Fact Check Revisited: $1 Billion for Neighborhoods - Voice of San Diego

Fact Check UNVEILING THE UNSEEN

Fact Check Revisited: $1 Billion for Neighborhoods

Mayoral candidate Kevin Faulconer has repeatedly claimed pension reform saved $1 billion that can assist with neighborhood needs.

Image: MisleadingStatement: “I’m proud of the work that I’ve done (…) with our former mayor Jerry Sanders to save a billion dollars in pension that we can reinvest into our neighborhoods,” mayoral candidate Kevin Faulconer said in a Jan. 15 debate.

Determination: Misleading

Analysis: Mayoral candidate Kevin Faulconer has repeatedly cited his work on pension reform as he tries to establish his neighborhood credentials.

Again and again, Faulconer and his campaign have claimed a reform initiative approved by voters in June 2012 freed up cash that can be used to bolster community services. He recently said the same during a Wednesday debate.

We found a similar statement to be “mostly true” in a November fact check. Our analysis of the pension system’s numbers at the time showed the city’s annual bill would begin to decrease in fiscal year 2015. That gave the city some savings that could indeed be invested in neighborhoods.

But the financial projections have changed since then. Our take on Faulconer’s November statement has evolved, too. We should have been harsher on Faulconer’s claim.

Pension savings of $1 billion will come over decades and any contention that they can be put back into neighborhoods immediately, as Faulconer implied in November, is misleading.

Shortly after the November fact check, the city’s pension board voted to adjust its assumptions. The pension bill has gone up.

We decided to revisit our November fact check now in light of the new pension numbers and Faulconer’s continued reliance on the claim.

Let’s start by reviewing the basics.

The pension reform measure known as Proposition B, which Faulconer co-wrote, aimed to freeze city workers’ pensionable pay.

The city’s pension system assumed staffers would receive pay hikes each year, so keeping their salaries steady allowed it to change its expectations. In this case, pay-freeze savings were estimated at $963 million over 30 years. City leaders locked in the savings when they inked five-year deals with employee unions in the spring. That’s where Faulconer’s $1 billion number comes from.

Back in November, the pension projections showed the city would save nearly $80 million on its annual pension bill over the next five years, starting with $2.5 million in 2015.

Things have changed. The pension system no longer assumes it will make a 7.5 percent return on its investments. Instead, it now assumes a 7.25 percent return, a shift that means an uptick in the city’s annual pension payment.

Earlier this month, the pension system released a breakdown of expected bills for the city over the next 30 years using this new premise. The pension bills are significantly higher.

We compared these new estimates with ones prior to Prop. B’s passage in 2012 and found the city is set to pay more now. For example, the 2012 report projected a $243 million pension bill for the city in fiscal year 2015. The latest projection is $20.6 million higher.

If these forecasts play out, the city won’t see savings on its pension bill until fiscal year 2018, after the new mayor’s term is up. This means whoever is elected mayor next month won’t be able to rely on lower pension payments to invest in neighborhoods unless he secures a second term.

We put this to Faulconer spokesman Matt Awbrey. He noted that without the savings associated with Prop. B, the pension bill would be steeper than it is now. That makes the $1 billion claim fair, he said.

“If the savings weren’t there, the pension payments would be even higher,” Awbrey argued. “The fact that they aren’t is proof that the savings were achieved.”

Awbrey’s right that the five-year deals associated with Prop. B have saved the city money. But his argument doesn’t answer the second part of Faulconer’s claim – that the city can now invest money into neighborhoods as a result. Higher pension bills mean the city can’t do that.

Pension bills are based on dozens of assumptions. Faulconer and fellow Prop. B proponents relied on them to conclude the pension reform measure saves $1 billion over 30 years.

But now some the variables have changed. Faulconer must grapple with these new assumptions, which shifted pension projections in a variety of ways – but most significantly here, when lower pension bills kick in.

Before the recent changes, the city’s pension bill was on par to decrease next year. Now it’s not coming down until 2018. This means Prop. B savings won’t be available to spend on new police officers, extended library hours or other neighborhood services until then.

These changes – and Faulconer’s lack of acknowledgement of them – makes his claim even more misleading. He’s repeatedly implied lower pension bills are already helping the city’s budget. Now lower bills aren’t coming for years.

If you disagree with our determination or analysis, please express your thoughts in the comments section of this blog post. Explain your reasoning.

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