Wednesday, September 30, 2015

Not in the best of hands: The PSPRS Board of Trustees summed up in one revealing passage

In case you missed it, the Arizona Auditor General released its "Performance Audit and Sunset Review of the Public Safety Retirement System" on September 18, 2015.  The Arizona Republic distilled the Auditor General's conclusions in this September 23, 2015 editorial, Public-safety pensions, summed in 1 bad word.

That bad word would be "deteriorating."  I would also like to point out another report from the Arizona League of Cities and Towns ("the League") entitled, "The Yardstick: A Tool to Evaluate Proposed Reforms of Arizona's Public Safety Personnel Retirement System (PSPRS)."  This report was released on August 18, 2015, and like the Auditor General report, does some myth-busting about PSPRS and confronts issues that need to be dealt with if PSPRS is to survive.

If the Arizona Republic would like to summarize the Auditor General report in one word, I would like to point to one particular passage in the League's report that shows one of the roots of PSPRS' problems.  The following appears on page 8 of the League's report:
It is also important to point that prior to FY 2015-16, the cost of the PBI (permanent benefit increase) was not included in the employer contribution rate.  Excluding the PBI from the calculation effectively underestimated the normal cost of the pension plan, causing it to manifest itself in the unfunded liability.  This issue was identified by PSPRS actuaries several years ago, but the PSPRS Board did not take action to address it. (boldface mine)
Unfortunately the League does not get into more specifics about why the Board ignored their own actuaries or what internal actions or discussions took place within PSPRS to address (or downplay) the issue.  However, the Republic does give PSPRS Administrator Jared Smout's take on the issue, "By design and structure, that (pay-out formula) depletes money out of the system faster than you can replace it with investment returns.”  The Republic does not give any explanation from PSPRS lifer Jared Smout as to why PSPRS never recognized the huge costs of the PBI's, even though they were told about them several years ago, and knew the damage they were doing to PSPRS' bottom line.

Of course, Mr. Smout is beholden to the Board of Trustees for his job, and it seems unlikely that he would publicly acknowledge mistakes by either the Board or him and his staff. When the Arizona Republic was hyping the alleged improprieties of real estate valuations to enhance staff bonuses and the Arizona Police Association was requesting a criminal probe of PSPRS, the danger was that these bogus charges would divert attention from the actual, serious problems with PSPRS.  PSPRS and its staff were rightfully exonerated of the ridiculous and unfair charges of wrongdoing in its Desert Troon real estate valuations, but now there seems to be little interest now from the same media and labor organization accusers about the general incompetence and lack of oversight by PSPRS' Board of Trustees.

The Board, ostensibly the watchdog of PSPRS, failed to deal with a problem that Mr. Smout now characterizes as a permanent financial drain on PSPRS, despite being aware of the problem "several years ago."  I now see why the League wants to alter the structure and personnel makeup of the PSPRS Board.  The individuals on the Board of Trustees (or Fund Managers, as they used to be called) has changed over the years, but their ability to make horrible decisions has remained consistent.  Approving bad investment choices, whether in individual stocks, real estate, or an underperforming low-risk portfolio, has been their usual modus operandi.  However, ignoring their own actuaries and knowingly excluding the costs of PBI's in contribution calculations is a new low for the Board.

Why would the Board do this?  Were they hoping that a defendant victory in the Fields case would make dealing with the actuaries' disclosure unnecessary since a new PBI structure would then be in place?   I don't know.  Your guess is as good as mine.   The fact that the PBI's were never included in the contribution calculations (which passed them on to future employees and taxpayers) before the disclosure is disturbing enough and makes one lose confidence in the actuaries (see this blog post for more about actuaries), but delaying any action until the 2015-16 fiscal year gives one zero confidence in the current Board of Trustees.  My guess is that a similar situation in a publicly-traded company would generate a queue of law firms at the courthouse filing class action lawsuits against the company.  As I have said before, it looks like it might be time for Governor Ducey to replace some or all of the Trustees.

I hope that the same groups who so breathlessly pursued PSPRS over bogus charges will, at least, do some follow up, on this.  There is a lot more to discuss about both the League's final report and the Auditor General's audit and review.  Please stay tuned.

Thursday, September 17, 2015

The Stuart Smalley world of PSPRS: they're good enough, smart enough, and doggone it, their strategy is working

On September 9, 2015 we were given another of PSPRS' self-serving press releases:
PSPRS fund realizes 4.2 percent gross returns
Stability, $210 million in growth during year of market volatility
PHOENIX – The state’s Public Safety Personnel Retirement System fund realized a 2015 fiscal year investment return of more than 4 percent, placing the $8.3 billion system among top public pension performers during a year marked by high stock market volatility.
The system’s 4.2 percent gross-of-fees returns fell below the assumed earnings rate of 7.5 percent, but still showcased a strong 14.1 percent net return for the PSPRS private equity portfolio. In recent years, PSPRS increased its private equity investments – and decreased holdings in stock market-traded equities – as part of its strategy to minimize risk through a broad diversification across asset classes.
The 4.2 percent gross of fees performance of PSPRS places the system within the top 18 percent of 92 comparable public pension funds, according to Allan Martin, of NEPC, the Fund’s Investment Advisor.
“Our portfolio is designed to deliver earning potential while providing significant protection on the downside,” said PSPRS Chief Investment Officer Ryan Parham. “In a world where treasuries are earning less than 1 percent and stocks are flat or down, our 4.2 percent gross of fee returns shows the true value of diversification.”
When adjusted for measurable levels of investment risk taken, PSPRS outperformed 94 percent of its comparable peer pension funds, while the system has shown dramatic overall peer-to-peer performance ranking improvement over the course of the last 3, 5 and 10-year periods.
“The past year, and especially recent weeks, provide a clear example of the type of rocky environment this portfolio is built to withstand and even perform under,” said Martin. “For five years now, PSPRS has ranked well within the top 5 percent of its peers in terms of risk-adjusted returns, while earning 9.2 percent per year in gross-of-fee returns.”
The gross-of-fees performance of PSPRS exceeded that of peers by roughly 1 percent, according to Martin. PSPRS calculations indicate the additional 1 percent return resulted in producing more than $82 million to the PSPRS trust in fiscal year 2015.
The comparable returns on a net-of-fee basis are 3.7 percent for one year and 8.7 percent per year for the five-year period, respectively. On a net-of-fee basis, the fund increased in value during the 2015 fiscal year by $210 million and is now valued at more than $8.3 billion.
The PSPRS trust along with the Corrections Officers Retirement Plan (CORP) and the Elected Officials Retirement Plan (EORP) provides retirement, disability and survivor benefits to approximately 50,000 retired and active members.
Apparently, PSPRS thinks everything is going great.  Their paid pension consultant, NEPC, seems to agree, so why should any of us trust what we read with our own eyes?  After all, it's just our current and future income, security, and quality of life we're talking about here, right?

Let's start off with the obvious problems.  First, the headline states that PSPRS earned 4.2% gross returns for the fiscal year, which is not particularly great to begin with, but it is better than what PSPRS actually earned, 3.7%.  Of course, this does not appear until the penultimate paragraph, just in case people do not read the release all the way through.  Earning less than half your assumed rate of return (ARR) might make people think that you do not really know what you are doing.

This brings us to the glaring misrepresentation about PSPRS' ARR.  PSPRS' ARR was 7.85% last fiscal year.  PSPRS just lowered its ARR to 7.50% this fiscal year, so actually PSPRS fell even further below its ARR last year than the press release indicates.  But once again, why trouble PSPRS members with such details since it would reflect even more badly on its investment performance.

Now we get to the numbers, PSPRS' favorite embellishment tool.  Shouldn't we all see that PSPRS is doing quite well versus its "comparable peer pension funds?"  I do not know what qualifies as a peer pension fund.  Are the 92 peers based on assets, membership, investment strategy, or some other criteria?  In the last post, we saw that PSPRS surpassed the 3.2% average return of 265 public plans with more than $1 billion in assets by about a half-percent, but the referenced Pension & Investments article does not give enough information to rank PSPRS or place it in a percentile.  Is PSPRS still in the top 18% among the 265 funds?  Who knows, maybe PSPRS is better, maybe worse, but there are 173 other public plans not included in NEPC's calculations.  Ultimately, it means nothing to compare one's returns to a particular subset of public plans and highlight your performance against them, unless they are the well-funded, ARR-besting plans worthy of emulation.  It is like a perennially 8-8 NFL team comparing itself against all the teams with losing records, instead of the teams that regularly have double-digit wins and make the playoffs every year.  In this press release, PSPRS' comparative numbers are essentially worthless.

The press release also highlights PSPRS' five-year returns of 8.7%, net of fees.  This is fine until we look at last year when it was 10.68%, net of fees.  This two percent decrease, year-to-year, is conspicuously omitted, and this decrease was during the best five-year market PSPRS is likely to ever see.  It really can only get worse from here on out, as August 2015 showed.  PSPRS' ten-year returns are only about 5%, well below the ARR ,regardless of which ARR PSPRS chooses to use.

Lastly, we have to discuss the puffery from PSPRS Chief Investment Officer (CIO) Ryan "9%" Parham.  Yes, your diversification strategy seems to be minimizing risk on the downside, but PSPRS still needs, at the very least, to earn its ARR over the long run, even if you are claiming that PSPRS' disappointing earnings are caused by the incentive to lowball returns so as not to pay out COLA's to retirees.  Your strategy seems only to be halfway working.  This past fiscal year was not a flat or down year.  The Russell 3000 earned about 7.3% and even an equal dollar weighting of foreign (down 5.26%) and domestic stocks would have still earned about 2%, just 1.7% below your actively managed PSPRS portfolio.  If this past year is Mr. Parham's definition of success, we are all doomed.

If PSPRS dryly stated the facts of what happened last fiscal year, there would be no problem with this press release.  PSPRS did do a little better than average and did better than the Arizona State Retirement System, both good things that should be known in order to put PSPRS' performance in perspective.  However, this is all that needs to be said, not a bunch of misleading, happy talk about how a substandard year is some great success, if you just look at it the right way.  I am happy that PSPRS replaced the dangerous stock-picking strategy of past years, but that was not a justification to swing completely in the other direction to the point where you are so conservative that you can only earn your ARR in years when the markets are producing returns of 14% or more.  The danger in the past was that people were blinded by good PSPRS returns to the point that they did not see that those returns were unnecessarily risky and could have just as easily been produced by a much safer passive investment strategy.  The good returns were a factor of an extended bull market and had nothing to do with what individual stocks were chosen or who was making the choices.  Anyone can be a genius in a bull market.  However, the danger to PSPRS' portfolio was not an illusion and became very apparent when the market crashed and took a lot of PSPRS' individual stock picks down with it.  A mirror version of the same problem could just as easily happen if the only metric you look at is managing downside risk, and you cannot see that you have made it virtually impossible for PSPRS to ever earn an adequate return.  You are only supposed to play prevent defense when you are protecting a lead at the end of a game.  PSPRS is about five touchdowns behind late in the fourth quarter.

PSPRS is fond of presenting stress test models of how their current strategy would have lessened the losses of past financial crises, but they do not throw in a third comparison using a passive index fund strategy as a neutral baseline.  Also, they do not show how much lower the returns under the current strategy would have been in the years when PSPRS was doing well, such as during the bull market years of the 80's and 90's.  Lower returns in those good years, especially the 80's and 90's when the ratio of workers to retirees was much higher, would have had a negative compound effect over time that should be factored into any fair comparison of strategies.  Does PSPRS really know if their "nationally recognized" strategy is working, or are some people so personally invested in it that they can not objectively assess it?

In the end, applying the strategy is not the goal, consistently earning at or above your ARR over the long run is.  I am sure there was a "successful" strategy in place in 1999 when PSPRS was investing heavily in technology stocks and a "successful" strategy in place in the mid-2000's when PSPRS was investing heavily in real estate with Desert Troon.  We know how those turned out for all of us, but we can all take solace in the fact that PSPRS feels good about how they are doing now.

Friday, September 4, 2015

PSPRS takes the Pension Territorial Cup from ASRS this year

As we had discussed earlier here and here, there will be no permanent benefit increase (aka COLA) this fiscal year (FY) for PSPRS retirees.  This was confirmed by PSPRS Administrator Jared Smout in this message on the PSPRS website.  The only new information in the message is the disclosure of the final FY rate of return, net of fees: 3.68%.  This means that PSPRS missed its expected rate of return (ERR) by about 4% and the COLA threshold by about 5.3%.

According to this August 10, 2015 article, High-return era ends for big public pension plans, by Randy Diamond in Pension and Investments magazine, for this past FY, the median return for public plans with over $5 billion in assets was 3.4%, and the average return for the 265 plans with over $1 billion in assets was 3.2%.  PSPRS surpassed the median by 0.28% and the average by 0.48%.

PSPRS even gets state bragging rights versus the Arizona State Retirement System (ASRS) this year.  ASRS' FY 2015 return was 3.2%, beaten by PSPRS by almost a half-percent.  ASRS also has a higher ERR than PSPRS at 8.0%.  So some congratulations are in order for PSPRS, though these should be qualified by the fact that ASRS has soundly surpassed PSPRS' returns in the three-year, five-year, and ten year averages.  ASRS also returned 18.60% last year versus 13.82% at PSPRS, more than making up the difference for any lagging returns this year.  Most importantly, ASRS is much better funded than PSPRS and has much lower employer and employee contribution rates at 11.47% apiece.

I cannot wait to see the first few months of returns for the current FY.  They should be very interesting. 

Monday, August 31, 2015

Meet the new PSPRS boss, same as the old PSPRS boss

In the latest missive from the bunker comes this underwhelming news:

         August 27, 2015
PSPRS veteran tapped to run $8 billion trust
Board Chairman: Smout ‘exemplary’ during uncertainty 
PHOENIX – The state’s Public Safety Personnel Retirement System Board of Trustees appointed Jared Smout to lead the state’s multi-billion dollar trust that invests and provides retirement benefits to public safety employees, corrections officers, judges and elected officials.
Smout, who has served as interim system administrator since July 2014 and has served PSPRS for more than 18 years, was appointed on Aug. 26 by a vote of the seven-member board led by Chairman Brian Tobin.
Tobin, a veteran City of Phoenix firefighter, praised Smout’s performance and dedication displayed during an era marked by unjustified accusations against the system, legal uncertainty and the added diplomatic task of encouraging reforms aimed at providing financial stability to the trust.
“I think he’s done an exemplary job under very difficult circumstances,” Tobin said. “He has the experience, the education and the skills, and he will serve this state and its public safety employees well in this vitally important position.”
During his tenure as deputy system administrator and acting system administrator, Smout has continued to oversee PSPRS’ nationally recognized investment strategy that seeks steady returns coupled with resistance to market volatility.
“I deeply appreciate the Board’s confidence in allowing me to continue in this role. I absolutely love my job and am grateful every day for the opportunity to serve those who serve this state,” Smout said. “We have a lot to be proud of and we will continue to improve the system, our relationships and our ability to deliver long-term pension stability.”
The risk-averse strategy implemented by PSPRS seeks to diversify assets and reduce exposure to publicly-traded equities, the greatest driver of market fluctuations. The trust performed admirably in fiscal years 2013 and 2014, posting net gains of 11 percent and 13.3 percent, respectively, despite assuming far less risk than the vast majority of public pension plans.
Additionally, PSPRS is expected to outperform more than 80 percent of 66 comparably sized pension trusts for fiscal year 2015, a year marked by low returns for trusts with stock-heavy portfolios.
The PSPRS trust combined with the Corrections Officers Retirement Plan (CORP) and the Elected Officials Retirement Plan (EORP) is valued at roughly $8.3 billion and provides retirement, disability and survivor benefits to approximately 50,000 retired and active members.
While I believe that former PSPRS Administrator James Hacking was unfairly scapegoated for PSPRS' problems and forced to fall on his sword and resign to appease some PSPRS critics, his departure was an opportunity to bring in someone new with a better track record at another pension system or financial organization.  I thought we would have that when in March 2015 PSPRS announced that Kevin Olineck, a vice-president with the British Columbia Pension Corporation (BCPC), was chosen to be the new PSPRS Administrator.  The BCPC is in much, much better financial shape than PSPRS, and no doubt has many good practices that Mr. Olineck could have brought with him to PSPRS.

Unfortunately, this was not to be as Mr. Olineck strangely could not get a visa to work in the United States, and the Board of Trustees' choice went from international to inter-office.  While the press release touts Mr. Smout's 18-year tenure as a plus, a look at his resume shows that with the exception of a three-month stint as acting finance director for the Salt Lake City Public Library, he has worked almost exclusively for PSPRS, starting as an administrative assistant in 1997 and working his way up to Deputy Administrator in 2011.  While he has an admirable record of career advancement in PSPRS, the bulk of his time with PSPRS coincides with its worst financial performance and most problematic management.  Also, according to the August 27, 2015 Arizona Republic article, Arizona public-safety pension trust picks insider as new leader, by Craig Harris, Mr. Smout signed off on the illegal raises that cost Mr. Hacking his job.

Compared to Mr. Olineck or Deric Righter, a former CEO of ThyssenKrupp USA, the other finalist for the Administrator job and another person with a more varied and successful career in finance and management, Mr. Smout appears, far and away, the least likely of the three to implement change at PSPRS.  Closer to home, we can compare Mr. Smout to Paul Matson, Director of the much better managed and much better performing Arizona State Retirement System (ASRS).  Mr. Matson's ASRS biography shows he worked six years for the Alberta, Canada Treasury before joining ASRS, then spent eight years as ASRS Chief Investment Officer before becoming Director.  ASRS' Trustees obviously saw the value in a more well-rounded career with exposure to other systems when they hired and promoted Mr. Matson.  It is unfortunate the PSPRS Board of Trustees did not see things the same way once they knew that Mr. Olineck was unable to take the job.

Trustees Lauren Kingry and Bill Davis, to their credit, voted against Mr. Smout's selection, with Mr. Kingry stating that he wanted to "to examine the available candidate pool."  Unfortunately, the other five Trustees voted to select Mr. Smout without even that cursory amount of due diligence.  Of course, the Board already bungled a months-long hiring process by offering the job to someone who could not work in the United States, a piece of information which was conspicuously omitted from the press release.  They also see fit to boast about their fiscal year 2015 performance, despite the fact that it will only be about half the assumed rate of return, another piece of information missing from the press release.  If this is the mindset of the Board of Trustees, maybe the next thing to be replaced should be some of the Trustees.

Friday, August 28, 2015

PSPRS investment returns through June 2015 (the all-important end of the fiscal year)

The following table shows PSPRS' investment returns, gross of fees*, versus the Russell 3000 for June 2015, the end of the current fiscal year (FY), with the June 2014 returns included for comparison:

Report PSPRS PSPRS Russell 3000 Russell 3000
Date Month End Fiscal YTD Month End Fiscal YTD
6/30/2014 0.78% 13.82% 2.51% 25.22%

7/31/2014 -0.67% -0.67% -1.97% -1.97%
8/31/2014 1.73% 1.05% 4.20% 2.14%
9/30/2014 -1.53% -0.49% -2.08% 0.01%
10/31/2014 0.40% -0.09% 2.75% 2.76%
11/30/2014 0.92% 0.82% 2.42% 5.25%
12/31/2014 -0.18% 0.64% 0.00% 5.25%
1/31/2015 0.01% 0.65% -2.78% 2.32%
2/28/2015 1.91% 2.58% 5.79% 8.25%
3/31/2015 0.83% 3.42% -1.02% 7.15%
4/30/2015 0.95% 4.40% 0.45% 7.63%
5/31/2015 0.54% (est) 4.94% (est) 1.38% 9.01% (est)
6/30/2015 -0.73% 4.21% -1.67% 7.29%

There is usually about a two-month lag in PSPRS reporting its investment returns.  The PSPRS Board of Trustees did not have a July meeting so I do not have exact numbers for May 2015 and estimated the returns based on April and June.  PSPRS returns reverted back to their normal pattern in May and June with gains lagging when the Russell 3000 is positive and limiting its losses when the Russell 3000 is negative.  As can be seen, PSPRS did not even meet its expected rate of return (ERR) of 7.85% much less the COLA threshold, which, as was discussed earlier here, means no COLA will be paid in the current FY.  The returns, net of fees, will probably be around 3.70% for the fiscal year.

For the fiscal year, all but two of PSPRS' asset classes showed a positive return, but of the positive returners, only the private equity class met or bested the ERR with a 14.05% FY return.  The non-US equity and real assets with -4.58% and -3.55% FY returns, respectively, are the two asset classes with losses for the FY.  PSPRS FY returns are a very mixed bag.  Looking at two years of PSPRS' risk-averse strategy, PSPRS' FY 2014 return was 54.79% of the Russell 3000, while PSPRS' FY 2015 return (estimated net of fees at 3.70%) was 50.75% of the Russell 3000.  If PSPRS' risk-averse strategy can only range between 50-55% of the Russell 3000 each year, it will be really tough for it to ever meet its ERR.  Even at the new 7.50% rate and getting to 55%, the Russell 3000 would have to return 13.64% just to meet the ERR.  Of course, this is limited data, but it is all we have to go on.

The Russell 3000 showed a 1.67% gain for July 2015, but as of August 27, 2015, the Russell 3000 has a monthly loss of -5.48%.  Who knows what could happen by the end of today and on the 31st?  It has been so volatile this month that almost nothing would surprise me.   Regardless, PSPRS likes to highlight the stress tests it has done on its portfolio as proof of how well-designed the portfolio is, so this month they may get a real, live stressor against which to check the design of the portfolio.

* Returns, gross of fees, are used because PSPRS usually does not report returns, net of fees paid to outside agencies, except on the final report of the fiscal year.  The past two years fees have reduced the final annual reported return by about one-half of a percent.

Thursday, August 27, 2015

Why Prescott's PSPRS sales tax measure went down in defeat

Normally, a local election in a city of 40,000 people would not be of much interest to people outside its city limits, but the City of Prescott had an interesting issue on its ballot Tuesday.  Officially listed as Question 3, the City of Prescott ballot asked voters:
Shall the City of Prescott adopt a transaction privilege (sales) tax of fifty-five one-hundredths of one percent (0.55%), the restricted revenue from which shall be dedicated to the payment of the unfunded obligations of the city to the Arizona Public Safety Personnel Retirement Systems, taking effect on January 1, 2016, and continuing until the unfunded obligations of the city to the Systems are paid in full, including any associated financing of said obligations, but ending not later than December 31, 2035?
This attempt to pay off Prescott's PSPRS deficit via a 20-year sales tax increase was soundly defeated 56%-44%.  According to the Prescott Daily Courier, this defeat was in spite of the support of the current City Council and all but one of the candidates who ran for mayor and council seats.  Interestingly, in the only head-to-head race, the one candidate opposing the PSPRS sales tax, Harry Oberg, won the mayoral election against Dan Fraijo, a former Division Chief in the Phoenix Fire Department and a former Prescott Fire Chief, 51%-49%.

Two other tax measures were on the ballot as well.  A measure to increase a road tax from 0.75% to 1.0% was approved, 57%-43%, while a 0.08% tax to pay for open space was  rejected 58%-42%.  So there appears to be more here than an across-the-board rejection of tax increases.

Voters were given dire projections about draconian cuts to city services and lectured about their "responsibility" to pay a legally incurred debt, and yet in spite of this collective shaming by politicians, media personnel, business leaders, and sundry commentators, voters still overwhelming defeated this tax proposal.  It is funny to see the tut-tutting of the Prescott political class with comments such as:
Councilman Greg Lazzell: "There are going to be a lot of hard decisions and a lot of disappointed citizens."
Councilman Steve Blair: "People have the attitude that we have to live within our means, but it is going to involve some serious choices."
Former Councilman Malcolm Barrett, Jr.: Those against the PSPRS tax proposal "talked about sending a message, but the only message they're sending is that 'we're not going to pay our bills."
Councilwoman Jean Wilcox:  Those who voted against the PSPRS tax proposal "were duped by the Tea Party mentality, and don't understand that paying this tax will benefit the whole community."
Nothing like characterizing your constituents as infantile, ignorant deadbeats to win them over.  Compare this to the comments of Joe Pendergast, president of the opposition organization, Citizens Tax Committee:
"I think people have had enough of taxes unless they can be justified."
"My idea was, if [the PSPRS tax] did pass, the pressure is off the council."
"The council is in a little bit of a pickle, and citizens will be up in arms, and will pressure the council to pressure the Legislature (on reform)."
While I do not agree with Mr. Pendergast's reasoning since the Prescott City Council will have scant influence on the Arizona Legislature, except through the League of Arizona Cities and Towns, and barring bankruptcy, will still have to pay this debt, he is correct in pointing out the responsibility of the politicians in this problem.  As politicians are wont to do, they characterized and sold the solution to the PSPRS debt as a revenue problem, never making any concessions on the spending side.

Why did the voters approve the road tax by the same margin they rejected the PSPRS tax, if "they were duped by the Tea Party mentality"?  It is because, in the case of infrastructure, the revenues will have to match the spending.  X dollars will get you X amount of construction and repairs, based on an open bid contract system.  Streets are not paid wages, do not collectively bargain, nor spike their pensions.  Compare this to the PSPRS tax.  While the taxes will have to go toward the PSPRS debt, what drove that debt in the first place?  Wage and benefit policies.  Technically, this PSPRS sales tax is restricted revenue, but the rest of the city's general fund is not.

Without a commitment from the city government to control the wage and benefit policies driving PSPRS costs, what will keep the PSPRS tax from being funneled back into the very spending that caused the deficit in the first place?  I certainly would not begrudge the fire and police unions for working to increase their pensionable wages and benefits as this is what unions are supposed to do.  However, how do you go to someone on a fixed or low income and ask them to pay a higher sales tax without some guarantee that the cost drivers of the tax will be managed as well?  The Prescott government is asking taxpayers to give them money without any transparent mechanism for controlling future pension costs.

Perhaps if the PSPRS tax measure was tied to some concession like a union-negotiated agreement like an employee contribution rate increase or a limiting of pensionable wages to base pay only, it would have shown voters that the city and its public safety employees were willing to sacrifice alongside taxpayers.  This would show a serious effort to pay down the deficit.  The phased-in employer contribution rates for the Prescott Fire Department and the Prescott Police Department are 63.44% (non-phased 74.49%) and 55.12% (non-phased 66.16%), respectively, and I am not sure these rates for Prescott Fire, taken from the 2014 actuarial reports include all the higher costs related to the Granite Mountain Hotshots tragedy.  Excluding overtime and other non-base pay items would save Prescott 55 to 63 cents for every dollar spent on non-base pay.  This would also reduce pension costs long-term by lowering final average salary calculations made on employee pensions.  Employees would also get to keep the 11.65% employee contribution on non-base pay, instead of paying it into PSPRS.

I believe that Prescott voters knew intuitively that the budget savings freed up by the PSPRS sales tax would soon make its way back into the very same cost drivers that created the deficit in the first place, and they would be worse off than before the tax was implemented.  The Prescott political class expects taxpayers to act "responsibly" and pony up their hard-earned money to pay off the PSPRS deficit, but  they conveniently forget that it was politicians like them and their public employee allies who irresponsibly created this mess in the first place.  I think that the voters would agree to a PSPRS tax, just like the roads tax, if it was clearly tied to a pension cost control program.  Perhaps the political class will show some leadership this time around, instead of haranguing voters, by implementing some real reforms going forward.  If not, they shouldn't be surprised that voters don't trust them to do what's right with their money.