Tempe will see costs associated with its police and fire pension plans climb $4.2 million next fiscal year.
The majority of the rising costs are due to the Arizona Supreme Court’s decision to strike down part of a 2011 state law crafted to rein in pension costs.
As part of the February 2014 ruling, the court ruled the state’s Public Safety Personnel Retirement System must repay retirees $40 million for previous cost-of-living increases and set aside $335 million in a reserve fund for future increases.
The decision meant most cities would see their pension bills skyrocket.
In Tempe’s case, the city will pay $18.3 million for its public safety pensions next year.
The decision also left Tempe with roughly $220 million in unfunded pension benefits owed to current and future retirees. That means more tax dollars are needed to cover the city’s annual pension obligations.
About a decade ago, when the pension plans were better funded, Tempe paid $1.9 million for the two plans, which cover police and fire fighters.
As a result of the depleted investment plans, Tempe will pay about $22,500 in pension costs for a police officer or fire fighter who earn $50,000 in salary next fiscal year.
To help mitigate the sticker shock, the pension board is offering cities a three-year installment plan to pay for this year’s increase.
But the payment plan would only compound Tempe’s pension woes, said Deputy City Manager Ken Jones.
“That approach just adds financing costs to the liability,” Jones wrote in an e-mail.
If Tempe chose the installment option, it would add an extra $6 million over 22 years to the city’s pension bill.
Jones said the city won’t be accepting the state board’s offer.
While this year’s pension news was dire, the near future isn’t any rosier.
The state’s appealing the verdict in a second lawsuit filed against the 2011 law. The second lawsuit dealt with employee pension contributions.
If the appeal fails, Jones said pension costs would rise even higher in the future.
Even though cities have little control over the state-run plans, Tempe has joined a League of Arizona Cities and Towns task force to determine what, if any, long-term solutions exist to tackle the pension problem, Jones said.
In addition, Jones said the city was reviewing its own policies to see if any adjustments could bring costs down.