Arizona Voters Overwhelmingly Approve Public Safety Pension Reform

On Tuesday, Arizona voters overwhelmingly approved Proposition 124, the final piece of the Arizona public safety retirement system reform signed into law in February. Proposition 124’s passage enacts a constitutional amendment that fully implements the package of reforms that Reason Foundation’s Pension Integrity Team played a key role in developing and negotiating as part of a collaborative stakeholder process involving state elected officials, public safety unions and government assocations.

With just over 70% approval, Proposition 124 will amend the Arizona state constitution to allow a fix of the broken mechanism currently used by the Public Safety Personnel Retirement System (PSPRS) to provide retirees with protections against inflation so that their purchasing power doesn’t erode over time. The constitutional amendment modifies the state’s pension protection clause to allow for an exchange of the current, flawed permanent benefit increase (PBI) structure for current workers and retirees for a traditional cost of living adjustment (COLA), based on inflation and capped at 2%. The new COLA design would provide greater certainty to retirees, will be more stable compared to the current PBI system, and will help put the beleaguered pension system on the path to solvency.

Emory Law School associate professor Sasha Volokh has a new article on Reason.org providing legal context on Proposition 124 and the potential implications for future pension reform efforts in Arizona and elsewhere. Here’s an excerpt:

Looking forward, what does this whole experience portend for the future? This particular problem (the funding of public-safety employee pensions) has been solved for the moment in this particular state, but of course this one-time constitutional carveout will have no legal effect on other pension reforms or outside of Arizona.

Politically, though, this could prove to be meaningful, especially if S.B. 1428 is also challenged and upheld under Arizona’s Contract Clause. Now we know that there’s a constituency for meaningful pension reform, and that reforms can be politically feasible even if they include some retroactive changes.

In states that only have a Contract Clause similar to Arizona’s—and that don’t have a Pension Clause, at least not one that has been interpreted Arizona-and-Illinois-style—the way forward is procedurally easy. Just reach the proper political compromise, and the legislature can simply enact the corresponding statute.

But in states with a Pension Clause like Arizona’s and Illinois’, any future reform along these lines will have to involve constitutional change, either in the text of the state constitution or in the state Supreme Court’s interpretation. Could Arizona’s experience make state Supreme Courts more likely to rethink their Pension Clause doctrine? Maybe—Supreme Court justices don’t like to see their work overruled by constitutional amendment; courts, in the long run, follow election returns; and union-friendly justices might realize that their strict Pension Clause interpretations aren’t always pro-worker. But that’s all very hypothetical: maybe justices could instead retain their strict Pension Clause doctrine, on the theory that the people can easily make one-time exceptions as needed.

Read the rest of the article here. And for additional information on Arizona’s recent public safety pension reforms, see:

• Reason Foundation’s overview of the PSPRS reform package
• Reason Foundation’s analysis of the fiscal components of the PSPRS reform
• Reason Foundation’s analysis of the collaborative process used in the PSPRS reform
• Reason Foundation presentation: Analysis of Proposed PSPRS Pension Reform (.pdf)
• Governing.com analysis of Arizona’s PSPRS reform
• Arizona Senate Finance Committee testimony by Reason Foundation’s Pete Constant
• Reason.com blog post on Proposition 124
• Full text and legislative history: Senate Bill 1428 | Senate Bill 1429 | Senate Concurrent Resolution 1019
• Arizona Auditor General, Performance Audit and Sunset Review of the Public Safety Personnel Retirement System (Report No. 15-111, September 2015)