October 9, 2014
The Arizona Republic
Endorsement: Phoenix's pension system needs some serious reforms. And, for the most part, Prop. 487 gets them right.
Phoenix officials had it in their power, once, to stave off Proposition 487, which ends traditional pensions for newly hired civilian employees.
They declined. Actually, they did worse than simply decline. Faced with an increasingly expensive system that has been grossly abused by Phoenix's highest paid and most influential retirees, the Phoenix City Council in 2013 proposed to voters changes that in some respects have made the system worse.
As a result of the 2013 reforms, Phoenix employees hired since 2011 soon may be forced to contribute 17 to 20 percent of their pay to help shore up the city pension plan. Toss in their share for Social Security and their retirement withholding could hit 25 percent.
That "recruitment nightmare," as the director of economic research for the Reason Foundation called it, could prove to be a serious impediment to Phoenix attracting quality workers.
Prop. 487, which would replace the pension with a 401(k)-type plan, is not a cure-all for past mistakes. It will not fix all of Phoenix's growing pension woes. It may not immediately save Phoenix money. It could cost the city more for several years.
But, in the end, these dramatic changes will give Phoenix control over skyrocketing pension costs that threaten to strangle the city's ability to provide the services Phoenix residents have come to expect.
Phoenix leaders are not seriously inclined to change the system to protect its real investors, the city's taxpayers. Both in terms of their political benefactors — mostly change-averse employee unions — and their own financial self-interest, they are invested in the status quo.
Their timidity effectively encouraged serious-minded reformers to produce this ballot initiative, which finally introduces serious reforms.
City leaders, for example, could not bring themselves to truly end the inappropriate practice of pension spiking, the artificial, end-of-career pay boost that helped balloon former City Manager David Cavazos' annual pension to $232,000. Prop. 487 will.
The pension system for non-public-safety city employees is dangerously underfunded, meaning the city likely will have to increase its contributions at the expense of other services and its ability to offer competitive salaries to new employees. Since 2002, annual pension costs to Phoenix have risen from about $26 million a year to over $126 million, with no end in sight.
Prop. 487 does not reduce Phoenix's current $1.09 billion shortfall in its promises to existing and future pension beneficiaries. But it helps ensure that the deficit gets no larger.
Phoenix public-safety unions are leading the fight against Prop. 487, arguing that it will impact their defined-benefits program, which is invested in a state pension plan, not the city plan. They shouldn't be.
Prop. 487 explicitly states that it will have no effect on the pensions of public-safety retirees. Phoenix officials challenge that assurance, claiming that an analysis by outside attorneys found the proposition's language would allow it to include police and fire retirees.
That argument might have some credence if Phoenix would release the supposedly authoritative report by its hired lawyers. It won't. The reluctance to back up the claim strongly suggests the argument is a flaccid one.
Proposition 487 is a strong measure. It changes the public-employee landscape for newly hired non-public-safety employees in Phoenix. It conceivably could have effects wholly unanticipated by its advocates.
If that proves the case, there is nothing to keep reformers from returning to the drawing board — and the ballot box.
Prop. 487 promises to stanch the financial bleeding that is costing Phoenix taxpayers and seriously threatening city services.
The Arizona Republic recommends a "yes" vote.