Phoenix voters will decide the fate of the city’s ailing employee-pension system this fall after a group of political activists succeeded Friday in getting a reform initiative certified to the ballot.
Citizens for Pension Reform Committee, a group of conservative-leaning residents, wants to replace the city’s pension system with a 401(k)-style retirement plan for new employees. The initiative states it also would stop “pension spiking” by capping the pension benefits available to current employees.
City Clerk Cris Meyer verified that the group collected more than the 25,480 signatures needed to call a special election on Nov. 4. Using paid canvassers, they gathered more than 54,000 signatures in support of the initiative, and at least 33,000 of those signatures were determined valid.
Scot Mussi, chairman of the reform committee, said his group organized the initiative because the members are concerned that ballooning pension costs and the practice known as pension spiking could cost taxpayers billions if not fixed. The cost to fund city pensions has ballooned from $28 million in 2000 to $110 million in 2013.
“We believe that there is broad-based support among the entire political spectrum,” Mussi said, calling the number of signatures a sign of momentum. “People are tired of the games being played at City Hall. They want real reform.”
Opponents of the initiative say it will cost taxpayers millions of dollars more upfront, because the city must pay the costs of moving from a pension to a 401(k)-style plan without having new employees paying into the old system. The city has previously estimated it would cost as much as $23 million more per year up front, with the savings not kicking in until 20 years or more down the road.
City officials are working to estimate the financial impact of the initiative, but their report has not been completed.
“Every other argument gone, economically this is a disaster for the city,” said Frank Piccioli, president of American Federation of State County and Municipal Employees Local 2960, which represents office workers. “This will cost taxpayers more money.”
Employee-union leaders said the initiative is being pushed by out-of-state groups with a right-wing agenda. They said the move would hamper the city’s ability to attract and retain talented employees, who often earn a smaller salary than their counterparts in the private sector in exchange for better benefits.
Proposed changes would apply only to new employees. Maricopa County judges have struck down changes to the state’s retirement system for existing employees, leading many to believe similar changes to the city’s system would not hold up. Supporters said the changes also would not affect police officers, firefighters or elected officials because they are under state-run pension systems
The city currently has a defined-benefit retirement system, which guarantees retired workers a set monthly benefit for life regardless of how the pension fund performs. Taxpayers must foot the bill for pension payments not covered by employee contributions and investment yields.
Like many public pension systems around the country, the City of Phoenix Employee Retirement System has struggled in recent years, especially as the recession hampered its return on investments. At the same time pension costs have soared, the city has cut services to residents and enacted an emergency food tax.
If voters approve the proposed ballot initiative, Phoenix will move to a defined-contribution retirement system under which the city contributes a set percentage of a new employee’s pay to a retirement account, similar to private-sector companies that offer 401(k) benefits.
Mussi said his group believes the initiative would start saving taxpayers money immediately, noting it would require the city to end its contributions to a second retirement plan, known as deferred compensation. He said it will also end the costly practice of pension spiking, generally seen as the artificial inflation of a city employee’s income toward the end of a career to boost retirement benefits.
Some former city managers, perhaps most infamously former City Manager David Cavazos, have inflated their retirement benefits by tens of thousands of dollars per year. Cavazos was able to spike his annual retirement check to $234,536 by including perks. Without the spiking, his pension would be about $88,000 less per year.
Musi said the group backing the initiative, the Arizona Free Enterprise Club, which he also leads, is a 501(c)(4) non-profit group and therefore not legally required to disclose its source of contributions. He said the club has been active in the state for a decade but doesn’t reveal its donors.
The initative comes after city voters already passed a series of pension reforms last year. Among the changes was a requirement that municipal workers hired after July 1, 2013, split pension-fund contributions 50/50 with the city.