Many county and town budget planners have sometimes tremulous faith that recent changes have finally fixed the retirement system for police and firefighters — despite continued flareups of bad publicity.
The appointment of administrator Michael Townsend has restored the shaken confidence of many town and county administrators, shaken by a multi-billion-dollar shortfall in the retirement system for courts, elected officials, police officers and firefighters.
“I think the entire state views it as a positive,” said Apache County Manager Ryan Patterson. “Townsend understands the pension system. He’s highly intelligent. He’s led Coconino County through their problems with their pension — he’s got the experience to be excellent. The board now has representation from all different entities — including the counties. I think they’re on the right track.”
The big payments to make up the projected deficit have had a serious impact on most county, town and fire district budgets. Payson owes nearly $20 million for both police and fire. The Gila County Sheriff’s Office owes nearly $13 million. The Pine-Strawberry Fire District owes about $5 million.
Payson enacted an increase in the town sales tax that generates $3 million annually, with about $600,000 of that used to make extra payments on the retirement fund for police and fire.
Patterson said his faith in Townsend persists despite the latest round of unflattering stories.
The Public Safety Personnel Retirement System (PSPRS) board recently once again stumbled into controversy when board chairman Will Buividas, a Phoenix detective, and vice chair Mike Scheidt, a Tempe firefighter, were stripped of their leadership positions on the board. They each had earned thousands of dollars assisting former PSPRS administrator Jared Smout when he bought a house in 2018. Both board members worked on the side as Realtors or loan officers. Smout subsequently approved travel expenses for the two board members to stay at expensive hotels at out-of-town conferences. The board members also supported a retroactive $250,000 pay raise for Smout.
Smout was subsequently dismissed in the wake of the retirement fund’s poor investment performance and allegations of sexual harassment. At one point it was revealed Smout had cameras throughout the offices of the retirement fund and spent hours covertly watching women on the cameras.
Smout was actually second in charge at the time. Then-administrator Jim Hacking elected not to discipline Smout — but instead gave him a raise. Hacking himself was later forced out for giving PSPRS employees secret raises. Smout was then hired to replace him.
While serving as chief administrator, Smout gave employees big bonuses despite the mounting problems of the system and a plunge in investment gains. He approved $120,000 in bonuses for key employees without documentation. The board also approved retroactive bonuses to three employees, including one who had already retired as well as a $51,000 payment to the estate of a former employee who had died.
After stripping Buividas and Scheidt of their leadership roles, the board appointed Queen Creek finance director Scott McCarty as board chairman and portfolio manager Harry Papp as vice chairman. This marked the first time in years the board has been led by financial experts rather than police officers or firefighters.
Still, the problems that have accumulated over the past decade have left most counties and towns paying about 65% of the salaries of police officers, firefighters, judges and other elected officials into the state retirement system for the next 20 or 30 years.
Voters approved major changes in the system. One change eliminates the automatic rise in pensions in years with strong investment gains. Other changes will only affect new hires, including an increase in the employee contributions and limits on early retirement and total benefits. Courts overturned earlier efforts to apply similar changes to current employees and retirees. The changes will provide much less generous benefits for new firefighters and police officers.
However, the changes only affect new hires, leaving cities and counties on the hook to make up the huge deficit.
The shortfall will shadow the upcoming budget deliberations for every county, fire district and town with a police force or fire department in the state.
The deficit developed over 5-10 years because of a combination of low investment returns and big, automatic increases in pension payments. Previously, towns and counties were paying about 15% of each member’s salary into the system. The system administrators told counties and towns they would have to pay 65% of salary to provide enough money for the pensions of current and future retirees for the next 20 or 30 years.
For most agencies, the deficits have continued to grow in the past two years — despite the dramatically larger payments.
But Navajo County Manager Glenn Kephart said he’s also confident Townsend will provide better management. He said Townsend has already improved communications with cities and counties.
“I’m confident in his leadership,” said Kephart, while declining comment on the recent shuffle of leadership positions on the board.
The effort to eliminate the projected deficit will weigh heavily on budget planners in the next few months.
“Given the changes they’ve made at the state level,” said Patterson, “I now believe the projections. I think the 65% will catch us up. It will take 20 years, but that’s where we’re at now.”
If you add in the cost of medical and other benefits, a sheriff deputy’s salary represents only half of the expense of that position to the county.
“So a deputy with a $40,000 salary is an $80,000 employee,” said Patterson.
Apache County will have to come up with about $3 million in payments into the retirement fund for the sheriff’s department and more for judges and elected officials. By contrast, the county’s only paying 12% of salary for most of the rest of its employees covered by the state retirement system.
He said the counties can only hope that the new projections prove accurate — and another recession doesn’t once again crash investment returns for the fund.
“We’ll see what happens in a year or two — but we’re in a better place than we were six months ago or a year ago,” said Patterson.