November 6, 2014
The Arizona Republic
Our View: Public-worker unions may have killed Phoenix pension reform, but the need remains. Here's what should happen next.
Phoenix's police and firefighter unions, joined by Mayor Greg Stanton, celebrated the defeat of pension reform Tuesday night. "In my time in leadership, I've never seen a greater comeback than this campaign," the mayor exulted.
He'd better hope to see a greater comeback yet: that of the health of the city's pension fund, with an unfunded liability of $1.1 billion. The underlying problems that Proposition 487 sought to fix remain. As long as public-employee unions continue to oppose significant reform, the situation will only get worse.
Prop. 487 would have replaced Phoenix's traditional pensions for new, non-public-safety employees with something similar to a 401(k) retirement plan. A 401(k) is more predictable: Taxpayers know in advance how much they'll spend. The traditional pension plan, especially as it has been distorted over the years, is a roll of the dice.
That's why taxpayers are forking over four times more to support city-employee retirements today than they were in 2003. The expense is growing at $18 million a year. That's money unavailable to hire more police and firefighters or run city parks, after-school programs, senior centers and other municipal programs Phoenix residents demand. City leaders can only skimp on those so long before taxpayers revolt.
Prop. 487 was the first uprising. It was also a trial run for a statewide effort. That's why Phoenix police and fire fought this proposition so hard. Even though it wouldn't have affected them (their ads were classic campaign misdirection), they understood their state-sponsored retirement plan would be up next. Defeat Prop. 487, they surely reasoned, and there would be no need to mount a statewide campaign.
That's delusional thinking. The statewide public-safety retirement plan has $7.8 billion in unfunded liabilities; it can pay for less than half of what it owes current and future retirees. That's with a stock market at historic highs. Cities, meaning taxpayers, will have to pay more and more to keep the pension system afloat. Again, that's money unavailable to hire new police or firefighters or provide popular services.
When Phoenix last tackled pension issues, it put together a committee of like-minded folks who sent reform light to the ballot. Its modest changes won't save much for a two decades, and at no cost to current employees. There was no opposition to this window dressing, and it passed.
Prop. 487 was similarly created by a small group of like-minded people. Its significant changes would have caused some pain, and its savings were not certain. Opposition was certain.
Tuesday's election cannot be the end of the story. We need a third effort, and this time everyone needs to be brought into the room, from those who want radical change to those who want none. Compromises will be needed to craft a solution that could be a model for saving the state public-safety pension system.
And it needs to be led by Stanton, as uncomfortable as that may be for him. The city's future depends on it.
Phoenix's pension system in unsustainable. Changes made so far merely nibble at the edges. Real reform is necessary. It can come voluntarily, or it can come with the next initiative, driven by a broad coalition of taxpayers angry at having their needs subjugated to the demands of a rickety pension system. A politician as astute as the mayor should recognize which course is preferable.