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HomeMy WebLinkAboutMinutes - Minutes - City Council - Meeting Date: 3/16/2015 City of Glendale 5850 West Glendale Avenue Glendale, AZ 85301 ri7I i 11 Meeting Minutes - Final Monday, March 16, 2015 4:00 PM Special Council Workshop Council Chambers City Council Workshop Mayor Jerry Weiers Vice Mayor Ian Hugh Councilmember Jamie Aldama Councilmember Samuel Chavira Councilmember Gary Sherwood Councilmember Lauren Tolmachoff Councilmember Bart Turner City Council Workshop Meeting Minutes -Final March 16,2015 CALL TO ORDER Present 7- Mayor Jerry Weiers, Vice Mayor Ian Hugh, Councilmember Jamie Aldama, Councilmember Samuel Chavira, Councilmember Gary Sherwood, Councilmember Lauren Tolmachoff, and Councilmember Bart Turner Also present were Richard Bowers, Acting City Manager;Julie Frisoni, Assistant City Manager;Jennifer Campbell, Assistant City Manager;Michael Bailey, City Attorney;and Pamela Hanna, City Clerk. WORKSHOP SESSION 1. 15-211 PENSION REFORM UPDATE Staff Contact: Office of the Mayor Presented by: Bryan Jeffries, Professional Firefighters of Arizona Presented by: Scott McCarty, Pension Reform Task Force Presented by: Justin Harris, Glendale Law Enforcement Association Presented by: Julie Pendergast, Glendale Fraternal Order of Police Brian Jeffries, Professional Firefighters of Arizona, spoke about the goals. He explained they wanted a fully funded system in less than 20 years and employer contribution rates at or below labor markets in the private sector, which is around ten percent. He also said they also wanted to reduce unfunded liabilities, with no cuts to service. Once the PSPRS is stabilized, they want to protect sustainability with realistic assumed earnings, modest benefits and wise investment rules. He explained the system and service;they will pay more, receive less and work longer. He said the firefighters are ready to fix the problems. He also thanked their legal partners who have assisted in their efforts. Mr. Jeffries then provided a brief history of the PSPRS system which was created in 1968. He explained the system is managed as one big system, but local control is still retained by the participating cities. He discussed adding COLA to the system as well as the system investing into the tech bubble. He said one third of the system's assets were lost during this time. With those losses, new investment rules were established to help protect the system. He said with the recent recession, as of June 2014, PSPRS was only 49.2 percent funded. He explained contribution rates are going to continue to go up unless there is reform. Mr. Jeffries said emergency services suffer as a result of these rising costs. Mr. Jeffries said in 2011, the Arizona legislature addressed pension reform, including SB1609. He said there were lawsuits and in March 2014, the Fields case specifically reversed the COLA mechanism. This ruling cost the fund$375 million. Mayor Weiers asked when Kirk Adams was speaker in the legislature, if Mr. Jeffries was involved at that time. Mr. Jeffries said he was involved, but not directly. Mayor Weiers said he was the one that fought Mr. Adams, because what he was doing was unconstitutional. Mr. Jeffries said they expect contribution rates to go up to 55 percent, and there are more City of Glendale Page 1 Printed on 5/15/2015 City Council Workshop Meeting Minutes -Final March 16,2015 cases coming through the courts. He explained it is likely that most, if not all, aspects of SB1609 will be reversed. He discussed closing the plan and said if no one is contributing to the plan;the burden will fall on the taxpayers. Mr. Jeffries talked about changing the COLA structural methodology. He said this is actually a permanent benefit increase(PDI)and has nothing to do with the cost of living. He said if the PSPRS earns over the 9 percent assumed earnings rate, half that money stays in the fund, the other half goes into the excess earnings account. He said this works well when times are good, but it doesn't take into account any reduced funding situation. He said retirees have received a 4 percent annual COLA for 29 consecutive years. He said it will help employers almost immediately if they can change this part of the system. Mr. Jeffries read a quote from Ryan Parham, the PSPRS Chief Investment Officer from the December 2014 Capitol Times. He explained key elements of their proposal to solve this problem. He said the solution relies on accepting most of the provisions of SB1609, which have been in place since 2011. These include new employees working 25 years, higher employee contributions, reduced and changed PBI/COLA program, new employer minimum contribution rate of 10 percent, eliminating the excess earnings program and self-funded inflation protection. He said their solution includes maintaining the contribution rate at 11.65 percent, which is the third highest public safety rate in the country. A rate of 7.65 percent will be paid to the main PSPRS fund and 4 percent will be paid to a new employee-funded PBI fund. Mr. Jeffries explained employees will pay 4 percent in the PBI fund, and no one would get any sort of PBI or COLA for three years. Qualification to receive PBI includes being retired for 7 years or age 60, whichever comes first. The new PBI fund will have no liability and is a separate fund. Every year, staff will keep 75 percent of the monies in that fund held in reserve. The other 25 percent will go out to retirees in some form, but the maximum they will receive will be 2 percent. He said this is half or less than what they have been receiving for the last 29 years. He explained the average employer contribution rate would fall from over 55 percent to mid-30 percent. PSPRS will be 80 percent funded in 13 years and 100 percent funded in 18 years. The average employer contribution rate falls to the new 10 percent statutory minimum. Mr. Jeffries explained the PSPRS provides a subsidy for retiree's healthcare. He said the only way they get that subsidy is to stay on the employer plan or they go on the state plan. He explained retirees will spend anywhere from$700 to almost$2,000 on retiree healthcare. He also explained the windfall elimination provision and the government pension offset and how it affects public safety employees. Mr. Jeffries discussed two major hurdles that SB1609 did not address, which were the pension clause and the contract clause. He spoke about the changes and issues needing to be addressed in constitutional law. He discussed small changes they want to make to SB1609 to help make the necessary reforms. Mr. Jeffries said another factor that needs to be reviewed is the contract clause. He said consideration needs to be given in a contract and if you cannot provide what was contractor for, is there something else that can be given to mitigate the impact. He explained part of their proposal is the employer would pay 1 or 2 percent into the PBI fund. This would satisfy the consideration issue in the contract. Mr. Jeffries said they would like to get the referendum passed by the voters. It would be a statewide campaign and they would fund it and run it. He said they want to put this in front of the voters as soon as possible to save emergency services and to save City of Glendale Page 2 Printed on 5/15/2015 City Council Workshop Meeting Minutes -Final March 16,2015 taxpayers hundreds of millions of dollars. They want to call for a special election because waiting until 2016 will cost an additional$75 million and public safety agencies are cutting services now. Mayor Weiers asked if there was a current bill outstanding right now. Mr. Jeffries said there was a bill, but it has not been presented because they wanted to hold stakeholder meetings first. Mayor Weiers said that is going to be difficult to get this through. He asked about having a special session for this. Mr. Jeffries provided information on where this issue stood and upcoming meetings that are scheduled. Mayor Weiers asked if anyone had spoken with the governor about this issue. Mr. Jeffries said they have spoken with the governor's staff and they have provided positive response. Councilmember Chavira said it was a great presentation and they are really talking about taking care of the caretakers,public safety in general. Mr. Jeffries said the expenses are skyrocketing. He said they are trying to come up with a balanced, fair plan that is budget friendly. Scott McCarty, Chairman of the Pension Reform Task Force, explained the task force was formed in June 2014 and partners with the Arizona City Manager's Association and Government Finance Officers Association of Arizona. He said there are 15 members of the task force and they review all aspects of PSPRS, identify areas of improvement and reform recommendations. He provided a quick overview of PSPRS, which includes about 32,000 actives and retirees. He said the benefits are the same for all retirees, regardless of the plan they are in. Employee contributions are fixed by state law at 11.65 percent, beginning July 1, 2015. Mr. McCarty said the task force first obtained information and education about the PSPRS system. They also discussed employer recommended practices and how they manage the individual plans. Phase 3 of this task force will include comprehensive reform and determining the characteristics of a well-designed plan. Mayor Weiers said the cities can overfund the plans today so they don't get into the peak period. Mr. McCarty said that was correct and cities can put as much money as they want to into each of their plans, based on their financial condition. Mr. McCarty explained phase 1 included presentations and stakeholder collaboration. Through this process, they came up with six major observations, which included the causes of the plan's deteriorating financial condition, success is a combined responsibility, employers are managing a pension plan, they need to know their numbers, improving employer engagement, and plan changes that effect existing members or retirees are legally interchangeable. He said phase 2 included employer recommended practices. He said employers can improve their plan's financial condition today without waiting for resolution of pending litigation or legislative changes. The task force asked the questions what is the financial condition of my plan, how can I improve the financial condition of my plan now. Mr. McCarty said the task force came up with seven employer recommended practices that can be implemented now, and these include budget contributions for DROP members, prepay your budgeted contribution, do not defer the Fields case, review local board practices, prepare a comprehensive study, pay off unfunded liability earlier, and create a pension funding policy. He emphasized the question should not be if the unfunded liability will be paid off, but when and how it will be paid off. Mr. McCarty City of Glendale Page 3 Printed on 5/15/2015 City Council Workshop Meeting Minutes -Final March 16,2015 provided some hard numbers regarding the police unfunded liability and said it has steadily increased. Mayor Weiers asked about the numbers discussed as police unfunded liability. Mr. McCarty said those figures will stay as shown on the chart and the assets need to grow to improve the numbers. Councilmember Sherwood asked if the Hall case would add to that. Mr. McCarty said that was exactly right. He explained the Fields case had a more significant impact on plans where the number of retirees was greater than the number of active employees. He said the Hall case will have the exact opposite effect, and it will affect those plans that have a higher number of active employees than retirees. He said Hall is expected to have the same financial impact as Fields did, but it will vary by entity based on number of active employees to retirees. Mr. McCarty discussed amortization of unfunded liabilities and he said it added up to about 67 percent of the annual amount of the total contribution. He said to correct these issues;they have to address the unfunded liabilities from a financing perspective. He also quickly reviewed the same numbers for the firefighters'proposed plan. Mr. McCarty said to form a well-structured plan;they are starting with a set of goals, which will be supported by principles. From that, they will implement design elements to solve some of these problems. He said they are asking what should the employee, retiree, employer and taxpayer get out of the system, and how can this be accomplished. To answer these questions, they are using three guiding principles, which include adequate and affordable, financial solvent and transparent and accountable. He explained the task force initially looked at legal aspects, the variable employee contribution rate, annual PBI tied to CPI and the plan's funded status, pooled assets and liabilities, setting appropriate age and years of service, and enhancing the decision making structure. He said they will use these tools to evaluate the reform proposal and to develop a proposal. Mr. McCarty went over the upcoming timeline. He said there has been education and collaboration within the task force. This included employer engagement, employer recommended practices and evaluating the options available to reach the goals. Councilmember Sherwood asked if they were just looking for a way to better fund the liabilities and if actually fixing the system was going to be addressed in an upcoming phase of this process. Mr. McCarty said they are not at the point yet where they are going to address specific concerns. He wanted to emphasize regardless of what any reform proposal is, it will be very hard to effect change on those unfunded liabilities and those need to be addressed first. Councilmember Sherwood asked if the league has received any legal analysis with respect to the constitutionality. Mr. McCarty said they have in terms of a proposal and the proposal will not have any legal challenges. Councilmember Sherwood said it was not fixing the problem, but kicking the can down the road. Mr. McCarty said their proposal as it stands now will cost less than the current system. He said addressing the debt needs to be explored and dealt with. Councilmember Sherwood asked about a time frame where this system would become City of Glendale Page 4 Printed on 5/15/2015 City Council Workshop Meeting Minutes -Final March 16,2015 less costly. Mr. McCarty said it would be immediately effect from the first date of implementation. Councilmember Aldama asked a question about the timeline and asked if they had reviewed this at all. Mr. McCarty said they have not reviewed it with police and fire, although they have had several conversations with them. He said they will evaluate the proposal against their system. Councilmember Aldama asked if the proposal would be less than the prior proposal presented or less than the current system. Mr. McCarty said their proposal would be less than the current system. Justin Harris, Glendale Law Enforcement Association, spoke about the proposals. He said the police union is not working in concert with the fire union and they are currently at odds with the fire union over an agreeable solution. The police union wants a plan that is legitimate, legal and long-standing, similar to what the league is proposing. He said the fire union feels comfortable moving forward with their proposal in the hopes it is not legally challenged. He said changes in the fund four years ago might have made the fund more sustainable. He stated the police position includes due diligence,patience, legal standing and time. He explained fire wants to protect employees that have not even been hired yet. He explained this is not a union issue, it is a matter of individual rights, and constitutional rights matter. Julie Pendergast, Glendale Police Officers'Coalition and Glendale President of the Fraternal Order of Police, provided details about SB1609. She said they were concerned when this was enacted that it would be catastrophic if it was reversed several years later. She said a lawsuit has been filed on behalf of all active law enforcement officers, which said SB1609 was unlawful and did diminish the rights of active members. She said their law firm did persuade PSPRS and Arizona that the parties should agree to be bound by whatever decisions are reached in the active judges'case, the Hall case, because they knew the outcome in Hall would directly apply to the active officers in the Parker case. A ruling on 581609 in early 2015 said it was not legal, and it asked to restore permanent benefits to those involved. PSPRS has filed an appeal and they are waiting for a decision. Ms. Pendergast said the legislature has not sponsored any PSPRS reform bills because they are waiting for the court ruling on the pending lawsuits and are worried about another legal challenge. Currently there is no sense of urgency to move forward on legislative action pending the results from the Arizona Supreme Court. There is a belief among the state legislature that a Tier 3 option may be the only solution that may withstand any future legal challenges. Tier 3 would change the benefit structure for new hires. She said the police union requests waiting for the final ruling of the higher court on the active member lawsuit. The court ruling will give a bright line of what is legal and constitutional as they move forward and explore options. Ms. Pendergast said it is premature to be discussing a proclamation by the City Council that may encourage the public to believe that their constitutional amendment being proposed by the fire union is the best option for all stakeholders. The union representing Glendale officers believes it is in the best interest of its members and the city to be patient and steadfast approaching any changes to the retirement plan and they want a City of Glendale Page 5 Printed on 5/15/2015 City Council Workshop Meeting Minutes -Final March 16,2015 plan that is sustainable based on what is legal and best for all stakeholders involved. Ms. Pendergast introduced Carol Pilch, attorney for the Glendale Police Officers' Coalition. Councilmember Turner asked if there was a time frame for the court decision on the Hall case. Ms. Pilch said they agreed to stay any action in their case until the Hall case has been resolved. She explained it may be a year before the appeal is decided. Councilmember Sherwood asked if the Glendale police were differing from the views of the state organization. Mr. Harris said the APA has not taken an official position. Glendale's official position is they are awaiting the court ruling to give direction on how to proceed. He said they have not voted or taken an official position, however they have attended and participated in the stakeholder meetings. Councilmember Sherwood asked if everyone was waiting to see what will happen in the court case. Mr. Harris said yes, but said he wasn't sure if the Highway Patrol has taken an official position. Mayor Weiers said when he was rules chairman;he said he did not think the bill was constitutional. He fought as hard as he could on that bill. He said they all understand this is a serious issue for the entire state. He said he would not support moving ahead right now with what has been suggested. He wanted to wait and see what the league wants to do. Mr. Harris responded to Mayor Weiers that this uncertain future is doing more harm than good to the officers in this state. He said it is hindering their ability to bring people into the career. He said this city has very capable leaders and the police members are proud to be here. Mr. Harris said it was unfortunate they were forced into coming out publicly on this issue. Councilmember Chavira said he was a fan of solidarity. He spoke about Mr.Coletto. Mayor Weiers asked if there was a consensus to move forward with this plan, the proposal brought forward from Mr. Sherwood. Councilmember Tolmachoff said she was told this was for informational purposes only. Mr. Bowers said this was primarily for Council and staff information. Mayor Weiers said there was consensus. Councilmember Turner said this issue was not going away and would come back in its own time. Councilmember Chavira said they were just skimming the surface of this issue. CouncilmemberAldama encouraged Mr. McCarty to add Fire's report sooner, as it might help their decision-making. City of Glendale Page 6 Printed on 5/15/2015 City Council Workshop Meeting Minutes -Final March 16,2015 Mr. McCarty said their direction is to develop the yardstick and then compare the yardstick to Fire's proposal. He said May is the soonest they can get to that and then they will be able to formally evaluate the proposal. CouncilmemberAldama said it makes sense that they are going to compare once they get all the information. ADJOURNMENT The meeting adjourned at 5:30 p.m. City of Glendale Page 7 Printed on 5/15/2015