Like many cities throughout the United States, Phoenix, Arizona has a broken pension system. Skyrocketing costs have driven the city to the brink of disaster. Fortunately, Proposition 487, also known as the Phoenix Pension Reform Act, is on the ballot this year and gives voters a say in the type of publicly-funded pension plans they pay for.
A number of factors have contributed to the immediate need for pension reform in Phoenix. “Pension spiking,” where employees inflate compensation immediately before retiring increases pension payouts upon retirement, will cost the city over $190 million if left unchecked. This occurs when a city employee close to retirement converts benefits like unused sick time or saved vacation pay to boost benefits.
A select group of retirees have been receiving six-figure pension payouts with this scheme, compliments of Phoenix taxpayers. One recent City manager received an annual pension of $246,813 and upon retiring received $270,174 in sick/vacation days payouts. Another city employee, an executive assistant to the fire chief, received a lump-sum payout of more than $900,000 at age 54. That was on top of his $149,420 annual pension for life.
The Arizona Republic estimates that pension spiking costs city taxpayers $12 million per year. Prop. 487 would prohibit this outrageous practice.
The city’s current defined benefit pension system is underfunded by $1.5 billion dollars and annual pension costs have increased by over 40% since 2011 to $253 million. Prop. 487 would replace the defined benefit pension with a 401(k)-type plan for city employees. It would exempt police and firefighters.
The Arizona Republic Editorial Board had this to say: “These dramatic changes will give Phoenix control over skyrocketing pension costs that threaten to strangle the city’s ability to provide the services Phoenix residents have come to expect.”
They ultimately endorsed the proposal. “Prop. 487 promises to stanch the financial bleeding that is costing Phoenix taxpayers and seriously threatening city services.The Arizona Republic recommends a ‘yes’ vote.”
Americans for Tax Reform agrees with the Arizona Republic and endorses Phoenix’s Proposition 487.
If you live in Arizona and haven’t already voted, click here to find out where to vote in person.