Research & Analysis

Report slams Mesa’s pensions liability as city says it’s coping

Mesa and Phoenix have earned “D” grades from a national watchdog group that monitors the finances of state and city governments.

The report, released Jan. 24 by a Chicago-based organization called Truth in Accounting, said Mesa and Phoenix finances are tottering largely because of unfunded obligations for pensions and retiree health care.

“Large sums of money have been pledged to city employees, teachers, police officers and other public servants, but the funds have not been set aside to finance the programs adequately,” the report said.

“Cities shouldn’t be promising benefits when they are not prepared to back them up with actual funding,” said Sheila Weinberg, founder and CEO of the watchdog group. “But all over the country, there are municipalities that have accumulated significant taxpayer burdens by doing exactly that.”

In a report that analyzed America’s 75 largest cities, Phoenix and Mesa are hardly alone in the crosshairs. Thirty-four cities got “D” ratings and seven – the worst being New York City – flunked altogether. Tempe, Gilbert and Chandler were not included in the TIA rankings.

The particulars:

Mesa’s unfunded debt burden of $784.6 million works out to $5,900 for each taxpayer in the city, according to the TIA analysis.

Phoenix’s debt burden of $2.3 billion amounts to $5,300 for each taxpayer, largely because of pension obligations.

TIA said it based its report on analyses of cities’ comprehensive financial reports, which come out annually and generally are verified by independent auditors.

Michael Kennington, Mesa’s chief financial officer, said the report struck him as overly alarmist, at least in Mesa’s case.

“I don’t know if I agree with all the assumptions they had in their analysis, but I definitely agree with the fact that we are concerned with our unfunded pension liability,” Kennington said.

But he rejected TIA’s contention that Mesa does not report its debts and said the city has been aware for years that pensions and retiree medical bills could stress the budget. In 2009, the city stopped promising lucrative retirement packages to new employees.

Kennington said that and other changes in public retirement programs already have reduced Mesa’s obligations drastically. In 2013, Mesa’s pension obligations were close to a billion dollars, he said. By 2016, that had been reduced to $640 million.

“It will take time to get down to zero, which it will,” Kennington said.

Further, he said Mesa projects pension expenses five years into the future, works those into the annual budgets and has been able to handle them without major crises.

Kennington disputed TIA’s estimate of costs per taxpayer, noting that it defined taxpayers as persons who pay federal income tax. Many lower-income people may have no federal obligation but still pay sales taxes and other levies, he said.

Kennington said he had never heard of Truth in Accounting until the Tribune forwarded its report to city officials.

To look into the group’s background can lead directly into the tangled jungle of America’s deeply conflicted politics, which in recent years has seen numerous attacks on public employee pensions from conservative politicians and advocacy groups.

A group called the Center for Media and Democracy, based in Madison, Wisconsin, calls TIA “a right-wing non-profit” and a “deficit alarmist organization” that is an associate member of the State Policy Network.

The State Policy Network “and its member think tanks are major drivers of the right-wing American Legislative Exchange Council (ALEC)-backed corporate agenda in state houses nationwide,” according to the Center for Media and Democracy.

The Center for Media and Democracy, in turn, has been attacked by such groups as the conservative Capital Research Center as “a left-wing media, opposition research, and agitation group.”

Conflicting political agendas aside, the pressure created by pension obligations is creating genuine economic heartburn in America’s city halls and state capitals.

In Phoenix, for example, City Manager Ed Zuercher told the council during a tense meeting in November the city will have to come up with $316 million to pay for pensions in the coming year. That’s up from $131 million just 10 years ago.

The result, Zuercher said, will be higher taxes, fewer city services or both.

The TIA report on municipal finances is online at truthinaccounting.org

“ I definitely agree with the fact that we are concerned with our unfunded pension liability”

 

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