Big Idea
- Phil Goode claims he never advocated for bankruptcy
- The Mengarelli campaign claims Goode did advocate for bankruptcy
- Goode claims he supports Prescott Police and Fire
- Mengarelli’s campaign thinks that’s questionable
- Read more…
These questions don’t have to be based on rumors and gossip. We have videos we can watch and listen to so that the truth can be seen.
Background
A little bit of background. In 2017, Phil Goode was not on Council, but he was a candidate. The Prescott Council was grappling with the runaway Public Safety Personnel Retirement System (PSPRS) debt, which was over $86 million at the time. The question was whether to go to the voters to ask for a three-quarters of a cent sales tax that would be used solely to pay down the debt. That initiative became known as Prop 443.
Goode was adamant that he did not support 443, Greg Mengarelli, who was running for Mayor for the first time that year, did support the measure.
Fast forward to 2021. Phil Goode is running for Mayor against incumbent Greg Mengarelli in the 2021 election.
On Goode’s website, he makes the following statement:
"Greg Mengarelli has chosen to go low and is running a radio attack ad claiming Phil does not support Prescott Police and Fire personnel due to his stance on Prop 443. Here is Phil's response…
"While addressing the then seated city council over six years ago, I did NOT advocate for bankruptcy of the city of Prescott in any way, shape or form. I did advocate for the protection of our taxpayers due to a poorly written proposition that allowed for a shifting of our tax payments away from solving the PSPRS debt issue while increasing tax payments to a flawed and continued incompetent PSPRS investment team.”
Let’s check the video, it is right here. This is the January 24, 2017 City Council Study Session, where they were considering the PSPRS unfunded liability. A Strategic Plan Committee was tasked with coming up with options for addressing the issue, Councilwoman Jean Wilcox was the Chair of the Committee. You can read the minutes from the meeting here, where Wilson went over all the options considered by the Committee. It’s a valuable resource for understanding the situation and why they eventually went to the voters for Prop 443.
We have set the video to start playing when Goode begins speaking, at approximately 1:23:32. Including his discussion with Councilwoman Billie Orr, he speaks for about 7.5 minutes. For those that prefer reading to watching the video, we have prepared a transcript. It is long, but it was important to provide the entire statement to maintain the context.
(Pleae note, all emphasis within the transcripts below is editorial.)
Video, January 24, 2017
TRANSCRIPT, January 24, 2017, Prescott Council Study Session:
"Mayor, Councilmembers, my name is Phil Goode, I’m a resident of Prescott.
"I just want o make a couple of points to clarify some of the issues that were brought up today.
"First of all, is clarifying the difference between debt and liability. We have a liability issue here. So, we have approximately $30M in our accounts, so to speak, and about $81M that have been pledged against those current retirees, future retirees, based upon actuarial projections. So, we’re not really being charged interest on that. So, bonding that wouldn’t necessarily be a value unless we were able to take those bond funds, invest them somehow and consistently show higher return than what PSPRS investment does. I don’t think the City wants to create its own investment group and do that. So, I think bonds in general don’t make a lot of sense here as long as we see this as a liability, not as a debt that’s being charged interest.
"Bankruptcy I think is something that still should be looked at. I know the city doesn’t really qualify under its insolvency requirements in the federal bankruptcy law because its not insolvent, you’ve got way more assets than liabilities. The problem is that you have an insolvent general fund, and state restrictions between having access to your enterprise accounts relative to your general fund obligation is a real problem there.
"Perhaps federal bankruptcy law would take those restrictions away and allow the city to manage its assets more effectively. So I think that’s a possibility that really hasn’t been looked at because of the uniqueness of the city’s restrictions between its assets.
"The California rule which hasn’t been in effect for about 20 years and has restricted municipalities that have gone through bankruptcy from reducing their pension liability has been the biggest problem. However in San Bernardino’s case, federal bankruptcy law changed that and allowed that city to treat its pension liabilities like any other creditor, and they were able to reduce their liability substantially. You use Vallejo as an example. They decided to treat their pension liabilities as an unchangeable debt so they paid those in full. And that’s what required, that’s what ended up causing them to go back into bankruptcy because they never reduced their liability there. So, now that the California Rule has been discarded, there may be ability to reduce liability through the bankruptcy process.
"So, I think it’s still something that can be looked at in more and more depth.
"My other comment was on Mayor Pro Tem Lamerson’s suggestion that this tax be contributed to police and fire operations in addition to PSPRS. I think that would be a major mistake.
"Theoretically, three years from now, everybody on this panel could be replaced and if this three-quarters of a cent tax was going into this combined requirement, potentially another group of council members could decide to give raises, liberal raises, to the operation and reduce any of this tax going to pay off the liability and that could be a big, big problem, it can make your problem even worse, and there’s many, many cities that have done things like that. So, keeping us focused only on the PSPRS liability would be a much more supportable from a public election perspective to be able to get this approved.
"And my only other comment is the structure of the PSPRS Retirement Board has a total of 10 members now. And there isn’t even one member that’s a representative of the taxpayers in general even though the taxpayers are the ones that alway gets stuck with a bill.
"So, ultimately, the liability is never going to go away because you’re never going to have a long term sustained 7.5% return on investment. And as I mentioned before, Stanford University and other academic institutions have analyzed this and they really recommend a 5% return to something more sustainable.
"So until we can get rid of Article 29 in the State Constitution, that keeps pension liabilities from being reduced or impaired, we’re always going to have this problem. Granted, it’s probably going to be a significant drain on the general fund but you won’t ever really solve the problem until that constitutional restriction is removed.
"Thank you."
Councilwoman Orr: 1:29:38 - "I just wanted to respond. We’re so honored that Prescott was named best best place to live this year by Sunset Magazine in the entire Southwest.
"For us to go bankrupt, we would not certainly, we would never end up on this again. And we are a tourist community where people want to move here, and the issue of that for me, Phil, is that we are not an insolvent city, we are in great shape financially. I don’t want anybody to Google Prescott and the first thing that comes up is bankruptcy."
Goode: 1:30:29 - "I agree. The long term attraction here is that we have a beautiful, sustainable well-managed community and we want to keep that for sure."
Orr: 1:30:41 - "Our citizens have invested their lives here, their homes, everything they have and for us to do that to them would just be a slap in the face."
Phil: 1:30:50 - "But I think we have a huge problem here and we have to look at all the options."
Orr: 1:30:54 - “Absolutely."
So, did he advocate for bankruptcy? Remember, Goode claims , "I did NOT advocate for bankruptcy of the city of Prescott in any way, shape or form."
Is promoting bankruptcy as an option that should remain on the table actually advocacy? Is saying that it isn’t advocacy just a way to split hairs?
Dana DeLong, the Prescott City Clerk at the time, wrote this in her minutes, noting that Goode even agreed the City did not qualify for bankruptcy, but he still wanted it to remain an option:
In the end, during that meeting, Goode never backed down from wanting bankruptcy to remain an option.
Other comments at other meetings
Goode didn’t mention bankruptcy at Council meetings again. But, some of his other comments might shine a light on his support for Police and Fire.
Another brewing controversy at the time was whether or not the City should follow through on their decision to hire 11 more police and fire First Responders. As the City attempted to cut costs to address the increasing PSPRS required payments they tried a variety of measures, including browned out fire stations, reduced hours and staff at the Library, administrative staff cuts, unfilled vacant positions in public safety and much more. They were fortunate to get some grant funding to help with the expenses of the new hires, and Council decided to move ahead.
Many people wanted them to wait until the PSPRS plan added a ’Tier 3’ which would save money in the long run for municipalities. But, the way the training academies were scheduled, the City needed to hire them about five weeks earlier than the implementation of the new Tier 3.
February 3, 2017 - Phil Goode offered a suggestion to council to get around this thorny issue,
Transcript: February 3, 2017
"I promise this will be short. My name is Phil Goode, I’m a Prescott City resident. Mayor, council members, I just have one small suggestion. As your Co-Chair of the Mayor’s ad-hoc Sober Living Home committee, we have a new ordinance that just went into effect for the City. One of the key components of that ordinance is to be able to have enough Code Enforcement Officers to make sure these sober living homes really comply.
"So, with 11 new employees of the City, how about a suggestion that we bring them on temporarily as temporary Code Enforcement Officers? They could augment Mike Fleming’s vast staff of his individual self as a code enforcement officer, and we could get a year’s worth of inspections done.
"Now all of these sworn officers, fire fighters and police officers will probably be visiting all these rehab homes. Because 96% of your fire calls are medically based and our police officers, I’m sure, will frequently be visiting these locations. This has a lot of positive aspects. Just a suggestion. Thank you."
February 4, 2017, Town Hall
There was a Town Hall the next day, on February 4, 2017. It was held at the Rowle Simmons Adult Center. Again, Goode rose to speak against using taxation as a solution for the PSPRS problem.
Transcript, February 4, 2017, 1:46:37:
"My name is Phil Goode, and I’m the Public Policy Chair of Citizens Tax Committee here in Prescott. I’m a retiree. I’m a political and economic refugee from the People’s Republic of California. I think there’s a lot of people in this room in a similar situation.
"We came here because of this beautiful city, great quality of life, and a very reasonable and much lower tax burden. Clearly, listening to the PSPRS details, and I’ve followed this issue for probably a decade, working with state representatives and senators in California to address these issues.
"It’s clear that this is a fundamentally flawed program, it’s never going to get fixed the way it’s designed. It’s like trying to decide how big of a bandaid you’re going to put on a gaping wound in the emergency department, hoping it’s going to get better. It always seems that the first solution is how much are we going to tax people instead of fixing the problem.
I’ve heard the word 'hope' thrown out here, and it’s clear in my 35 years of management, hope is not a strategy.
"We have to fix the problem. We’re going to have to change the constitutional protection of this problem. I’m thrilled to hear that we have both fidicuaries and taxpayers in agreement. Why doesn’t the legislature embrace this and take it on? Well, I’ll tell you. It comes down to timing. If they think that each one of these cities and entities are going to tax themselves, they’re not going to deal with this. We’re dealing with this now because it’s become a crisis. If we take the pressure off, the legislature’s not going to to deal with it either. Unfortunately, it’s going to have to be a crisis for them, too.
"So, I think it’s a timing issue and we should not address taxing at this time. We should keep the pressure on the legislature and we should allow our legislators like Karen Fann and Noel Campbell who have worked on getting to this point, that is, 124 enacted. David Stringer, I know, is going to support this kind of issue, too.
"We can’t offer a flawed solution to a flawed plan now. So, I would recommend that the timing be different, and we also have to believe in the leadership in the City that is going to address this problem.
"I applaud the mayor for taking this forward, moving forward, working with the legislature. This was not an acute issue. It became known, and it should be aware that the leadership in our city should have started taking steps years ago to deal with this.
"I applaud Mr. Lamar for looking into some service delivery problems, it’s great that he’s doing this, but this should have been done years ago. Yes, we haven’t added some firefighters, but it may be that we were a little overstaffed in the past. We’re getting the job done. So, my recommendation would be, wait. Let the mayor, let the legislators work on this issue. Get those other mayors who are in similar situations together. Apply pressure on the legislature and let’s get this thing fundamentally fixed."
February 7, 2017, Council Meeting
During this meeting, Goode discusses the potential tax measure, later known as Prop 443. He goes over the reasons why it won’t work, and also suggests that perhaps borrowing the money might be a better solution.
Transcript, February 7, 2017, 1:37:42:
“Mr. Mayor and Councilmen, my name is Phil Goode, I’m a Prescott resident. Just a point of clarity, I agree with the previous gentleman, but probably not in as much detail. If we can look at that slide again? Page 4, PSPRS required contributions.
"Uh, that’s a pretty rosy scenario, and that scenario, as Mr. Woodfill indicated, assumes a growing two percent increase in sales tax over that period of time, and also reaching 7.4% rate of return. It’s a generally-accepted accounting principle that for every ¼% of reduced return, you add approximately 10% to your unfunded liability.
"So, if we, as I mentioned in previous comments, had even a 6% return, instead of 7.4%, our liability would increase about 60% and we would end up with a $30M balance in 2028. If we brought it down to 5% which as I mentioned, Stanford University Study of Pension Systems indicates is a more reasonable longterm projection, we’d double our total liability from $80 million to $160 million and ten years from now, we would have an $80 million balance. Which is where we are today. So, I think the public in general needs to have a clearer understanding of what this .75% would really provide in realistic terms. If we had a 5% return, we’d still have the same balance, so we would have to push that out from instead of 10 years, maybe to 20 years.
"My other only question would, is, what is the current Moody & Fitch rating for the City?"
City Manager Michael Lamar answered, ”It is Double-A."
"Well, I know that the YC, um, excuse me, Yavapai Regional Medical Center just refinanced $50 million worth of bonds with a triple B+ rating, and they were able to float that at less than 5%."
Lamar asked, "Was it a tax exempt bond, or was it not?"
Goode replied, "I don’t know the answer to that. But, that’s an investment grade rating and yours is even better than that, so I would expect you would probably get a better number than that.
"My last point was when, municipalities acquire assets such as real estate for legitimate purposes, and I’m sure there were at the time, and those assets are no longer generating useful returns, then, I think it’s up to the municipalities to eliminate those liabilities. Mayor Pro Tem I know you’ve argued a number of times about acquiring additional land, because you’ve acquired the liabilities that go along with it. So, being able to remove those assets from the City’s portfolio, and return the dollars, we can use them for a very important need. It would be a valuable decision, and it certainly would eliminate liability on those properties as well.”
Has Prop 443 worked? Was Goode accurate in his predictions?
The City has continued to pay each year’s Annual Required Contribution as provided by the PSPRS board, PLUS the money from the Prop 443 tax. It has been very costly. But Prop 443 allowed the City to stop the growth of the unfunded liability, and start reducing it. The unfunded liability is now 50% less than it was when Prop 443 passed in August, 2017.
The City’s Financial Director, Mark Woodfill, expects the entire unfunded liability to be paid off by December 31, 2025, which is two years earlier than the ten years covered by Prop 443.
Every year, Council is required to approve by vote the current status of the PSPRS trust funds for the year before. Below, you can see the progress made in paying down the liability.
Since this report is a lagging indicator, we don’t know yet what the level is for FY 2021.
Final summary
The attempt here is not to say which side is right or wrong. It is to find the truth. There are a couple problems, of course. One is that we’re dealing with politicians, who often have a nasty habit of trying to redefine facts. The other problem is that we’re dealing with humans, who often want to interpret facts in light of their own biases and preconceived ideas.
“Don’t confuse me with facts, I’ve already made up my mind!"
Dr. Curtis C. Mitchell of Biola University used to say, “If the plain sense makes good sense, seek no other sense.”
In the long run, the point here is that these are the facts. Of course, many will accept and believe what they want to. But, we have provided the videos to watch, and the transcript to read.
The voters get to choose.
