Goldwater Institute Sues Phoenix Over Illegal Pension Spiking Practice

| August 18 2013

Lawsuit Targets Contract Between City and Sergeants and Lieutenants Union

Phoenix, Ariz.-The Goldwater Institute took aim at the illegal practice of “pension spiking” today in a lawsuit filed against the City of Phoenix. The lawsuit, which was filed on behalf of three city taxpayers in Maricopa County Superior Court, asks the court to stop the pension spiking practice which allows public employees to grossly inflate their pension payouts upon retirement.

Under this abusive practice, retiring employees may “cash in” unused sick leave, vacation leave, overtime pay and other benefits for salary in the years leading up to retirement, thereby grossly inflating the final salary used to calculate pension benefits. The result is hundreds of millions in increased costs to Phoenix taxpayers.

Despite the fact that state law is clear that this practice is illegal, Phoenix continues to flout the law. Earlier this summer, the Goldwater Institute wrote to city officials, urging them to end the practice. Phoenix Mayor Greg Stanton indicated to the media at the time that he believes the practice of pension spiking needs reform, but since then he has refused to act, stating he won’t take this issue up again until the next union contract negotiation period.

“When state law is being violated, we won’t wait around for politicians to act at some later date that is more politically convenient,” said Jon Riches, the Goldwater Institute attorney who is leading the case. “Phoenix’s pension spiking polices are an affront to the rule of law and are increasing pension costs that are loading state and local governments with debt.”

The Goldwater Institute’s lawsuit challenges pension spiking in the contract between the City and the Phoenix Police Sergeants and Lieutenants Association, but a victory in this case would reinforce the illegality of this practice across all of Phoenix’s contracts.

Pension funds for public safety employees in particular are often underfunded, and taxpayers are forced to make up the difference. Over the last decade Phoenix’s pension costs have soared. In 2003, the City of Phoenix budgeted $7.2 million for public safety pensions. In 2013, Phoenix taxpayers spent $109 million in public safety pension costs – a 1,500 percent increase.

Pension costs are also forcing Phoenix to reduce the size of its police and fire departments. Since 2008, Phoenix has seen a decline in the number of cops on the street and firefighter hired by the city.

“This practice takes away from the core duties of public safety,” Riches said. “Ultimately, it’s a choice between more cops on the streets and more retirees spiking the pension system, or reasonable pensions and more officers on the streets.”

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