STUMP » Articles » Elections Have Consequences: Phoenix Pensions » 9 November 2014, 09:09

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Elections Have Consequences: Phoenix Pensions  


9 November 2014, 09:09

One of the election-day pension issues in Phoenix where Proposition 487 sought to switch new hires to defined contribution pensions as well as reduce spiking, which had been a problem in the pension.

Let’s see how that turned out:

Phoenix voters on Tuesday rejected a ballot measure that would have closed the city’s pension system and replaced it with a 401(k)-style retirement plan for new employees.

Unofficial results indicate voters soundly defeated Proposition 487. The initiative would have forced the city to freeze its pension system for general employees and instead contribute a portion of future hires’ pay to a private retirement plan.

The outcome was a major victory for city labor unions, who argued Prop. 487 would hurt public workers and cost taxpayers about $358 million more over the next 20 years, with potential savings not kicking in until more than 20 years down the road.

According to Ballotpedia, the proposition lost by a vote of 56.5%, so while it wasn’t close, it wasn’t a huge pro-public union vote, either. The Phoenix pension fundedness is not that high (but not as bad as Illinois), and once those costs start hitting, I think you will find the electorate a little more open to reconsidering this result.

After all, the proposition people can keep trying.

That’s exactly the argument being made in this local editorial:

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 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.

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.

These ‘victories’ battling pension reform, when the situation is not quite catastrophic yet, means that it will get uglier and the options will be increasingly unattractive. If I were the public unions, I’d try to make sure contributions to the pension fund were topped up, which would be a far bigger victory than defeating Prop 487.

Best wishes, Phoenix.

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