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.