Pension Reform Initiative Prevails - Voice of San Diego

Elections UNVEILING THE UNSEEN

Pension Reform Initiative Prevails

Now the measure faces great uncertainty in the courtroom and in how it’s implemented at City Hall.

 

San Diego voters approved the most sweeping change to the city’s retirement system in four decades Tuesday night, eliminating pensions for most new city workers.

The initiative, Proposition B, represents the most dramatic reaction yet to San Diego’s decade-long pension crisis. It means the city will offer only 401(k)-style retirements to its new employees except police officers and aims to save nearly $1 billion over the next three decades by attempting to freeze the pay current workers use to calculate their pensions until 2019.

After the first results were in, it was clear Proposition B would cruise to victory. With 15 percent of precincts reporting, it led 69.2 percent to 30.8 percent.

“I do think it definitively ends the pension crisis,” said Mayor Jerry Sanders, the measure’s co-author.

Pensions have reigned as the prevailing political issue in San Diego for a decade. If Prop. B does indeed change that, the solution will be fitting.

Reforms like Prop. B have been the city’s way to address the problem. For the most part, the changes have focused on newer employees, at first reducing and now eviscerating their pensions. That means less focus on the existing pensions that have been the source of so much furor and financial trouble. It also means the city is getting closer to simply swallowing most of the $2 billion bill born from previous pension decisions.

As is a well-worn tale in San Diego lore, the city systematically underfunded its pension system in 1996 and 2002 while at the same time promising greater benefits to its employees.

When the bill came due, it claimed the careers of a mayor and other high-level city officials, made the city a national embarrassment and led it to the brink of bankruptcy.

Voters elected Sanders in 2005 to fix everything. And he made changes.

Pensions? Cut and capped. Buying additional years of service? No more. Banking retirement payments while still pocketing a salary? Eliminated. Voter approval for future benefit hikes? A 40-point victory at the polls. A deal called “Comprehensive Pension Reform“? Negotiated and passed four years ago.

But two forces overwhelmed these efforts.

The first is financial. Because these changes mostly affected new employees, nothing stopped the rapacious growth of the city’s annual pension bill.

Next year’s pension payment will be $231 million, an amount equivalent to 20 percent of the city’s day-to-day operating budget. Before Tuesday night, projections indicated the bill would peak at $338 million in 2025.

The second is political. In some ways, this is an outgrowth of the first. As long as the pension payment continued to grow, politicians could continue to capitalize.

The current mayor and possibly his successor did just that. Eighteen months ago, Sanders announced he wanted to give most new workers 401(k)-style retirements, despite already greatly curtailing new employees’ pensions previously. That set in motion what became Prop. B.

City Councilman and mayoral candidate Carl DeMaio seized the moment even more. He made Prop. B his own by extracting major concessions from Sanders in writing the measure and collecting thousands of signatures to make sure it got on the ballot. It became the centerpiece of DeMaio’s mayoral campaign.

In short, after a decade of pensions dominating the city’s political discourse, San Diego’s leaders have decided the only way to end the pension crisis was to kill pensions.

But even their death won’t be enough to make the issue go away.

At its core, San Diego’s pension reform problem boils down to one issue. By California law, and it’s the same in most states, governments can’t cut retirees’ pension payouts. The law extends nearly ironclad protection to current workers’ projected pensions, too. This is why the city’s pension bill continued to grow. The reforms barely touched the debts owed by pension promises of the past.

Prop. B suffers the same way.

You might have seen the measure’s supporters try to spark outrage by advertising a retired city librarian’s $234,000 annual pension. Prop. B does nothing to change it.

It doesn’t touch retirees’ pensions. It tries to deal with current workers’ pensions almost entirely by holding down their pensionable pay. And its big ticket reform for most new hires, 401(k)s, will cost the city money both in the short and long term, according to the measure’s official financial analysis.

So the push has been both symbolic and preventative. Supporters have talked about making San Diego a leader nationwide in pension reform and said this switch will prevent the city from repeating the mistakes of the past.

The initiative’s savings comes from something other than 401(k)s. It aims to freeze current city workers’ pensionable pay until 2019. The concept is simple. Pay people less when they’re working and you pay them less in retirement. Under the measure, workers still can receive bonuses, but they won’t count toward their pensions. Still, the pensionable pay freeze by itself is the source of the measure’s almost $1 billion in savings over the next three decades, the financial analysis says.

But the savings aren’t guaranteed.

The law prohibits voters from mandating worker salaries at the ballot box. The mayor and City Council, current and future, now are the ones who will decide whether those savings will happen or evaporate among competing priorities. Voters essentially handed them an opening negotiating stance.

DeMaio, who also advanced to the general election, continued to sound the alarm Tuesday night about pensions. Residents, he said, need to elect a mayor and council that will fully implement the initiative.

Similarly, Prop. B’s opponents, most prominently organized labor, decided to sit out the campaign.

They spent little time and money fighting the measure once it made the ballot. With Prop. B riding high in the polls for a low-turnout primary election, opponents decided to place their bets on the courtroom instead. Labor groups have already filed lawsuits against initiative and promise more to come.

“Defeating the initiative was always going to be, to put it mildly, an uphill battle,” said Michael Zucchet, the head of the city’s white-collar union. “Hand-in-hand with that, we believe the legal merits of our case are strong. From day one, we’ve been focusing our resources on that.”

That means much remains to be worked out for this pension reform. It will hang on how it’s implemented and whether it withstands a legal challenge.

For these two reasons, the pay freeze and the courtroom, we’ll continue to hear a lot about Prop. B.

And even after those issues are resolved, pensions still are projected to chew up a large part of the city budget until 2025. Prop. B hasn’t changed the reality of the city’s pension crisis. The bill must be paid.

Liam Dillon is a news reporter for Voice of San Diego. He covers San Diego City Hall, the 2012 mayor’s race and big building projects. What should he write about next?

Please contact him directly at liam.dillon@voiceofsandiego.org or 619.550.5663.

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