Phoenix Prop 106: Elementary School Math

Phoenix has an over $5 billion – with a B — unfunded pension problem for their 8,000 active employees and 6,900 current retirees. This even includes the Phoenix police and fire pensions which are currently funded at 40.46% and 41.99% respectively. Meaning that for every $1,000 promised to our public safety retirees, Phoenix has to come up with $600 that is not set aside.

The interesting fact about the opponents of Prop 106, Responsible Budgets and their enablers is that they admit we have an unfunded pension problem and it is large. No On 106 and Former Phoenix Mayor Terry Goddard stated “I agree with Sal [DiCiccio] on this, our pension is at a very, very serious level and the city councils have not done the job.” Continuing on, Goddard admitted, “I have no dispute with Sal that we have a serious problem.” (Phoenix Rotary 100 Meeting, August 2, 2019)

Opponents of Prop 106 scream deceptively and hysterically to the point where they are taking on the persona of Bill Murray in Ghost Busters, “Human sacrifice, dogs and cats living together … mass hysteria.”

While they admit there is a problem, what is their solution?  They don’t have one. Their talking points – which their trolls post on our Facebook site daily – is that we will kill Phoenix libraries, and that the current 25-year repayment plan takes care of the problem.

The first is hyperbole – propaganda – and nothing more. It is not based in reality. Prop 106 allows for annual Phoenix budgets increase for 1) inflation and 2) population growth. This will equal to about 3% annual increase in the Phoenix City budget. Would your household view that as a budget cut? Of course not.

Their second point is delusional at best, though “foolishly reckless” is probably more accurate. There are two inherent problems with this faulty talking point:

First, the current 25-year plan, passed with a 7-2 Phoenix City Council vote, came about in 2017 to avoid budget cuts and allow the city to have a budgetary increase of $40 million over two years. The financial price for that extension?  An additional $2.3 billion in interest payments. Sounds like a Pay Day loan plan. For people who worry about a $40 million annual Phoenix library budget, you would think $2.3 billion in new interest payments would cause concern for library growth and funding.

Second, think of the numbers 7, 6, and 5. Phoenix assumes the rate of return on their pension investments will be 7.4% per year, every single year. They don’t achieve it. And yet, this hypothetical 7.4% return on investments is baked into their dream-like 25-year repayment plan.

What is Phoenix actual average return?  A little over 5%.

That means that for every $5 Phoenix puts in to fund our pensions comes up a dollar short: they would need to increase payments to our pension plans by another 20% just to stay even on pensions for current employees – and puts the lie to claims that our past due obligations will be addressed by their plan.

Take a pencil and paper out and ask yourself, “does this add up?” Of course not. Their 25-year plan also doesn’t take into an account a future recession or two which will occur. How do stocks and investments do during a recession?

Would you sell your mother this investment strategy? Would you tell her to rely on a stock broker who made promises they had never once kept?

If there is a better idea, we’re all ears. Right now, Prop 106 proposes limiting Phoenix annual budgetary growth to population growth and inflation, with any additional revenue going towards paying off this unfunded pension liability – because if we don’t, the cuts to City of Phoenix services that our opponents are crying about actually will happen: as a result of their inaction.

By voting YES on Prop 106,, you are voting to make sure Phoenix is on a solid financial foundation, has the ability the grow the budget for core services, and keeps our promises to our retirees.

About Chuck Warren, Co-chair of Responsible Budgets 1 Article
Chuck Warren is the co-chair of Responsible Budgets in Phoenix, Arizona.