Legal bills go unabated at public-safety pension fund
The Public Safety Personnel Retirement System’s spending on outside legal counsel continued largely unabated in February, bringing its total to $1.1 million for the fiscal year.
Records given to the pension system’s trustees Wednesday show that outside legal bills for February totaled $128,181, and the trust has overspent its fiscal year budget for outside legal counsel by at least $817,885.
Overall system spending was 8.7 percent over budget as of March 20.
The retirement system for police, firefighters, correctional officers and elected officials spends much more on outside counsel than the larger Arizona State Retirement System, which serves teachers and state employees and historically has produced better investment returns than the PSPRS.
The public-safety pension system can offset the overspending by dipping into its $8.1 billion trust fund or by passing the cost on to its members: state and local governments and public employees.
Valley cities, for example,are experiencing a $28.6 million jump in their police and fire pension bills for the next fiscal year, primarily due to an Arizona Supreme Court decision and poor to modest investment returns at the PSPRS.
Some trustees on the seven-member board have publicly expressed concern about the legal expenses. But the trust’s Operations, Governance Policy and Audit Committee on Wednesday morning approved payment of the latest billings.
Trustee Greg Ferguson, a Yuma County supervisor, said he remains concerned about the legal bill. However, he added budget forecasting is difficult because the trust cannot always predict when it may need additional outside legal advice on investment opportunities.
“That is something we don’t have control over,” Ferguson said.
Interim PSPRS Administrator Jared Smout said outside costs for lawsuits and administration have gone down, and “that is what you need to focus on.”
Christian Palmer, a spokesman for the public-safety pension, said outside counsel legal bills for administrative, litigation and investment issues have fallen since July, the start of the fiscal year, and as compared with February 2014.
However, public-safety pension records show February’s outside legal expenses of $128,181 exceeded the monthly tabs in four of the previous five months.
The steepest legal expense continues to be for investment advice. Though the PSPRS has its own in-house investment attorney, who was hired in August at a $215,000 annual salary, Palmer said the investment-related legal workload this fiscal year exceeded the capability of a single attorney.
The public-safety pension also has a state lawyer assigned to it from the Arizona Attorney General’s Office.
The Arizona State Retirement System, whose $34.9 billion trust is more than four times larger than the PSPRS’, does not have an in-house investment lawyer and spends less on private attorneys, ASRS records show. That system on average has spent slightly more than half of what the PSPRS has spent on outside legal counsel so far this fiscal year.
Investment returns at the ASRS typically outperform those at the PSPRS. Last fiscal year, the ASRS posted an 18.6 percent return on investments; the PSPRS had a 13.28 percent rate of return.
Ferguson said the ASRS has a lower legal bill for investments because a larger percentage of its funds are in the stock market, which does not require as much outside counsel. The PSPRS investment portfolio is more diversified to hedge against economic downturns in the stock market, he said.
The largest recipient of PSPRS payments for outside counsel continues to be Kutak Rock, a firm that through February of this fiscal year had been paid $865,058, records show. Kutak Rock’s legal bills dwarf by a 3-to-1 ratio the combined outside legal bills of 10 other firms used by the PSPRS.