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Addressing the Public Safety Personnel Retirement System

The rising costs of pension liabilities is the largest financial issue with which local municipalities and counties across the State of Arizona and the nation have to deal.

Coconino County is no exception.

Over the past several decades, pensions have been impacted by lower-than-expected investment returns, unanticipated impacts from benefit increases and adjusted actuarial assumptions such as life expectancy and population growth. These impacts have created a pension system that is substantially underfunded.

Pension liabilities are debts that will be paid, if not now, then in the future at a higher cost to taxpayers.

This past month, the Coconino County Board of Supervisors approved two payments of $10 million to the Public Safety Personnel Retirement System (PSPRS), with funds accumulated in the Capital Facilities Fund and the use of Jail District Fund Balance to pay $5.5 million to the Arizona Correction Officers Retirement Plan (CORP).

These payments will result in reduced pension contributions over the next several decades, secure pensions for retired deputies, provide facility infrastructure funding that keeps the Capital Facility fund and Jail District on track for facility needs and saves a projected $15 million over the next 20 years net of the initial payment and estimated interest expense for a facility related debt issue for just these current payments.

As part of the board’s approval, the related reduced future pension contributions will be accumulated to provide funding for capital facility needs and could provide the debt service funding for facilities depending on the timing of the projects.

These opportunities are the direct result of Coconino County adopting a financial planning process in 2007 to address financial risks and opportunities as investments for the county over a long-term planning horizon. This process aligns mission critical operating costs balanced with recessionary revenue forecasts to create the capacity of one-time funds to address legacy costs such as lagging investment in infrastructure, including facilities and unfunded pension liabilities. Some governments raise taxes to address facility needs or pension costs; Coconino County has utilized our financial planning process to address both facilities needs and pension liabilities without raising taxes.

During the unanimous board decision, Chairman Art Babbott stated, “We are tackling the PSPRS and CORP issue now and not passing it on to future boards or generations of taxpayers. This investment, which has been recognized as a financial industry best practice, will reduce our future liability and allow us to use county resources strategically.”

Making investments in long-term needs such as pension liabilities isn’t always easy, as short-term needs often take precedence. The board took this opportunity to apply this innovative approach to pay down the county’s debt while saving future taxpayer dollars.

Over the last three years, the Coconino County PSPRS funded status will have increased from 25 percent to 71 percent and the CORP funded status increased from 60 to 95 percent. These current payments and the additional contributions over the last few years will result in a cumulative projected net taxpayer savings of nearly $30 million over the next 20 years, and the reduced contribution savings will continue many years beyond the 20-year projection.

Coconino County is proud to make sound and forward-looking financial decisions that will save money and not continue to kick the can down the road to future generations. FBN

By Mike Townsend

Mike Townsend is the deputy manager and chief financial officer for Coconino County.


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