DALLAS — A bill introduced by Arizona House Speaker Kirk Adams would reduce pension obligations by extending the retirement age to 65 and requiring police officers and firefighters to contribute more toward their benefits.
HB 2726 contains other elements that would increase the cost of retirement for more than 360,000 public employees. The bill, which would apply to four state pension systems, is expected to get its first hearing next week.
Arizona’s funding level for future pension obligations is estimated at anywhere from 66% to 83%.
Gov. Jan Brewer is a Republican and the GOP controls both houses of the Legislature.
In addition to the long-term funding issue, the state is facing an immediate cash crunch. The Joint Legislative Budget Committee estimates the current budget shortfall is $530 million, versus last year’s estimate of $825 million.
Because of rising revenue, the budget shortfall for the fiscal year that will begin July 1 could be $975 million, instead of the projected $1.4 billion, according to the committee.
Brewer’s proposed $8.9 billion budget for the next fiscal year projects the current shortfall at $764 million and the next year’s at $1.1 billion.
Republicans in Congress have proposed allowing states to file for bankruptcy protection to avoid pension obligations, which are cumulatively estimated at $1 trillion. But a report published last month from the Center on Budget and Policy Priorities argues that current budget issues and long-term pension obligwations should not be conflated.
“It is not appropriate to add these longer-term costs to projected operating deficits,” the report said. “Nor should the size and implications of these longer-term costs be exaggerated, as some recent discussions have done. Such mistakes can lead to inappropriate policy prescriptions.”
While the state struggles with its pension problems, cities there are also looking for solutions.
Last month, Phoenix Mayor Phil Gordon appointed 15 members to a task force to recommend changes to the Phoenix Employees’ Retirement Plan.
The American Federation of State, County and Municipal Employees says that the crisis atmosphere over public pensions is excessive.
“The claim that public pension plans are in crisis often is supported by references to a handful of poorly funded public plans and a statement that public plans’ unfunded liabilities amount to hundreds of billions of dollars,” the federation said in a position paper published last month. “In fact, pension plans covering the vast majority of public employees are in good financial shape.”