Friday, April 8, 2011
The City of San Diego has reached a compromise on a pension reform ballot measure that's supposed to save the city more than 300 million over 5 years.
ALISON ST. JOHN: While the state and federal government seem has reached a compromise on a pension reform ballot measure that's supposed to save the city more than 300 million over 5 years.
The compromise is between the mayor, and two of the more conservative members of the city council. There's still a battle royal brewing between them and those who believe eliminating guaranteed pensions is exactly the wrong way to go.
GUESTS: Andrew Donohue, editor, VoiceofSanDiego.org
Ricky Young, watchdog editor, San Diego Union Tribune
Kent Davy, editor, North County Times
ST. JOHN: So, while the state and federal government seem to be deadlocked, our city has reached a compromise on a pension reform ballot measure, that's supposed to save the city over $300 million over five years. [CHECK] two conservative members of the City Council, and there's still a Battle Royale [CHECK] Andrew, you're our point person on this. Last week, we had two competing pension plans now we just have one headed for the ballot. Who gave in?
DONOHUE: Moved a lot closer to Carl DeMaio, the other City Council man who was sort of on his own and then with the backing of some of the more traditional power players, the Republican party, the taxpayer association, and the Lincoln club were driving a proposal basically that would eliminate the traditional defined benefit pension plan for city workers and move them all over to a 401K. The mayor and Kevin Faulconer wanted to do a 401K but spare fire and police. And so what we have is one that would spare police but not fire.
ST. JOHN: So this would definitely be a major -- some people say precedent setting step for -- nobody else in the nation, as far as I can make out, is talking about actually eliminating guaranteed pensions for all --
DONOHUE: Exactly. This is -- you know, this is city workers and government workers are one of the last vestiges of defined benefit pension plans in this entire country, so if this is the next wave, we may be looking at a nation where 401Ks are the -- sort of the only option for people. Which is, you know, quite interesting. We're basically dealing with a backlash and fallout over the excesses of the 90s and early two thousands. And the inability to resolve those excesses or come to some sort of compromise within the city ranks has now led us to the precipice where potentially a defined pension benefit could be a thing of the past.
ST. JOHN: Okay. I'd like to put a call out here, if you'd like to join the editors, 1-888-895-5727, is the number to call. Do you know already how you would vote on this? Do you have questions? Is this the right thing for the city? Is this the right thing for working people and we'd like to hear from you. So Kent, you have a comment.
DAVY: Yeah, the Los Angeles this morning had ran a story that indicated that a hundred and 80 California municipalities raised pension benefits in some respect since 2008. Since the economy crashed. This is not -- this is not a problem confined to the early 90s and the two thousands. This is kind of endemic to California's governance system. The other side of the coin is that this is also part and parcel of what triggered the walker stuff in Wisconsin, Kissich in Ohio, Mitch Daniels in Indiana. There's this bubbling pot of part of the tea party anger of something needs to be done about deficits that are, in part, have its roots into the way public employees have been treated.
ST. JOHN: But Andrew, I just wanted you to clarify one thing because there was something in the original plan from the mayor that would have actually changed the right of the unions to vote on any change in their benefit. And I didn't see that in the compromise plan. And that is perhaps closer to what has happened in Wisconsin.
DONOHUE: Well, I think that is actually --
ST. JOHN: Is it still part of the plan.
DONOHUE: I believe it is. That's a good question. I think another important part to bring up in the compromise is that Carl DeMaio wanted to cap what is called pensionable pay. And that is basically he wants to, you know, freeze employees' pay for the next five years because that will help drive down the pension deficit. And then also not allow workers to count extra pay like they get for being specially trained or for speaking another language. Not allow that to be counted towards their pension come is something that they could do in the past. So they still get to bring that home 678 they just don't actually get to count that towards the pension. And to what Kent was talking about, to a large extent, we have had a lot of these problems because we don't have to pay these things right today. And so it was very easy for politicians and clearly still is in some municipalities to actually grant these sort of pension increases and not have to deal with them right now, and pass them off to some sort of future generation.
ST. JOHN: But Ricky, one of the things that's been most controversial about this particular agreement is who should be included. And the police have been exempted. But if in fact you're a clerk, are and you've got the option of going to work for a city that's gonna give you a defined benefit versus not, a defined guaranteed pension, surely it's going to affect everybody else just as much as it would the police.
YOUNG: Well, interestingly -- for year, the reason pension benefits were increased as much as they were in the late 90, early two thousands was a sort of one-upsmanship. Where everybody felt like they had to do, particularly for police and fire, this three percent at 50 formula, and so everybody did it because there was a competitive feeling that, well, if we don't do it, then we're not gonna be able to hire the best people. So Allison, you mention that, you know, maybe there will be this impetus for public employees to, now that some pensions are starting to go down, to jump ship and go to another -- but the thing is, all of the government employers are feeling the same pressure to lower the benefits. And so there's sort of a, you know, I guess you could jump ship, but the other ship might be going down too.
ST. JOHN: Well, except I understand even the governor put out a 12 point plan. Kent?
DAVY: That's exactly what I was gonna brick up. At the March the governor put forward a plan that had [CHECK] banning pension spiking, putting a -- banning the accumulation of air time, require banning local governments from paying any of the employees' share of the pension cost. Currently many governments pay their side of it as well as the employee's side of the pension cost. And then he was willing to talk about or said he was willing to consider things like capping benefits and some other things like that.
ST. JOHN: But he's not talking about eliminating guaranteed pensions.
DAVY: No, he's not. That's pension reform. But if you stop and think about a man who is put into office primarily by labor in this state, he has moved all the way to where a whole bunch of Republicans were just a couple years ago.
ST. JOHN: But it's intelligent because the county is a very fiscally responsible body, they're always making that point. At least they're fiscally healthy, which we're not commenting on their effectiveness, but fiscally they're very sound, and they're not talking about moving to a defined contribution plan, a 401K type plan. So [CHECK].
DAVY: Well, yeah, the city's budget is in far worse shape than the county by, I don't know, several orders of magnitude. So it makes sense that they would be talking about it. But I ussa think that this is -- this is in a sense a cutting edge of the whole conversation. In the last gubernatorial election, Meg Whitman brought up the issue of moving all [CHECK].
DONOHUE: Two points on that, though, we should say the county actually granted incredibly generous pension benefits.
ST. JOHN: They were the first to go.
DONOHUE: To their workers and are dealing with a massive pension problem. I think the difference there is in the City of San Diego, the pension problem is sort of one symbol of many different issues that they have underfunded throughout the year, and frankly, it's because there's a whole heck of a lot more political pressure on them, and they deal with a lot more services that are touching people a lot more directly. The second point is, I think this is really important to note that the 401 -- the switch to a 401K essentially potentially safeguards this from ever happening again. But this doesn't solve the current pension crisis in front of us. This is sort of dealing with, you know, dealing with airport security post 911, how do we prevent what already happened? And so this has a potential of maybe not allowing us to do this again in 20 years. This doesn't solve what's right in front of our faces. That specific part about moving to a 401K.
YOUNG: What's unclear about some of this to me is much of it applies to only new hires and how much of it applies to current employees. Because as the current employees work their way into retirement, if they have what they have now, Chicago check.
DAVY: You've got constitutional prohibitions from taking pension benefits away from --
ST. JOHN: Well, this is a whole big issue, like is it really gonna save money? And even the people who are the promoan opponents are saying not yet, right?
DONOHUE: Well, that's what we're waiting to see right now. [CHECK] and how it actually impacts the city's deficits over the year, and those numbers supposedly are coming, but we don't have those right now, and I think that's within of the problems we have had over the last seven years is that we have leaders darting from one idea to the next without any sort of real comprehensive or larger plan that we understand how this all fits in, and so I think the populous and perhaps even us can be forgiven for being a little bit confused when you're jumping from what the mayor was trying to do from Prop D just this fall to this and figuring out how this actually fits into the bigger picture of solving the entire city's problems because we've all been dealing with sort of one off fixes here and this inquire quite a while.
ST. JOHN: 1-888-895-5727 is our number here at the Editors Roundtable. And Mike is calling us from Fallbrook. Mike, what's your take on this?
NEW SPEAKER: Well, I just take this as an example, not exactly the La Jolla North County, they have three superintendents schools in retirement, and it's -- they pay 250, 2070, and another figure that's over $200,000 a year each for those three people. The last person to retire there, Dave cowls negotiated his new pension package was gonna be fully vested in five years. So Mr. DeMaio's talking about freezing salaries for employees, that's not the employees we're worried about here, it's the higher ups issue the administrators that are making six figures, and by six figures, I mean in the 200 plus, when those folks retire, that's a lot of money. And they're living a long time. And where's that money gonna come from?
ST. JOHN: Mike, thanks for your point. Mike is making the point that it's not really the average person, and part of in plan is to freeze pensionable salaries which would affect all the rank and file, as it were, in the city. That issue is actually still a question, isn't it? As to whether it's actually even legal to freeze those salaries, Andrew?
DAVY: Well, yeah, he makes good point in that everybodiya saying don't blame the workers. I don't necessarily know that the workers are being blamed. [CHECK] the problem is, there are a lot of very high pensions, and those happen very often to be to the sort of higher ups, either the management ownership the people who were at -- who have been at higher jobs for an absolutely incredibly long time. What's interesting, though, is a lot of these benefits have been sort of rolled back since the excesses, and so you have a potential situation where actually the pension plan that was in, that's now in effect for new employees could be cheaper or thought the same as the 401K. This is sort of a solution that -- to something that perhaps wasn't even a problem. The problem is is the current benefits that are given that have been proven to be constitutionally protected, and we have to figure out a way to sort of chill around these, which is the pay freeze does, and then also find a way to frankly just pay for them am we're kind of stuck with them. We have to figure out a way to pay for them and also provide services of and that's what this is coming down to, ultimately. Can we pay for these and still provide a decent level of service to people who live in these cities?
ST. JOHN: So Mike's point is really about equality, or the increasing gap between the people at the top and the people at the about am.
DONOHUE: Yeah, but frankly there's something -- about the benefits that are given right now, there's very little we can do. And so we can try and reform for going forward, which in many cases, has been done already. But we do have to sort of just sit down and admit that we're gonna have to pay for a good amount of these.
ST. JOHN: Okay. Now we have a call from Ryan who live, I know, do you live in the City of San Diego, Ryan? Ryan, you're on the air with the Editors Roundtable, thanks for calling. Were you there? Okay. No, we don't have Ryan. But we do have Nick who lives in San Diego. Nick, go ahead with your question.
NEW SPEAKER: Hi. Mine is a very simple question. How does a 401K save money compared to a conventional pension? If it's a matter of both employee and employer contributions, why can't a [CHECK].
ST. JOHN: Andrew, [CHECK].
DONOHUE: Yeah, well, essentially a defined benefit plan is what all the city workers have right now, and that is you are guaranteed a certain amount based on a formula when you retire. Now, you put in money, and the city puts in money, and they invest that money over time, and they hope that between those contributions and the investment gains that all that money is there to pay for that benefit. But if it's not there to pay for the benefit, then taxpayers have to pick up the tab of and that's what's happening right now. The city didn't contribute enough, employees didn't contribute enough, and investments didn't make enough money. So now we've gotta make up that spread. If you have a 401K, it's just -- there's no guaranteed amount of money you're gonna get of it's whatever your contributions have accrued until you retire, that's what you get.
ST. JOHN: So if the stock market didn't crash, maybe it wouldn't necessarily benefit the taxpayers.
DONOHUE: Well, that's what all these schemes were basically built around, the idea that the stock market was just gonna continue exploding.
DAVY: Actually it was western that. Because if you go to CALPERS, and CALPERS is in the -- the City of San Diego isn't on CALPERS, but CALPERS is the state pension system. Managers in CALPERS have routinely made assumptions that -- I think they're at 7 and 3 quarters now, was eight percent returns on an annual basis. You talk to most investment advisors who say, you're gonna be doing really well if you count on four. So there are assumptions that are built interest these programs that are just wildly optimistic and frankly irresponsible.
ST. JOHN: But Nick's point is well taken. Is this really gonna save the city money 1234 because there's this whole question about Social Security, that the city has opted out of Social Security, and if they're opted back in, to give their [CHECK].
DONOHUE: Yeah, I think that's one of the big questions Pif they have to do the 401K and Social Security, or some sort of -- they may have to give some sort of other level of benefit that this could very, very easily cost the same or more than a very sort of plain Jane defined benefit. So there's a huge question in my mind, and I think in a lot of people's mind, is this just a symbol? Is this something that Faulkner and DeMaio are gonna be able to put on their belts when they're running for mayor? Is this something that people are gonna be able to beat their chests in saying, San Diego was the national leader in getting everybody to a 401K? Or is this gonna do anything to what our current problems are?
ST. JOHN: Ricky?
YOUNG: Just to answer the caller's question of the cost, this does not necessarily save money on the cost. It's the -- as Andrew said, it's the risk. If you put a bunch of money in a pension fund and the stock market tanks or whatever you're invested in, the risk of that is borne by the taxpayers of if it's in somebody's 401K, they bear the risk of that. So what's happening now is the city's annual required contribution to make up for pension fund losses is, like, 200 something million dollars a year. And that's cramping their style, and they're trying to keep that from happening in the future.
ST. JOHN: So just before we leave this topic and go it a break, this is highly technical, the voters if it goes to the ballot are gonna have to get pretty well educated, Andrew, do you think labor has a powerful enough message to combat this?
DONOHUE: We're gonna have to see. This is -- we are sort of outsourcing our -- the decisions we have selected officials to make back to the people again. But it's going to be a ballot. There's no doubt about it. Because if this domino falls, this is something that I think cities all over the country are looking at.
ST. JOHN: And we all need to get more informed before we vote. Good, well, thank you very much, we'll come back and we'll talk about in the next segment an issue that affects all of us, which is our water rates. Stay with us here on the Editors Roundtable.