawmakers get viewed as the taxpayer’s hero for not raising a dime.  This problem however is in no way the counties, cities or fire district’s fault.  In 2011, the State Legislature passed a series of ill-advised reforms to the state retirement systems. At the time, I pointed out that what the Legislators were doing was “unconstitutional” and would be thrown back in their faces by the Arizona Supreme Court.  Now local governments are on the hook for paying back PSPRS employees the overpaid contribution amount with interest plus supposedly now we are being asked to fund the state’s portion and receive a credit later down the road.

Adding weight to the deficit, the almost-two-decade-old Deferred Retirement Option Plan (DROP) for public safety officers has also become unsustainable. Designed to keep experienced personnel on the job after 20 years of service, DROP allowed employees and employers to stop contributing to the fund for up to five years, but then gives the employees’ unfunded payouts upon retirement. During their five-year extension of duty, the amount increases at an approximately 7.5 percent level for many officers, even during recessionary years. The taxpayer is backfilling the program’s current payouts.

In 2016, the Legislators did more retirement system tinkering, a portion being the splitting of the elected officials’ program into two plans. By putting new officers into a 401K-plan, the retirement funds of those who have been in the system for a while will dry up within a few years without new investment. Once again, the State puts future liability onto local taxpayers. The struggling Elected Officials Retirement Plan (EORP, which includes Judges Retirement Fund) is another $19 million drag on Mohave County’s economy. Totaling everything dumped on the county along with financing interest, that adds up to close to an $80 million Mohave County liability.

At this point in time, the average Arizona family of four is in debt to the State for close to $10,000. It’s hard to imagine that a son, daughter or grandchild who may be entering kindergarten already has a liability of $2,385 because of Capitol mismanagement and deficit spending.  State lawmakers have allowed the retirement board to run with basically no oversight.  And now wonder why there are mountains of debt?  We must pass legislation and ensure there is oversight in the future so these bad investments do not occur again.

With interest, it will take local governments years to pay their currently designated liability for the State Legislature’s poorly planned legislative mistakes. And, just like the usual annual State sweeps, local governments are expected to suck it up, hand the State the money, and thank them for their benevolence. And remember, all government moneys are taxpayer dollars.

What this state has done with its employees’ retirement plans is poorly planned at best, criminally stupid at worst.  In my opinion the only way to fix the pension debt issue for the state to enact a 1 cent sales tax to cover everyone’s shortfall.  That way lawmakers are taking responsibility, everyone is sharing in on the burden, and local governments won’t have to go bankrupt or millions in debt to pay for the State’s mistake.

Thank you for your time and allowing me to submit testimony on this very important issue.

Sincerely,

 

Buster D. Johnson

Mohave County Supervisor

District III

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