Report: Most San Diego Cities Will See Increase In Pension Payments, What's The Status Of Reform?
February 14, 2013 1:09 p.m.
Chris Cate. Vice President of the San Diego Taxpayers Association.
Michael Zucchet, General Manager, San Diego Municipal Employees Association.
CAVANAUGH: This is KPBS Midday Edition. I'm Maureen Cavanaugh. Public sector workers' pensions are once again the focus of scrutiny by the San Diego County taxpayers' association. Their new survey findings that most cities in San Diego County will see an increase in pension payments in the coming fiscal year. The cities studied are all part of the California public employees' retirement system, CALPERS. Which recently underwent reform by legislation in Sacramento. Absent in the report is the City of San Diego who has its own pension system and its own pension reform proposition, just received a thumbs down from an administrative judge. Joining me with an update on pension reform in San Diego are my guests, Chris Cate, vice president of the San Diego taxpayers' association. Welcome to the show.
CATE: Thank you for having me.
CAVANAUGH: Michael Zucchet is generality manager of San Diego municipal employees' association. Welcome.
ZUCCHET: Thank you.
CAVANAUGH: What are the major findings in your new review of public pensions in the county?
CATE: As you mentioned, we looked at the 17 cities in the county that are enrolled in the CALPERS pension system. 14 of the 17 cities in the county will see an increase on 2014 July first. This is different from the previous report last year in which we noted that 20 cities would be seeing declines for the current fiscal year. As a part of an ongoing basis from our first report in 2009, we look at what reforms have been made to these each individual cities in terms of pension reform and note what the costs are going to be for the upcoming fiscal year.
CAVANAUGH: Now are cities that have enacted pension reform also seeing increases in their costs?
CATE: Not as much. Some have. That mostly deals with the unfunded liabilities for each of these cities as well as from CALPERS. We noted that cities that have implemented reforms over the past few years are continuing to see declines in pension costs, most notably Solana beach. They were the first city of the CALPERS cities in the county to move to a second-tier lower cost pension benefit formula for employees as well as have employees contribute their full requirement of pension costs. And over the last 2 years, they've seen declines in pension cost, and this year a 9% reduction.
CAVANAUGH: And Del Mar is one of those cities in which pension costs have risen the most, and they have also enacted pension reform. I'm wondering what is the major cause in the increase in pension costs for these cities?
CATE: A lot of the cities too, they've implemented reforms just recently, they're not going to be able to see the results of that for a year to maybe more as they continue to hire new employees. Del Mar as a very high cost retirement plan for their firefighters for instance. And what we did differently this time, we looked at pension costs on a per household basis. You can compare pension costs for cities by a percent of pay basis. We wanted to break it down to the individual households within the cities. So we took those numbers and looked at it on a per household basis. And we found that similar with the pension costs on a percent of pay basis for Del Mar, their pension costs for households and unfunded pension debt for households are the highest in the county with about $3,000 on an unfunded pension benefit per household and about $573 on an annual pension cost per household.
CAVANAUGH: Isn't it though that the fact that these pension costs are increasing, isn't that tied to the fact that investments aren't returning as much as cities hoped they would?
CATE: That's an excellent point. But for this upcoming year, this does not reflect the .1% return that CALPERS experienced for fiscal year 2012. And what we note in the report is that next year, cities can expect to see even higher pension costs because they're going to have to pay for that investor return not having met that 7% rate of return.
CAVANAUGH: Michael, you represent San Diego City workers. It's a different system from the CALPERS system studied in this report. But if reforms have been enacted and the city's costs are still rising, do you think pension reform is being handled in the correct way?
ZUCCHET: Well, sometimes yes, sometimes no. When we talk about these other cities in the county, and the reforms that Chris is talking about, implemented in San Diego, is going back all wait to 2005, a lot of benefits were eliminated from employees, in 2009 a second tier. So it dramatically hit a lot of the cities in the state. And by the way in the City of San Diego, almost all of those reforms happened by agreement with the union. So frankly mayor Sander, not exactly the best buddy of union employees, but we would sit down with him and a majority of the City Council and figure out common sense reforms. Pension reform goes off track when politics get involved in an overt way. And that's what we saw with Proposition B, and that's what I think we're seeing more now with certain politicians and even some organizations where pension reform is sort of a cool issue and it's great to put out these reports and it's just good politics. When politics are involved as opposed to trying to save money and make financial reform, that's where things go sideways.
CAVANAUGH: Now, the cities studied in this report are again part of the CALPERS system. That system was the target of new legislation signed by governor Jerry Brown to reduce pension costs. I want to ask you both, starting with Michael, do you agree with the reforms signed by Governor Brown?
ZUCCHET: Personally, yeah, I think most of them were sort of sensible approaches. And again off the top of my head, 3/4 of them are things the City of San Diego had already done, and some had been done years ago and San Diego has gone further than even some of the reforms that the governor has suggested.
CAVANAUGH: And Chris? Governor Brown's approach, do you think that is going to help some of these cities get a hold on their pension costs?
CATE: I think it will help some of these cities. And we'll note though that what was passed by the legislature was completely different than what Governor Brown initially proposed with his 12-point plan earlier that year. What we do want to see though are reforms on a CALPERS floor level. That was what was included within Governor Brown's initial proposal, to reform the board of CALPERS similar to what we did with the City of San Diego's pension system and have independent individuals serve on that board. CALPERS recently sent a letter indicating that their definition of what one of the components in the reform measure of what regular pay consists of. And with prop B, what we said is that we want pensions to be off of regular base pay. And there was similar language that included that within the reform bill. When they believe though is that regular pay includes 80 different types of special and premium pay, things like notary premium, and a typing premium, that can be included in an individual's pension costs. And we believe that reading of the bill is not in tune with the spirit of the law. And we could see additional savings if we limit to just regular pay.
CAVANAUGH: I want to talk about Proposition B, it was found to violate state labor law by the public relations board, by a judge representing that agency. I've heard supporters of prop B expected that result. Why?
CATE: Well, we knew the makeup of the board. And them stepping in, suing the City of San Diego before, we got to the point of where we're having a hearing, all led to the foregone conclusion that we were going to see this type of ruling. And we too stand in support with the city attorney and fighting this and taking this further down the appeals process, and we're going to stand behind him as he does that.
CAVANAUGH: Michael, what significance do you see in the PERB board ruling?
ZUCCHET: Well, it's the first step in a process which as Chris articulates, the city attorney has essentially blown off. And it's unfortunate because the city attorney should read the case law and his own lawsuit when he went to the 4th district court of appeals this summer and basically asked to simply bypass PERB all together. And the 4th district court of appeals said I don't know if you've read the statute recently, but PERB is the body that we rely on in these types of disputes about bargaining law in California. So we went this summer in front of an administrative law judge, are not in front of the PERB board, but in front of an unbiased administrative law judge and had a week-long trial. And the record that was created by the judge in his 58 page ruling yesterday is very damning to the city and makes it very clear that the mayor and the city attorney violated the law. And Chris and Jan Goldsmith are almost desperate in their rhetoric about how meaningless this is. They ought to read the decision because this is what's going to go up on appeal. So Jan Goldsmith is saying well, can't wait to get to a court where they care about the constitution and ridiculous statement like that. But this is the record that's going up to this court. And the constitution that matters at PERB, that's what the 4th district court of appeals already said. So I think they've got a long haul.
CAVANAUGH: I'll give you a chance to respond, Chris, but I would also like you to address and perhaps answer the question how long do you think this legal battle is going to go on?
CATE: Well, I'm not a lawyer, so I don't know the exact length of the process.
CAVANAUGH: I've heard years.
CATE: Right. And I was just going to mention, the city attorney has mentioned years. We had 120,000 City of San Diego residents sign a petition to put this on the ballot. 66% of voters in San Diego voted to approve it. So to believe that these individuals are not going to have their voices heard on an election that we had, a legal election that we had, we don't think is going to happen. We want to make sure that the reforms are approved by voters, signed by voters from the ballot, and it gets implemented. I think there's a lot of rhetoric on both sides about this, but we knew what the process was going to be. And we electric forward to having our day in court.
CAVANAUGH: What about the goal of this pension perform which was to save money? How much money is going to be spent in battling the Courts for the implementation of prop B?
ZUCCHET: Well, that's exactly the point I was trying to make earlier about what we've done by agreement. And what we've done by agreement among many other things over the last five years is a 5-year pensionable pay freeze which is the only thing in Proposition B that saves anything. And the billion dollars savings that are advertised are all or almost all from the pensionable pay freeze. And rather than coming to employees and trying to do that at the bargaining table, they wanted to have fun at the ballot box and be able to talk about the people, and Carl DeMaio wanted to run for mayor. They didn't want to save money. They wanted a campaign. And now they don't have a lawful initiative. They're going to have years of court expenses, and if this decision holds, and we expect it to hold, the remedy is you got to go back and undo everything, plus 7%, plus a bunch of other things that are going to end up costing taxpayers money. Maybe the politics are good, but it's not good for taxpayers.
CATE: I think that the savings from prop B has been acknowledged even by the mayor, in his state of the city address, the potential for a billion dollars in savings is there. And part of it is the 5-year freeze, and I commended the mayor for wanting to move forward on that and having a 5-year -- not pensionable pay freeze that gets to this. That are other reforms in report B that provide for savings which we can do only by charter to ensure that taxpayers in the future aren't going to have the wool pulled over their eyes again. There are charter amendments in there that provide for savings well into the future, and especially the defined contribution component which will have to be subjected to the market fluctuations.
CAVANAUGH: Thanks for coming in and speaking with us.
ZUCCHET: Thank you.
CATE: Thank you very much.