Bankruptcy looms in South Tucson

Sun sets over Sixth Avenue in South Tucson. Photo by: Julian Cronen/Arizona Sonora News Service

Facing an enormous and growing debt in both police and fire department pension accounts, the City of South Tucson may soon become the 10th local government in the United States to file for bankruptcy since 2010.

Due to poor financial planning and a major hit to South Tucson’s investment assets during the economic recession in 2008, the city is not capable of providing long-term promised benefits to its employees.

In the following years, South Tucson has done little to combat its debt, which has people wondering whether the city can survive.

According to the Public Plans Data Center for Retirement Research, the average annual funded ratio for state and local plans across the country was around 72 percent in 2013.

South Tucson isn’t even close.

Its annual funded ratio was 2.2 percent for the police pension plan and 41.3 percent in the fire department pension in 2014.

The assets in South Tucson’s police pension account decreased 83 percent while its liabilities increased 55 percent over the last seven years. In total, the city’s police pension account was $8 million in debt in 2014.

Similarly, the South Tucson fire department pension assets decreased while its liabilities grew. The amount owed to the fire department’s pension increased over $2 million, 150 percent, over the past seven years.

“I’ve never seen a [police] pension this poorly funded,” said Michael Bond, senior lecturer in finance at the University of Arizona.

When more of the city’s police and firefighters retire, the fear is there will not be enough money to pay their benefits.

According to actuarial reports provided by Gabriel Roeder Smith & Co., an audit done by city request, police and firefighters are eligible for pension after 20 years in South Tucson, and officers hired before 2012 could receive pension benefits after 15 years of service at 62-years-old.

Cities will typically reinvest employee and employer contributions, and tax revenues to help grow the assets in its pension accounts, said Bond.

As the assets in South Tucson’s pension accounts decreased since 2008, the city government didn’t reinvest contributions from employees, employers and tax revenues. Instead, those funds were used to help pay the city’s yearly contribution to retirees.

The finance director of South Tucson said in a news report that the city of South Tucson is using its general fund to pay for 72 percent of the police pension program.

While the liabilities in South Tucson’s pension accounts increased because of lower interest rates and people living longer, the city’s pension assets don’t reflect economic improvements since the recession, according to Bond.

“Since 2008 the stock market has gone up 16 percent each year, so they should’ve made some of this up. Real-estate prices have also gone up since then,” he said. “I suspect mismanagement is part of it.”

The South Tucson city manager, mayor and finance director were called dozens of times over a three-week span, left voice messages and sent six emails with no response. An Arizona Sonora News Service reporter went to the city hall building in South Tucson and spoke with the receptionist, who said they are rarely in their offices.

The reporter planned on speaking to one of the city officials at a city council meeting, which are scheduled on the second, third and fourth Monday of the month. All regularly scheduled meetings in February were cancelled, which residents’ say happens all too often these days.

One area fire chief offered some insight into what the situation is like in South Tucson.

Brian Delfs, Avra Valley fire chief, worked in the Tucson Fire Department for 33 years, and has experience working with pension plans as president of the local firefighters union and as a representative for the International Association of Firefighters.

“It’s not sustainable, it’s not survivable,” said Delfs. “[South Tucson is] in a position where they have more people that are retired and drawing benefits than they have current employers paying into the system.”

According to the actuarial report provided by Gabriel Roeder Smith & Co., South Tucson is paying pensions to 15 police retirees including three spouses, while 14 police officers pay into the program. South Tucson also has six retired firefighters, with three firefighters paying into the program.

Because of an imbalance between current employees paying in and retirees taking from the fund, the employers have to pay large premiums just to keep the funds solvent, Delfs said.

With money coming out of South Tucson’s general fund to help pay the annual contribution to retirees, there is less money for other government services and city upkeep.

“There is less money available for municipalities to hire firefighters. There’s less money for pay raises and equipment. There’s less money for all the things that cities require,” said Delfs.

For example, the city of South Tucson defaulted on required payments to Waste Management, which left residents without garbage collection for weeks. Collection of recycling still hasn’t resumed.

The city worked out a deal with the city of Tucson for temporary trash collection, and a new contract with the city of Tucson will have South Tucson residents paying for trash and recycling pick up beginning April 1.

Arlene Lopez, 67, a life-long resident in South Tucson, believes that more money is needed for the city to combat its major issues with crime and provide basic public services, like garbage collection.

“We only have a few officers that are out there,” said Lopez, a volunteer for the South Tucson police department. “Two officers out on a beat, that’s not enough.”

And with the nation’s highest violent crime rate, according to the FBI Uniform Crime Index, the city might need more help. It is well known for its rich Hispanic culture and family-oriented community, but has been frequently plagued with crime and financial problems since its incorporation in 1939.

Low city revenues, failed investments and a large portion of funds going towards public safety can push any government to the brink of bankruptcy.

Governments will run into problems with pension funding if they don’t consistently fund their pension for decades, says Dr. Joshua Franzel, vice president of research for the Center for State and Local Government Excellence.

The Center is a non-partisan, non-profit research organization based in Washington D.C. that helps states and localities maintain and become effective employers, according to Franzel.

“Since the great recession, the vast majority of states and many local governments reformed their pension plans,” he said. “Many of the reforms have been within the structure of a defined benefit pension, in the form of reducing benefits going forward.”

The defined benefit pension reform requires an increase in contributions from both employers and employees, while also changing when a public employee is eligible to retire, Franzel said.

While there are other reform strategies for an underfunded pension plan, a majority of those strategies are focused on reducing benefits for future workers.

Although many other cities are changing the structure of their pension plans to ensure that employees are able to receive promised benefits, the City of South Tucson has not made any progress in eliminating its pension debts.

With the debt continuing to grow and the costs of city services shifting to the citizens of South Tucson, residents are unsure what will happen to their city.

“I really don’t know what’s going to happen in the future for south Tucson,” said Lopez.

Julian Cronen is a reporter for Arizona Sonora News, a service from the School of Journalism with the University of Arizona. Contact him at

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