Payson Town Council Work Study Meeting - April 1, 2025: FY26 Budget, Compensation, PSPRS, and Structure Hardening Code
Payson Town Council Work Study Meeting - April 1, 2025
Mayor Stephen Otto called the meeting to order at approximately 3:02 p.m. in the Town Hall Council Chambers, 303 N. Beeline Highway, Payson, Arizona. All council members were present. The work study session was the fourth in a series of budget work sessions, focusing on FY26 revenue projections, compensation and benefits, hard-to-fill vacancies and development services contracts, the Public Safety Personnel Retirement System (PSPRS) funding policy, and the proposed Structure Hardening Code. No public comment was taken per work study format.
Consent Calendar
- No items.
Public Comments & Testimony
- No public comment was taken.
Discussion Items
- FY26 Revenue Projections: Finance Director Dana Ohanesian reviewed FY25 budget, noting $3 million less revenue than projected, with primary sales taxes 20% below projections and unawarded grants inflating prior General Fund projections. FY26 budget moves grants to a different fund to avoid affecting General Fund revenue. Projected FY26 total revenues are $35.1 million, a 12% decrease from the current budget. State shared taxes are expected to increase 1% based on League of Arizona Cities and Towns projections. Sales tax is projected flat at $22 million. Pending state legislation could limit municipal food taxes to 2%, retroactive to January 2025, costing the town an estimated $1.8 to $1.9 million annually. Another bill could reduce state shared tax rates.
- Compensation and Benefits: Human Resources Director Lynne ODonnell presented salary trends showing local government salaries rising significantly since 2020 (e.g., 53% increase for civil engineers). She explained the Town's compensation philosophy using the Employment Cost Index (ECI) rather than COLA; the average ECI over five years is 3.12% vs. COLA at 4.14%. Market analysis compares Payson to similar agencies; for hard-to-fill positions like law enforcement, Payson is above market rate. Three health insurance premium distribution options were presented. Option One (town continues to absorb all increases) would save $359,000 vs. FY25 budget; Option Two (town covers employee-only on all high-deductible plans and 70% of dependent premiums) is market-closest but most costly; Option Three (town covers 100% on the $5,000 deductible plan and employee-only on other tiers with small employee increases) is staff's recommendation and more sustainable. Option Three results in a $6/month increase for the lowest-cost employee-only plan. Council reached consensus to direct staff to proceed with Option Three. Discussion included requests for further data on personnel costs as a percentage of operating expenses, retention rates, and PSPRS cost drivers.
- Hard-to-Fill Vacancies / Development Services Contracts: ODonnell detailed recruitment challenges for building division and engineering positions. Contributing factors: high demand, shortage of qualified candidates, rural location, and reluctance to relocate. The Town has used Duffy Group executive recruitment; survey of 146 passive candidates for engineer positions showed 41% not willing to relocate. For building division, the Town has used Brown & Associates for plan review and inspections since 2023. Since 2020, Brown has been paid $311,748 total, offset by plan review fee revenue of $252,000. In FY24, using contract services resulted in $86,000 in cost savings due to lower personnel costs. For engineering, Strand Associates is the primary contract firm. Council discussed remote/hybrid work options for engineers; some members supported exploring remote positions, but opposed fully remote roles. Acting Town Manager Sheila DeSchaaf noted that with only 20% of needed staff, the Town must consider all possibilities. Council expressed support for continuing to use contract services to augment hard-to-fill positions, with a goal of eventually filling seats. Council Member Bell objected to using the term "consultants" for contracted engineering services.
- PSPRS Funding Policy: Dana Ohanesian reviewed PSPRS history and statutory requirements. The Town pays a minimum of $500,000 annually toward the unfunded liability, with additional $600,000 paid in recent years. The 0.88% sales tax increase (adopted 2017, originally with a 10-year sunset now repealed) partially funds this. FY26 projected PSPRS payment is $5.1 million (required based on actuarial calculation) plus an additional $600,000, totaling $5.7 million. The unfunded liability is approximately $19 million; funded ratio about 60%. Payment is projected to increase 9% over FY25. Options to reduce unfunded liability include: contributing for DROP participants, paying for vacant PSPRS positions, increasing annual lump sum payments, or issuing bonds/loans. Council consensus was that paying down the unfunded liability is a priority. DeSchaaf noted that additional funding already included in the proposed budget will remain, and council would like to consider loans or bonds when rates improve. No formal direction on changing the policy was given; the item will return.
- Proposed Structure Hardening Code: Fuels Manager Kevin McCully presented a proposed performance-based code to increase ignition resistance of new structures. The code was developed in coordination with the Building Advisory Board and local builders. Cost estimates suggest hardened materials can be cheaper than conventional ones. The code would apply to new structures and existing structures undergoing level-three alterations (50% or more modification). The goal is to improve insurability of homes and provide a standardized risk assessment for insurers. Council requested a copy of the code (to be uploaded as supplemental documentation) for review before taking further action.
Key Outcomes
- Direction on Health Benefits: Council directed staff to proceed with Option Three for insurance premium distribution, implementing modest employee increases as recommended for sustainability. Changes take effect July 1, 2025.
- Direction on Hard-to-Fill Positions: Council supported continuing the use of contracted services (e.g., Brown & Associates, Strand Associates) to augment staff for hard-to-fill positions, while continuing recruitment. Council indicated openness to exploring remote/hybrid work options for engineering positions, but not fully remote roles.
- PSPRS Direction: Council expressed priority on paying down the PSPRS unfunded liability. Staff will include planned additional contributions in the proposed budget and explore potential financing options (loans/bonds) when interest rates are favorable. No formal change to the funding policy was made at this meeting.
- Structure Hardening Code: Council requested time to review the proposed code document before further discussion. Staff will make the code available via the agenda supplement.
- Future Work Sessions: A follow-up work session on expenditures and operational budgets is scheduled for late April or early May 2025.
Meeting Transcript
Let the record reflect that all council members are present. Work studies are intended for council discuss business. No action to be taken. As a result, public comment will not be taken during the meeting. Thank you, Mr. Mayor. Members of council. This is our fourth in a series of budget work sessions. Right now, the next work session is scheduled on the calendar for May 6th. The topics for that work session are anticipated to be operating budgets by department. That would incorporate new requests, enhancement, any personnel requests that may be coming. It will also include some items that were approved last year as part of the current year's budget that perhaps based on our economic outlook or where our revenues have come in so far for FY25, less than uh and initially projected. We'll re-look at those to see if council wants to include those in the following year's budget. Typically, this code change will be presented to council as one package with a host of other updates to our fire and building codes that the town undertakes periodically to try and make sure that we don't lie too far behind national standards for our adoption. Then we'll move into presentation discussion on insurance benefits and compensations for compensation for town employees. Because open enrollment happens prior to the beginning of the fiscal year, for which you'll consider the budget later in June. Hopefully, we do seek some consensus from the council with respect to how HR should proceed with structuring the documents for open enrollment. Lynn will remind you of that when she starts her presentation again. With respect to compensation, no recommendations being made on tonight's meeting with uh how we move forward for next fiscal year. The presentations designed to be information fee council. Your budget team would like to hear though after that feedback from the council about our current compensation philosophy and practice. That will help inform the process for bringing back to town council later this year a balanced budget proposal. And then one other item on tonight's agenda is our fiscal year 26 public safety personnel retirement system funding policy. This policy is required to be revisited and adopted annually according to the state. The information that's in the presentation tonight from Dana as well as from human resources. We'll further refine some of the information that Clark Cartridge with the SPRS presented at the previous regular meeting. So hopefully Dana's presentation can recap and clarify some of the facts and figures related to the town's outstanding unfunded liability. Action on that policy won't be taken tonight. It will be direction from council if you want to make any changes from what we've done in prior years for potentially buying down that uh obligation, and then we'll come back to council with some of the other documents as we move through the budget process. So anticipate the content and discussion for tonight's agenda to be about three hours. It's your discretion, Mr. Mayor. We'll look to you if you want us to answer questions as they arise, or if you want the council to cover the questions till the end of each individual presentation. Miss Christina Werther Estes is on Zoom with us. She has a hard cutoff at 6 p.m. But if our discussion goes after this time, Robert Wingo also with Pierce Colpin will tag in for her if we have a draft. So with that, if there are no questions, Dana SN is ready for topic number one. Thank you. Mayor, Councilmember. This is just kind of a uh kind of a review and history of the PSPRS piece to our budget. And we'll look at some of our projections for um next fiscal year. Sorry, I'm it's not PSPRs, it's our revenue projection. Sorry, I'm I'm already hoping it's four o'clock. Sorry. Um this slide here shows uh what our budgeted was in this current fiscal year plus what we're proposing for fiscal year 25-26. Um, and the first first line of revenues is is our taxes. They're actually uh three million dollars less than what we budgeted last year or this current fiscal year, and it's down about 10 percent. The reason for that primarily is is the state or is the town's uh sales tax. Intergovernmental revenues are also down. Um you'll see it's down quite a bit, 30 percent.
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