Furry Handcuffs and the Great Pension Reform of 2011 - Voice of San Diego

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Furry Handcuffs and the Great Pension Reform of 2011

Are we nearing the climax of a nine-year drama about city
pensions or just debating symbols?

 

In the early 1990s, city employees had good pensions. In 1996, they got great pensions. In 2002, they got even better pensions. They fought to keep those pensions. They won.

Now, future employees may not get any pensions.

Consider another path: In 2004, Carl DeMaio was an odd newcomer welcomed and then ostracized by local conservatives while he proclaimed to know the path out of the city’s malaise. In 2011, City Councilman DeMaio beamed as he watched the city’s entire business establishment — which just weeks ago was bitterly divided — line up behind bold pension reform ideas he laid out a few months ago.

Councilman Kevin Faulconer and Mayor Jerry Sanders had refused to speak directly to DeMaio when local business leaders demanded they merge their rival proposal with his. Regardless, they were able to convince him and his coalition to spare future police officers from his fury and make sure firefighters had proper death benefits.

The Republicans’ top representatives stood together behind the mayor, Faulconer and DeMaio. Not long ago, the mayor chose to partner with former City Councilwoman Donna Frye to find a way for the city to recover. Now he was choosing DeMaio. With that, San Diego’s squabbling Republicans all came home.

“I love all my children equally,” Republican Chairman Tony Krvaric apparently said. Krvaric and DeMaio had, for months, been waging a public campaign demeaning and deriding the city’s “establishment” Republicans.

It was an agreement to unite and to set in motion what could be the climax of a nine-year drama about the city of San Diego’s mounting pension liabilities. The city never set aside money to meet those obligations. And the bills due today are suffocating other city services while the distrust the decisions created destroyed the city’s ability to ask taxpayers to rescue it.

If all goes as planned, in June 2012, San Diego voters will not only decide on a new mayor and City Council but will have the option to impose a new plan for city workers that does two main things: One, it ensures all new city employees — except police officers — have 401(k)-style pensions. And two, it caps the salaries that the city will use to calculate its current workers’ pensions for five years.

Several other provisions will be in the initiative, but the cap on pensions and the 401(k) switch for new employees have the most impact on the city’s politics.

Whether they have a major impact on the city’s bottom line is both up for debate and up to city leaders who may not even be city leaders yet. Yes, as big and as tough as the initiative looks, a big part of it is only as strong as the politicians who enforce it.

The reforms represent not just the latest creative ideas for dealing with the city’s liabilities, but also a concerted attempt by the brightest minds to see how much you can do without leading the city into bankruptcy to realign its debts. They represent a broad acknowledgement that current city workers’ pensions can’t be touched. And they focus yet more punishment on future workers. They are the easiest to pass along cuts too — they can’t complain because they don’t know who they are yet.

But in many ways the reforms are symbols. The city’s recovery depends on both how seriously future politicians take them and whether city taxpayers are as impressed with the reformers as the reformers are with themselves.

Let me explain the two big aspects of the reform package:

A 401(k) But Not for Anybody Working Now

As I suspected Monday, only police officers — not firefighters nor lifeguards — were spared the switch to a 401(k) plan. But remember, it only affects new employees.

How big of a deal is it though? The pension fury of the past few years had already hammered those new employees. So much, in fact, that the leader of the city’s largest labor union has said switching to a 401(k) wouldn’t be much of a change for them.

The bigger deal is that the mayor and Faulconer were not able to spare future firefighters and lifeguards from the deal. They did convince DeMaio, the Lincoln Club and the Taxpayers Association to include special death benefits for public safety members.

What savings the plan produces are many years away. It may actually make the city’s problems worse in the short term. It does, however, provide the ultimate insurance — beyond what was already pretty good insurance — that city leaders 25 years from now won’t deal with what we’re dealing with now.

So, it’s a symbol. A bright symbol. It’s one that the mayor, DeMaio and Faulconer clearly hoped would shine across the country showing San Diego leading a nation that is growing ever more worried about its cities and its unfunded promises to municipal workers.

A Cap: Furry Handcuffs for the City Council

The idea, when I first heard DeMaio and his team explain it months ago, was simple and striking. The courts have kept city leaders — despite years of trying — from lowering the pension benefits for current city workers. A broad swath of the city’s leadership has become convinced that you can’t change the formula for calculating pensions. And you can’t change the number of years a person works.

But you can change employee salaries. And salaries are the most important factor in calculating a person’s pension and therefore the city’s massive pension deficit. The city’s pension fund assumes salaries will grow by 4 percent every year. Just freezing them has a significant effect on the bill the city faces every year.

If you freeze this “pensionable pay” for five years, you can make quite a dent in the city’s looming liability.

DeMaio’s idea was even more interesting than that — and actually more friendly to workers. Cap the employees’ base pay and communicate to the pension fund that it’s not going up any time soon. But then you can still pay someone more in bonuses or for, say, being bilingual. That extra pay doesn’t affect their pensions. The city attorney signed off saying that if you freeze it from this point forward, it’s legal.

I explained the city attorney’s perspective here using a hypothetical city employee as an example.

Just a few days ago, the mayor and Faulconer cried that this was illegal. They claimed it risk putting “us back to square one on pension reform.”

Yet Tuesday there they were, supporting it. What changed?

“We came up with some different language in it and I was assured that it was legal by both our attorney and by the other attorney,” the mayor said.

What was this different language? It may have been just a few sentences. But they leave the reform extremely vulnerable. In fact, what might look like a cap on city salaries really is a more formal piece of advice to future city leaders.

Here’s what happened: The main reason Sanders and Faulconer had originally said the cap was illegal was that in California, public employees have the right to collectively bargain about their wages. You are supposed to talk to them before you, for example, freeze their salaries for five years.

To assuage their concerns, DeMaio agreed to a provision in the initiative that says nothing in the new law interferes with collective bargaining. And if the City Council bargains with workers and wants to increase their pensions and pay, they can. They just need a two-thirds vote of the council or approval from the city’s voters.

Most of the near-term savings in the great CPR initiative comes from this proposal. That means those savings don’t happen if worker pay — and therefore pensions — isn’t really capped.

Supporters are banking on the initiative being something that City Council members will enforce. But rather than the city’s hands being tied with chains, they’re tied with furry handcuffs you can escape from if you don’t like the game anymore.

It might be a good bet that new city leaders will want to respect the united business community, the Taxpayers Association and Lincoln Club and the voters that approve this. They may want to keep the furry handcuffs on.

But in the end, like the 401(k) switch, this cap is a symbol — a very bright one. It may produce enough savings but only if it is respected by current and future city politicians.

What Now?

The most fired up of conservatives in this town see this as true reform — the toughest, coolest thing they can do. “This is a big deal,” DeMaio proclaimed loudly in his opening, triumphant line Tuesday.

Republicans collectively decided that the only possible bigger deal they could do — municipal bankruptcy — is not worth the smear on their own image. The plan they laid out “erases” San Diego’s image of pension abuse.

Labor unions might double check whether it’s not worth it to let them have these symbols.

It won’t be easy, particularly for firefighters unaccustomed to such ubiquitous lack of respect.

It won’t be easy, either, for those who saw the public sector as the last hope that guaranteed pensions of some kind might survive in this world. In fewer than 17 years, city pensions will have gone up, gone up again, and then suddenly been eviscerated for the next generation. It’s sad that a compromise between the generations could not be found. It’s as much due to the intransigence of labor unions as it is to the unfunded promises prior city leaders made — both Democrats and Republicans.

If this measure is enough to finally make local conservatives feel comfortable that enough has been to make up for the bad decisions of the past, it might be the right thing. Like its acronym suggests, it could resuscitate the civic discussion.

We could stop talking about what went wrong here, and start talking about the kind of place we really want this to be.

That is, unless in two years, we’re still staring down the barrel of city deficits and their ravaging effect on the things we care about the city delivering. Unfortunately, even the toughest, coolest reform imagined can’t promise us this won’t be the case.

You can contact me directly at scott.lewis@voiceofsandiego.org or 619.325.0527 and follow me on Twitter (it’s a blast!): twitter.com/vosdscott.

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