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Was it constitutional for Proposition 124 to replace PSPRS' permanent benefit increases with a capped 2% COLA?

In this blog I and multiple commenters have broached the subject of the suspect constitutionality of PSPRS' replacement of the old perma...

Saturday, February 21, 2015

The PSPRS fix is in: The Professional Fire Fighters of Arizona's (PFFA) Operation Blue Falcon continues apace

The recent death of actor James Garner gave me cause to begin  re-watching his great 1970's detective show The Rockford Files on Netflix.  While I had watched the show as a kid back when it was originally run (at 9:00 PM on Friday nights on NBC, if memory serves me right), re-watching has caused me to notice certain things that I either missed or forgot.  In particular, the episode, "The House on Willis Avenue," was much more interesting in 2015 than it was in 1978, when it was originally broadcast.  Briefly, it involves a murder tied to a private data collection agency that was criminally abusing its access to private personal information.  Rockford exposes the company and brings the perpetrators to justice, but the most interesting thing is a slide that appears at the end of the episodes that reads:
Secret information centers, building dossiers on individual exist today.  You have no legal right to know about them, prevent them, or sue them for damages.  Our liberty may well be the price we pay for permitting this to continue unchecked.
Member, U.S. Privacy Protection Commission
If you are still with me, you are probably wondering what this has to do with PSPRS.  The simple point I think this makes is how years of complacency has made what was once outrageous seem like no big deal.  The level of individual privacy we accept now is lower in 2015 than in 1978, when the ability to maintain your privacy was much greater.  Instead of expecting the government, which should protect us from privacy violation, we just hope that they are not abusing our privacy in a more egregious manner.

This makes a good segue into how this is relevant to PSPRS: the February 20, 2015 Arizona Republic "Into the Mind" editorial with Professional Fire Fighters of Arizona (PFFA) President Bryan Jeffries entitled, "How firefighters would reform Arizona pensions."  I have already written about the PFFA's  reform proposal to "fix PSPRS" in this post, which mostly notes how it provides no improvement over SB 1609,  and I was hopeful that it would have already died on the vine.  Unfortunately, like many bad ideas, it refuses to die, PFFA appears determined to release its Frankenstein monster out of the lab.

First, let me credit Mr. Jeffries for his honesty.  He openly admits to the inter-generational wealth transfer of the PFFA reform proposal by stating, "Our plan would fund retirees' cost of living adjustments out of the pockets of current working public safety workers, not taxpayers."  If you are not familiar with the PFFA reform proposal (which is available at the League of Arizona Cities and Towns Pension Task Force website), it would eliminate the current excess earnings models for cost of living allowances (COLA's) and take the SB 1609-mandated contribution increases of active PSPRS members now being used to pay down PSPRS' deficit, and instead, use them to pay COLA's to retirees.  It would also delay COLA's for up to seven years or until age 60, whichever is sooner.

The additional contributions mandated by SB 1609 will top out at 4% starting next fiscal year.  This 4% taken from current employees will then be used to pay a delayed COLA of up to 2% to retirees.  You do not need to be a mathematician to figure out that someone who works for 25 years paying 4% per year will never recoup in future COLA's what he paid in past contributions unless he lives for a really, really long time.  Compare this to SB 1609, which guarantees a minimum COLA of 2% if PSPRS is at least 60% funded and earned at least 10.5% in the prior fiscal year.  If you are an active PSPRS member, especially one just starting his or her career in public safety, does the PFFA reform proposal sound like a good deal to you?  Would you like to take a guaranteed loss on your total lifetime income as the PFFA wants or would like your future COLA's to track with the overall financial health of PSPRS?

Mr. Jeffries also proposes a false choice of on whom the responsibility for funding retiree COLA's should fall: active workers or taxpayers.  This fallacious proposition fails to identify the fundamental problem with PSPRS which is that it has only one source for COLA's, and it is neither active workers nor taxpayers.  While the excess earnings formula connotes something bad about using excess earnings to pay COLA's, in fact, excess earnings are the ONLY source from which PSPRS can pay COLA's .  The current excess earnings formula suffers from a horribly bad design because it takes half of any earnings over 9% in a fiscal year and segregates it into a fund that can only be used to pay COLA's.  However, if PSPRS loses money, it absorbs 100% of the loss.  This is why PSPRS continued to pay COLA's even as its funded ratio dropped each year.  SB 1609 addressed the problem by tying COLA's to not only the excess earnings percentage but also to PSPRS' funded ratio.  While the Fields decision rolled back SB 1609' s changes, it did not change the fact that an underfunded pension can not pay COLA's. 

The PFFA leadership has blithely offered up the current and future wages and benefits of its active members to maintain the payment of COLA's from a perilously underfunded pension.  Rather than advocating a better solution to the excess earnings model than SB 1609, which correctly prioritized bringing PSPRS back to financial health over paying COLA's, the PFFA has decided that COLA's are sacrosanct and wants to use its active, dues-paying members as a permanent source of COLA funding.  I would hope that most retirees would object to this.  Whether you are a member of PSPRS who just started paying contributions or someone who did his time and has been retired for 25 years, I think that we can agree that we are all in this together.  No one group has a greater claim to PSPRS' assets or a lesser obligation for its liabilities.  If you are in for a penny, you are in for a pound.  In the end, the best way to ensure that COLA's are paid is to bring PSPRS back to financial health as soon as possible, and it does not have to be accomplished through some form of inter-generational theft.

The PFFA leadership has perhaps spent too much time among the media and politicians to realize that, like Colonel Nicholson in The Bridge on the River Kwai, good people can forget whom they represent and for what they are supposed to stand.  PFFA's constituency is out here, not at The New York Times, Arizona Republic, PSPRS office, mayor and city council chambers, or the Arizona Statehouse.  Those entities may be impressed that Mr. Jeffries and the PFFA are willing to sacrifice workers' earnings to garner their favor, but rank and file PSPRS members should see the PFFA reform proposal as a breach of faith that helps neither active workers nor retirees.

So this brings us back to the analogy that started this post.  Is this what we have come to now?  An organization that is supposed to represent the interests of unionized firefighters in Arizona is freely giving up workers' hard-earned and diminished income.  Would unionized public safety workers have meekly accepted a proposal like this 40, 50, or 60 years ago?  Would law enforcement unions have stood by helplessly as another organization transformed the financial landscape beneath the feet of its own members?  Has such a sense of complacency set in that we can not even recognize when we are being hurt by those whose job it is to stand up for us?  There should be a lot more to come on this subject in the future.  Stay tuned.

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