Arizona Chamber Policy Brief Warns of Rising Pension Costs
June 15, 2010Paper cites data showing increased liabilities for Arizona's public pension funds
PHOENIX - The Arizona Chamber Foundation today released a policy brief reviewing Arizona's rising pension costs and unchecked funding obligations. The paper finds that it is critical that the state acknowledge the full size of its current obligations in order to reverse Arizona's liability.
At the beginning of the decade, Arizona's pension funds enjoyed a cumulative $4.7 billion surplus. Since that time, however, asset growth has been unable to keep pace with the liability growth caused by a number of factors including an expanding government workforce, rising salaries and legislative action that increased benefit levels. As a result, the $4.7 billion surplus has become a $10.4 billion deficit.
"If Arizona is going to close this funding gap, both taxpayers and employees face rising contribution rates," Arizona Chamber Foundation Executive Director Suzanne Taylor said. "For public employees, this means contributing to their own retirement and subsidizing current retirees. For Arizona taxpayers, this means a higher percentage of tax revenues being directed toward pension obligations and away from other core government functions."
At face value, the growth of Arizona's unfunded liability should be a serious concern for policymakers. An even greater concern may be that official numbers fail to reflect the true scale of the shortfall. The brief highlights assumptions and accounting methods that may understate the true size of liabilities and overstate the value of assets.
"In order for Arizona to rein in pension costs, the state needs to acknowledge the full size both of its current shortfall and make meaningful reforms that curb the growth of future liabilities," Taylor said. "Due to the constitutional protections afforded to previously earned pension benefits, these reforms must focus on future enrollees. Without fundamental changes to the way Arizona manages its retirement system, unchecked liability growth will force the state to continue to allocate more and more resources to pension funding rather than government services."
The complete brief, Pension Tension: Understanding Arizona's Public Employee Retirement Plans, can be read online here.
At the beginning of the decade, Arizona's pension funds enjoyed a cumulative $4.7 billion surplus. Since that time, however, asset growth has been unable to keep pace with the liability growth caused by a number of factors including an expanding government workforce, rising salaries and legislative action that increased benefit levels. As a result, the $4.7 billion surplus has become a $10.4 billion deficit.
"If Arizona is going to close this funding gap, both taxpayers and employees face rising contribution rates," Arizona Chamber Foundation Executive Director Suzanne Taylor said. "For public employees, this means contributing to their own retirement and subsidizing current retirees. For Arizona taxpayers, this means a higher percentage of tax revenues being directed toward pension obligations and away from other core government functions."
At face value, the growth of Arizona's unfunded liability should be a serious concern for policymakers. An even greater concern may be that official numbers fail to reflect the true scale of the shortfall. The brief highlights assumptions and accounting methods that may understate the true size of liabilities and overstate the value of assets.
"In order for Arizona to rein in pension costs, the state needs to acknowledge the full size both of its current shortfall and make meaningful reforms that curb the growth of future liabilities," Taylor said. "Due to the constitutional protections afforded to previously earned pension benefits, these reforms must focus on future enrollees. Without fundamental changes to the way Arizona manages its retirement system, unchecked liability growth will force the state to continue to allocate more and more resources to pension funding rather than government services."
The complete brief, Pension Tension: Understanding Arizona's Public Employee Retirement Plans, can be read online here.
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The Arizona Chamber Foundation (501 (c) 3) is a non-partisan, objective educational and research foundation. The Foundation produces research studies on Arizona public policy issues such as health care, budget, education, regulation, energy and others in an effort to inform policymakers business leaders and the general public.
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