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Public 'Safety Net,' or 'a Charade'?
Prop. B Puts Pension Crisis on Nov. Ballot
By Jennifer Vigil, San Diego Union-Tribune
September 18, 2006
No area of San Diego's financial morass has drawn more attention than the employee pension system.
A whistle-blowing former pension board member first called the city's and public's attention to the retirement fund nearly four years ago, pulling the first wayward string of what soon became a rapidly fraying quilt.
Proposition B
Proposition B would change San Diego's city charter to give voters the right to approve proposed increases to the pension benefits of city employees or elected officials. A majority vote is required for it to pass.
San Diegans since have learned of widespread wrongdoing in the city's review of financial disclosures and spending of water and wastewater department funds, and watched as federal, state and local investigators engage in lengthy investigations to determine who is responsible.
For many people, the pension fund – with eight former officials facing criminal charges and a $1.43 billion long-term shortfall – remains the poster child for the city's decade-long string of financial failures.
That is likely to be on voters' minds Nov. 7 when they are asked to consider Proposition B, the city's third charter change regarding the pension in two years, and perhaps the most fundamental. If it passes, all future increases in pension benefits for city employees will require voter approval.
Soon after taking office, Mayor Jerry Sanders made the proposal to move San Diego toward a system similar to the one in San Francisco, whose voters go to the polls to approve or deny proposed retirement boosts for public employees. San Francisco's pension system is more than fully funded, a rarity.
The San Diego City Council agreed to put Proposition B on the ballot, along with another proposal being advanced by the mayor to possibly outsource some city jobs, with the knowledge that the business community was prepared to launch a drive to force the measures to be placed before voters.
Sanders said taking direct public input on pension increases would make city officials and union representatives fully explain why benefits increases were necessary – and more importantly, where the funding would come from.
“This forces the city and the labor organizations to go out and talk to the public, and say, 'Hey, we need an increase, and here's how we're going to pay for it,' ” he said.
Councilwoman Donna Frye, like Sanders, signed the ballot statement in favor of Proposition B. Frye has criticized the city for conducting too much of its business behind closed doors, and said passage of the measure would bring more attention to negotiations between city officials and labor leaders.
“The issue is about the public and the public's ability to participate,” Frye said.
Judie Italiano, general manager of the city's largest union, the Municipal Employees Association, called Proposition B “a huge charade.”
Italiano said that because of the public's familiarity with San Diego's pension issues, union negotiators had no plans to try to secure increases in retirement benefits, nor would they for several years, a situation that made the ballot measure little more than political posturing.
“They're going through the expense of this election for nothing,” Italiano said.
Sanders said the public could have “a notoriously short memory.” City Attorney Michael Aguirre, who supports Proposition B, agrees that city leaders should look ahead to a time when residents might have forgotten about the pension problems.
“It's not a charade,” Aguirre said. “It's a safety net. It gives the public a measure of security that debt created in the past without their knowledge and approval will not happen again.”
Union officials warn that passage of the measure could make it harder for the city to attract talented workers. Supporters say voters will approve pension increases if they see that the city's wages and benefits are not competitive enough.
The issue already has come up in the San Diego Police Department. Other public agencies are luring workers with more attractive compensation packages.
Steve McMillan, vice president of the San Diego Police Officers Association, said the measure will only perpetuate the problem.
“We have some grave concerns about the city boxing itself into the position where they can't hire and retain workers,” McMillan said.
If passed, Proposition B would take effect Jan. 1 and continue for 15 years. Voters would be asked to review proposals for benefits increases, while the city would be required to inform them of the projected long-term costs of those increases.
The $1.43 billion deficit developed after city decisions in 1996 and 2002 to put off paying the full annual employer contribution to the pension system, while granting pension increases in contract negotiations. The whistle-blower, Diann Shipione, warned council members about the later deal, but they rejected her claims.
The plans relied upon the retirement fund's investment gains to cover the missing annual payments, but they faltered when the stock market collapsed after the technology bust and the 2001 terrorist attacks. The system's funding level, a measure of assets versus promised benefits, plummeted. As of last year, it was 68 percent.
As the pension crisis worsened in 2004, voters passed two measures, Propositions G and H, that altered the city's approach to the pension system.
One charter amendment barred the city from entering agreements to delay payment of its annual debts to the pension and limited the period over which the city can bring the system to a healthier funding level.
The other changed the composition of the 13-member board, to give political appointees a majority rather than city employees.
Proposition B is one of two charter changes Sanders proposed almost immediately after taking office in December. Supporters are conducting a dual campaign for Proposition C, which calls for competition that could lead to some city work being outsourced.
The campaign has raised more than $200,000 in support of the measures, but opponents plan to mount a more serious challenge to Proposition C because it could lead to a loss of public jobs.
“From our perspective, while Proposition B is an important piece of legislation we think is negative to our employees,” said McMillan of the police union, “it's the outsourcing we see as a much bigger issue. It could cripple this city and our ability to provide services.”
Proposition B will not be the final measure addressing the pension fund. A slate of 121 recommendations for improving the city's financial practices was tentatively embraced by the council Sept. 6, too late for placing other charter changes on the November ballot.
One proposal calls for reducing the pension board from 13 seats to nine, which would require a charter amendment. The new board would be made up of five appointed members, two employee representatives and two retired members. The issue isn't expected to reach the ballot until June 2008.
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