Chandler sees light at end of police-fire pension tunnel - SanTan Sun News SanTan Sun News

Chandler sees light at end of police-fire pension tunnel

April 10th, 2022 SanTan Sun News
Chandler sees light at end of police-fire pension tunnel

By Ken Sain
Staff Writer

Chandler Mayor Kevin Hartke was keeping count of every time Councilman Matt Orlando shouted, ‘Hip, hip, hooray,’ during the city’s second budget workshop last month.

The final tally was six after more than two hours of staff giving the members of the council mostly good news. Revenues are up and Council members have a lot of extra money they can use to address priorities.

One of those ‘hip, hip, hoorays’ was for Chandler’s obligation for police and pension funds to the Arizona Public Safety Personnel Retirement System (PSPRS). The city has been making huge payments to the fund for years.

“As long as investment earnings come in as they should, and everything happens the way the plan is, we would be completely 100% funded by 2027,” said Dawn Lang, the city’s deputy city manager and chief financial officer.

She said if they do that – and there are some ifs involved – the city would see an increase in available funds of about $9.2 million a year. That would be the extra money the city has been paying to eliminate its unfunded liability in PSPRS.

“Hip, hip, hooray,” Orlando said.

“Council, I’m always in favor of turning one-time dollars into ongoing dollars,” Hartke said.

Paying down the pension debt is a significant cost item on the proposed budget for the fiscal year beginning July 1 – but some unexpected revenue increases are making that and other expenditures possible.

The city has the extra cash for a couple of reasons. First, staff anticipated much lower revenues coming in the past two years because of the COVID-19 pandemic. So, they set their budget accordingly. They were surprised when revenues came in at a much higher rate and that the pandemic did little damage to the local economy.

The other reason is the city always sees an increase in revenues when Intel expands. That company began a $20 billion expansion of its manufacturing buildings at its Ocotillo campus in the fall. The city had not planned on Intel expanding this quickly, so that also was not planned for in the budget.

Last time Intel expanded, it took them years to actually start work. Not so this year.

The city also received $34.6 million in American Rescue Plan Act funds. All of that money is considered one-time funds.

Council did decide to give some of that extra money back to property owners, by deciding to cut its tax rate by a penny. Most of the property tax goes to public schools and community college districts (71.3 cents of every dollar). Another 18.6 cents of every dollar goes to Maricopa County and special districts. Only 10.1 cents of every dollar goes to the city.

Council had to cut the property tax by at least a quarter of a cent or notify residents of a tax hike because of the rising valuation on property. The median valuation for a Chandler home is $386,300. Because of state law, the property tax valuation can only be raised 5% per year. That means the median valuation for tax rate will be $224,742.

So the city is anticipating a beginning general fund balance of $241.3 million for fiscal 2022-23. For context, it is expecting that balance to be under $114 million in fiscal year 2026-27.

The city set a goal of being fully funded with PSPRS before June 30, 2036. On June 30 last year, the city’s unfunded liability totaled $153.9 million. That amount did not include the $22 million the city paid later in the summer.

To get it fully funded by 2027, it will take a $50 million payment this year and a $20 million payment the following years. There are variables that would have to hold up, including investments returning at the rate they are expected.

“So, I didn’t give you the really good news, though,” Lang said.

By getting fully funded, the city’s rate of contributions will eventually come down. Right now, the city pays 49.12% for police and 41.67% for fire. She said the future rates would continue to fall.

Many Valley cities have unfunded liabilities with PSPRS – an obligation that they are legally required to meet.

Many also have accelerated their payments in an effort to catch up and erase what has been a staggering debt in many cases.

The largest debt in Arizona has been racked up by Phoenix, which has an unfunded pension liability of $3.5 billion. In its preliminary “trial budget” for the fiscal year beginning July 1, the city manager’s office gave only a one-sentence mention of that debt, stating the bill “will require continued diligence and further resource strategies in the coming years.”

Councilman Rene Lopez said Chandler’s potential success in erasing its pension debt more quickly than anticipated is Council’s reward for being frugal with taxpayer dollars and making the commitment to pay off this debt calls for more spending on other issues, including police and parks.

Indeed, previous Phoenix budget planners have warned City Council that its failure to pay down the debt may eventually force cuts in basic services.

“This is the hard decision that I think councils before have had and that we have had eight years ago,” Lopez said. “We knew this was going to be a struggle, and we had to bide our time, and we had to wait for a lot of this to clear, for us to be able to do more quality of life for our citizens. We had to pay this off, through no fault of our own, we inherited this.”

Council also is considering adding more local projects.

Council has a $400,000 fund for projects that have fallen through the cracks that it wants to undertake quickly. It has been used recently to pay for a pickleball court at Desert Vista Park ($80,000); playground and park shade structures ($55,000); planting trees ($30,000) and a new studio camera for the Communications and Public Affairs Department ($30,000).

Only $75,000 of that fund can be spent for ongoing projects while the other $325,000 is used for one-time projects.

At a budget workshop last month, Council considered increasing that account by 5-to-10% because of inflation.

“Should we look at raising this a little bit, maybe for inflationary rate, because of projects that are coming in?” Councilman Matt Orlando asked his colleagues.

Hartke said Council uses this money when projects come up during the year that were not in the budget.

“I like what you’re thinking about as it relates to when we have these emerging that we want to do for the community, it’s important that we can tap into that,” Mark Stewart said.

Council also discussed the need for more sports fields because they keep hearing there are not enough. Council members were told there are two projects in the works, but that the city is running out of open spaces and would probably not be able to build any after those two.

Orlando also questioned why the city is waiting up to five years to refurbish Folley Pool and Park. It’s planned to be improved as part of the parks bond that voters approved last year, but not for five years.

He was told the citizen’s committee the Council appointed to look at bond projects decided that other improvements were a higher priority. However, if Council wants to move Folley up the list, it could, but they’d have to identify which other project would move down the list.

Orlando said he’d at least like to start discussing what they want to do there, mentioning resident requests for a cricket field. There was no decision reached on that issue.

Council next plans to address the budget at an all-day workshop scheduled for April 29.