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City of Prescott Considerations for Wildland Firefighter Benefits and Division Rebuilding

Thursday, August 15, 2013

The tragic deaths of the 19 Granite Mountain Hotshots and the weeks following June 30 have been among the most difficult in the history of Prescott. No city or town could ever predict a loss of this magnitude.

The City of Prescott is just beginning a lengthy due process of evaluating goals, budgets and policies to reflect the new reality the impact has caused; business will not be the same. Following a tragedy of this magnitude is the realization that unprecedented costs have already been and will continue to be incurred extending decades into the future.

Survivor Benefits - Additional Reparations for Seasonal Hotshot Families The City of Prescott is continuing to work with the families of the crew members who were lost to ensure that all entitled benefits are accessed. None of these have been or will be denied.

It has been suggested by members of the public and media that the City should provide equivalent permanent employee survivor benefits to families of the seasonal firefighters.

The City has carefully analyzed the feasibility and legality of taking such action and has concluded the following:

Feasibility The City performed an analysis of what the financial cost would be to its taxpayers if permanent employee survivor benefits were provided to the families of the seasonal firefighters. The only funds the City could use to pay these benefits would come from the General Fund. These benefits include equivalent Public Safety Personnel Retirement System, health insurance, and life insurance survivor benefits.

The City used the estimated annual and lifetime cost to pay benefits to the lowest cost beneficiary of the permanent employee survivor benefits as basis for calculation. The estimate is at least $51.0 million over 60 years.

Annual Payments - If annual payments were going to be made, the City would be required to budget and appropriate special line item funding every year for the duration of the lives and eligibility of the beneficiaries. This would be a tenuous and unassured proposition since it would be non-binding upon future City Councils and subject to repeated challenges to the "Gift Clause" prohibition in the Arizona State Constitution (see explanation below).

The estimated financial obligation to the City for this scenario would be $800,000 to $900,000 per year initially, and increase each year thereafter for inflationary adjustments.

Lump Sum Payment - In lieu of a continuous stream of lifetime payments, a lump sum payment could be made using the present day value of the long term total estimated cost. The one-time cost to the City under this scenario would be approximately $24 million, three times the entire budget of the Prescott Fire Department.

Impact to Annual Budget The City of Prescott General Fund operating expenditure budget for FY 2014 is $30.7 million. This amount does not include any appropriations for capital expenditures, and it is just $420,837 above the FY 2014 estimated General Fund revenues. Sixty-nine percent of the General Fund budget is already required to fund public safety.

The cost of providing permanent employee survivor benefits to the families of the seasonal firefighters is unaffordable, and would necessitate untenable cuts to vital services that would have a dramatic impact on all citizens of Prescott.

Legal Restriction Article 9, Section 7 of the Arizona Constitution, commonly referred to as the "Gift Clause" prohibits cities from giving inequitable or unreasonable donations or grants to any private individuals that are without public benefit.

Given the magnitude of expenditures required to provide permanent employee survivor benefits to the families of the seasonal firefighters, the City has been advised by legal counsel that providing such additional, non-entitled survivor benefits would be a clear violation of the Arizona Constitution's "Gift Clause".

The Rebuilding Process

Everyone has been emotionally affected by the loss of the Granite Mountain Hotshots. The challenge for the City is to be able to stand back and objectively address what components of the Wildland Fire Division to rebuild and how to pay for them.

The City's two-fold goal is to rebuild wildland management and firefighting capabilities: (1) to reduce exposure of property within the City to wildland fire hazards through fuels reduction; and (2) to maintain a wildland firefighting capability providing direct benefit to the citizens of Prescott.

In order for the process to be successful moving forward it will require a methodical and coordinated effort among the Prescott Fire Department, Legal Department, Finance, Human Resources, City Manager, and the City Council to develop policies that minimize future risk and financial exposure.

Several factors must be carefully considered before the consideration and adoption of these policies:

Financial Impact due to City obligations to the Public Safety Personnel Retirement System (PSPRS) The City budgeted $3.4 million in FY 2014 to pay for its share of the contribution to PSPRS. This represents the annual payment by the City for each of its public safety employees of approximately $26,000. The City has been notified by PSPRS in FY 2015 it will be required to pay an additional $374,816 for an increase in the contribution rate directly related to the tragedy which occurred.

Other Financial Impacts on the City The City will also be subjected to payments of unknown and unbudgeted amounts both for its direct and cost share obligations to the Arizona Municipal Risk Retention Pool which insures the City. These costs may include payment for worker's compensation, property and liability. There are short and long-term financial impacts of these costs that will not be known for some time.

Legislation According to conversations underway, state legislation may impact City policies as they relate to the future of the Wildland Fire Division. Additionally, federal legislation has often followed tragic events of this type, and may involve adjustments to insurance, liability and risks and survivor benefits.

Risk and Insurability In order for the City to make any decisions about the future of the Wildland Fire Division, a clearly defined prospective analysis of liability must first be made. Prescott experienced one of the worst line-of-duty casualties of firefighters in history and this experience will be factored into the risk threshold and rates for future insurance policies. The experience of losing these firefighters and the aftermath is far reaching with national implications on how line-of-duty officers are insured in the future. Those implications may in turn alter the choices Prescott has available to meet its goals of wildland fire hazard reduction and firefighting capability.

For these reasons, it is necessary to fully understand how all of these factors may potentially impact the City. Due to the lack of available financial information and other information necessary to make informed policy decisions, the August 20 meeting of the City Council is cancelled and will be rescheduled. The City will provide updates to the public as more information becomes available.