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Prescott staff proposes using annual surpluses to shore up police and fire pension liabilities
Summary
City finance staff presented the fiscal 2025 midyear budget and proposed an amendment to the pension funding policy that would direct unencumbered operating surpluses from PSPRS-participating departments into their pension trusts until fully funded; staff will return with draft language on March 11.
City finance staff presented the fiscal year 2025 midyear budget on Feb. 25 and proposed a change to the city's pension funding policy to accelerate funding of Public Safety Personnel Retirement System (PSPRS) liabilities.
The proposal would require departments that participate in PSPRS —police, fire and, in some circumstances, regional dispatch—to deposit any unencumbered operating surpluses at year end into their PSPRS trust until the trust is fully funded. The change would not tap the voter-approved public safety tax (referred to during the meeting as the $4.78 million fund) and staff said the amendment is intended to be operational money only, not a reallocation of that dedicated tax revenue.
Staff said the city faces several revenue pressures as the 2026 budget is prepared, including a recent state rental-tax loss and continuing uncertainty about food-tax amendments. The rental-tax reduction was described in the presentation as a roughly $10.4 million annual loss split across city funds: about $3.5 million to the streets fund, $3.5 million to the general fund and $3.4 million to the public safety tax fund. Staff also flagged potential state-level actions that could further reduce the city's share of state-shared revenues.
Mark (Budget and Finance Director) outlined recent pension trends: the city's combined pension unfunded liability fell from about $86.5 million to roughly $3.6 million in recent years, but police pension liabilities have fluctuated upward this year. He said actuarial assumption changes and actual experience produced the current rise; the actuarial assumed earnings rate is about 7.2% while the trust earned 10.2% in the reported year. The proposed policy amendment would create a predictable place to deposit operating surpluses that would otherwise be used for one-time capital purchases such as replacement vehicles.
Council members asked for additional analysis before adoption. Councilman Montoya said he supported the policy direction but wanted explicit language ensuring the proposal does not divert the voter-approved $4.78 million public safety tax; staff agreed to clarify the policy wording. Councilwoman Freeworth asked staff to show how the policy would have affected the last two to three fiscal years so the council and departments can understand operational impacts, and staff committed to bring that example back on March 11. Another council member asked how surpluses were treated before; staff said unspent operational funds typically roll into the next-year budget as one-time revenues and are often used for capital buys like police cars.
Staff characterized the change as a long-term funding strategy rather than an immediate cure: in some years the trust could be in surplus and no deposits would be required, while in others deposits would help reduce future volatility. Mark said the city remains committed to the council's earlier pledge to reach fully funded PSPRS status by June 30, 2026 and that the proposed amendment is intended to support that objective.
Staff will return to the council with the amended pension funding policy language and the requested multi-year example at the March 11 meeting.
