By Ken Sain
Chandler Mayor Kevin Hartke counted every time Councilman Matt Orlando shouted, “Hip, hip, hooray,” during the city’s second budget workshop last month.
The final tally was six after more than two hours of staff giving council members mostly good news. Revenues are up and Board members have plenty of extra money they can use to address priorities.
One of those “hip, hip, hooray” was about Chandler’s obligation to police and pension funds to the Arizona Public Safety Personnel Retirement System (PSPRS). The city has contributed huge sums to the fund for years.
“As long as investment income comes in as it should and everything goes as planned, we would be 100% fully funded by 2027,” said Dawn Lang, the city’s deputy director and chief financial officer.
She said if they did — and there are if involved — the city would see an increase in available funds of about $9.2 million a year. This would be the extra money the city paid to eliminate its unfunded liability in the PSPRS.
“Hip, hip, hooray,” Orlando said.
“Council, I’m still in favor of turning one-time dollars into permanent dollars,” Hartke said.
Paying down pension debt is a big cost item in the proposed budget for the fiscal year beginning July 1 – but some unexpected revenue increases make that and other spending possible.
The city has extra money for several reasons. First, staff expected a decline in revenue over the past two years due to the COVID-19 pandemic. So they set their budget accordingly. They were surprised when incomes grew at a much faster rate and the pandemic did little damage to the local economy.
The other reason is that the city always sees an increase in revenue when Intel expands. That company in the fall began a $20 billion expansion of its manufacturing buildings at its Ocotillo campus. The city hadn’t expected Intel to grow so quickly, so that wasn’t in the budget either.
The last time Intel expanded, it took them years to start working. Not so this year.
The city also received $34.6 million in funds from the American Rescue Plan Act. All of this money is considered one-time funds.
The Council decided to give some of this extra money back to landowners, by deciding to reduce its tax rate by a penny. Most of the property tax goes to public schools and community college districts (71.3 cents of each dollar). Another 18.6 cents of every dollar goes to Maricopa County and Special Districts. Only 10.1 cents of every dollar goes to the city.
The council had to reduce property tax by at least a quarter of a cent or notify residents of a tax hike due to the increase in property assessment. The median appraisal for a Chandler home is $386,300. Due to state law, the property tax assessment can only be increased 5% per year. This means that the median tax rate assessment will be $224,742.
The City therefore projects an initial general fund balance of $241.3 million for the 2022-2023 fiscal year. For context, he expects that balance to be less than $114 million in fiscal year 2026-27.
The city has set a goal to be fully funded by the PSPRS by June 30, 2036. As of June 30 last year, the city’s unfunded liability was $153.9 million. That amount did not include the $22 million the city paid later that summer.
For it to be fully funded by 2027, it will require a $50 million payout this year and a $20 million payout in subsequent years. There are variables that should hold up, including which investments pay off at the rate at which they are expected.
“So I didn’t tell you the really good news,” Lang said.
By being fully funded, the city’s contribution rate will eventually drop. Currently, the city pays 49.12% for police and 41.67% for firefighters. She said future rates would continue to fall.
Many valley towns have unfunded liabilities with the PSPRS – an obligation they are legally bound to meet.
Many have also accelerated their payments in an effort to catch up and clear what has been a huge debt in many cases.
The largest debt in Arizona has been racked up by Phoenix, which has an unfunded pension liability of $3.5 billion. In its preliminary “test budget” for the fiscal year beginning July 1, the city manager’s office mentioned only one sentence of this debt, stating that the bill “will require continued diligence and new resource strategies in the years to come”.
Councilor Rene Lopez said Chandler’s potential success in erasing his retirement debt faster than expected is the council’s reward for being frugal with taxpayers’ money and committing to paying down that debt calls for more spending on other issues, including police and parks.
Indeed, previous Phoenix budget planners have warned the city council that its failure to pay down debt could eventually lead to cuts to basic services.
“It’s the tough decision that I think the councils had before and that we had eight years ago,” Lopez said. “We knew it was going to be a struggle, and we had to bide our time, and we had to wait for a lot of things to be cleared up, so that we could improve the quality of life for our citizens. We had to pay for this, through no fault of ours, we inherited it.
The council is also considering adding other local projects.
The Council has a fund of $400,000 for projects that have fallen through the cracks that it wants to get under way quickly. It was used recently to pay for a pickleball court at Desert Vista Park ($80,000); playgrounds and park shadehouses ($55,000); tree planting ($30,000) and a new studio camera for the communications and public affairs department ($30,000).
Only $75,000 of this fund can be spent on ongoing projects, while the remaining $325,000 is used for one-time projects.
At a budget workshop last month, the Board considered increasing this account by 5-10% due to inflation.
“Should we consider increasing that a bit, maybe for the inflation rate, because of the projects coming in?” Councilman Matt Orlando asked his colleagues.
Hartke said the council uses this money when projects come up during the year that weren’t in the budget.
“I like what you think about when we have these emergents that we want to do for the community, it’s important that we can build on that,” Mark Stewart said.
The council also discussed the need for more sports fields because they keep hearing that there are not enough of them. Council members were told that there were two projects underway, but the city was running out of open space and likely wouldn’t be able to build any after those two projects.
Orlando also questioned why the city waited up to five years to renovate Folley Pool and Park. It is set to be improved as part of the parks requirement that voters approved last year, but not for another five years.
He was told that the citizens’ committee appointed by the Council to review the draft bonds had decided that further improvements were a higher priority. However, if the Council wants to move Folley up the list, they could, but they would have to identify which other project would move down the list.
Orlando said he would like to at least start discussing what they want to do there, mentioning residents’ requests for a cricket ground. No decision has been made on this matter.
The Council then plans to address the budget at a one-day workshop scheduled for April 29.