The Farley Report from Phoenix #238: 2-3-16

This is another long epistle (what else would you expect from me?), but if you persist through my discussion of pension reform, KidsCare, and corrections to the end, you will find some VERY happy news for us all!

I’m actually trying to explain pension reform in a way that makes it comprehensible to those of us who may not be finance geeks, so hopefully that part won’t cause undue suffering along the way.

Much more after this brief Farley Report pledge break…

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—> For the past year Sen. Debbie Lesko (R-Sun City), chair of the Senate Finance Committee, has been working with a broad range of stakeholders to develop a solution to the Public Safety Personnel Retirement System (PSPRS) pension crisis. All our state’s first responders depend on PSPRS for their long-term well being, and the system was barreling toward insolvency without some major changes. 

Back in 2003, PSPRS was chugging along in great shape, 100% funded with no unfunded liabilities. Then a series of poor investment decisions came home to roost, exposing some basic weaknesses in the underlying plan design. As the value of the plan’s investments entered a precipitous decline, the fund continued to pay out to retirees 4% increases per year for more than 20 years, multiplying the losses. 

In 2015, 12 years later, PSRS is now only 48% funded with total unfunded liabilities to pay for commitments to current and future retirees amounting to $6.6 billion. Who owes all those additional liabilities? We do, as taxpayers to the local governments who hire our police and firefighters.  

The portion of those unfunded liabilities owed by the City of Tucson alone for police and fire as of June of last year was $785,678,980. In order to try to pay down that debt, the City is currently paying 65.77% of each police employee’s salary and 68.21% of each firefighter’s salary into PSPRS.   

That’s in addition to their salary and other benefits, and in addition to the 11.65% of their salaries that the employees pay. This rate also makes it VERY expensive to hire new personnel, making good public safety hiring decisions more difficult. The portions the cities pay have been climbing steadily and shows no sign of slowing without reform, eating into already strapped city and county budgets.  

To avoid disaster, all the parties came to the table and were willing to give a little for the benefit of all. We heard their solution as a three-bill package — SB1428, 1429, and SCR1019 — and unanimously passed all three in Senate Finance Committee this morning. If all goes as planned, they will be COW’d and Third Read on the Senate floor tomorrow, with House action next week. Then we will all vote for it on the same special ballot as Prop 123 on May 17.  

The support for the bills is broad and deep, since the problem is self-evident. But the opposition could cause problems, particularly in the House. 

In a packed house, we heard from Kevin McCarthy of the Arizona Tax Research Association (ATRA), the folks who are also behind the raid of desegregation money from 20 low-income school districts and the attempts to keep fire districts and community colleges from spending the money they already collect. (You’ll also recall their board members are the state’s largest utilities and communications companies like Cox, TEP, APS, SRP, Century Link, Comcast, and many other companies we pay each month. Take note, fellow billpayers!) 

Mr McCarthy said that the benefits in the compromise plan are too generous to retired first responders, and complained that new hires should only have one option: A “defined contribution” (DC) plan like an IRA or 401k that does not guarantee benefits, but saves the employer money. He said that if he were advising a loved one about whether to choose a DC plan or a “defined benefit” (DB) plan, he would never have them choose a DC plan because the DB plan is a better deal for the employee. 

So I asked him if he was saying that he believed it was better to offer only a substandard plan, not fit for his loved ones, to our first responders who have put their lives on the line for us every day. He stuttered and said he just wanted to increase savings for the plan.

Michael Hunter of the Goldwater Institute also testified against, although he was not able to pin down anything specific he didn’t like about it when pressed by Sen. Lesko. 

While every other police and fire employee organization in the state, along with their municipal employers, supported the plan, one police organization — the APA — opposed the plan due to a close 9-7 vote on the part of their member organizations, although their two largest member organizations, the Phoenix Law Enforcement Association (PLEA) and the Combined Law Enforcement Association (CLEA — which includes Tucson and many other cities and counties) voted in support, meaning that a majority of even APA rank and file members likely support the reforms. 

I figure if a few folks on both sides object — one side because it is too generous, and the other because it is not generous enough — that’s a sign of a pretty good compromise. 

Interestingly, as the committee meeting ended, the APA representatives held a press conference with Speaker David Gowan nearby endorsing him in his run for Congressional District 1. Gowan has been evasive about whether or not he supports the bill, and his new relationship with APA may color those actions, although I think the majority of APA members who support the plan may be a little upset if their leaders convince the Speaker to endanger their pension’s solvency this way. There’s more to this drama, I’m sure. 

Additionally, word is that future speaker Justin Olson, who once worked for ATRA and remains close with Kevin McCarthy, is drafting his own plan, without benefit of stakeholder input except from ATRA. That would not be good, and would blow apart the deadline of Feb. 15 to get this on the May ballot and stop the fund from further bleeding. I sure hope the House doesn’t mess this one up. 

—> Another key opportunity that must not be missed is our ability to restore around 45,000 kids to the KidsCare program of health insurance for low-income children. The legislative majority placed a cap on enrollment during fiscal year 2010 and now only 750 kids are left in the system with the rest out in the cold with no coverage.  

The federal government has made available funds to completely restore coverage to these kids with no state match required, so here in Arizona it will cost us nothing while drawing down millions in federal money to pay doctors and hospitals to keep these kids healthy. No money down, and no strings attached. Yet this was not included in the Governor Ducey’s budget. 

Next Tuesday in the House Health committee, Rep. Regina Cobb’s (R-Kingman) bill HB2309 will be heard to sign those kids up. This is truly a no-brainer. I will keep you posted on its progress.

—> Yesterday in Senate Appropriations committee I had a chance to question Corrections Director Chuck Ryan about his request for $665,100 for 9 full time substance abuse treatment professionals to decrease the percentage of released prisoners who have active abuse problems. Sadly, Governor Ducey decided to exclude that request from his budget while including 2,000 more private prison beds for the cost of around $50 million a year for the next twenty years — $1 billion dollars — with requirements built into the contract that we incarcerate at least 1,800 more prisoners each year.

By the Department’s own figures, 77% of prisoners released each year into the community have active substance abuse issues. That’s 15,225 in FY2015 alone. 

The treatment program is currently only treating 13.2% of those prisoners, even though it has been shown to reduce recidivism by half. Around 40% of prisoners return to state prison within 3 years. If we cut that to 20% through treatment, not only would we be reducing crimes and the victims of crimes, we would reduce the number of ex-cons returning to prison. If we spent the money required to treat all prisoners by nearly 4,000 each year, we would eliminate the need for twice the amount of the new private prison beds Governor Ducey is proposing. 

To restate: If we spent the money to treat all released prisoners (around $10 million a year), we would save the $100 million annually it costs to build and operate the 4,000 new private prison beds. That gives us a 10 to 1 return on investment, plus the reduced costs to society and victims of 4,000 fewer crimes each year. 

The Governor told us in his State of the State address that he wanted to be a leader in prison reform. It’s time to lead. I’m proud to have worked on this issue with Sen. Steve Smith (R-Maricopa) and have co-sponsored SB1126 to expand these treatment programs It passed the Senate Public Safety committee unanimously, and is now awaiting action on the floor.

—> To end with some VERY good news, it looks like our nonstop efforts to save our JTED career and technical education programs in Arizona from imminent demise have borne fruit. Very highly placed sources have told me that we will move in both the House and the Senate to wipe out last year’s devastating cuts as an emergency next week, thus beating the deadline set out by our JTED superintendents. This will be signed by the Governor as well. 

All this is thanks to your advocacy. Thank you all for speaking out, from the bottom of my heart, on behalf of all Arizona’s students. JTED will now continue to generate even more great success stories to power our economy and lift people from poverty into the future.  

Thanks for your continuing faith in me as your Senator. 

Steve

Steve Farley

Senator, District 9, Tucson

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