Council Approves Landmark Retiree Health Agreement
Friday, May 13, 2011
SAN DIEGO The multi-million plan was lauded by the mayor and a city council majority as a way to immediately slash San Diego’s retiree healthcare liability by about $330 million and make the city more financially stable long term. The liability currently stands at about $1.13 billion. Under the deal that so far covers five of the city's six unions, healthcare costs and benefits will be capped and employees will have to contribute if they want a more generous plan. The council voted 6-2 in favor of the plan. The Police Officers Association has not yet agreed to the deal. But Independent Budget Analyst Andrea Tevlin said she approves.
"I think this is a fair deal," she said. "This is a business decision on one hand that significantly reduces city costs and makes this a much more sustainable program."
About 7,500 employees would be affected by the agreement. It creates three tiers for retirees. Those who are close to retirement can choose to pay $100 a month and receive a $8,880 annual benefit when they retire. All other qualified employees can choose between a plan that costs $50 a month and provides $5,500 a year upon retirement or they can choose not to contribute and receive a lump sum of money, about $100,000, when they become eligible for retirement. Under that option the employee would be responsible for investing his or her own money. It's estimated the changes will save $714 million over 25 years.
San Diego will still continue to pay out millions of dollars to cover the cost of retiree healthcare for union workers. But actuaries working the mayor's office project this will keep the city's payments around $58 million for the next five years. After that the payments will slowly rise until they peak around $88 million in 2032. After that the payments will begin to fall. Under this plan San Diego will also make the full payment required to cover the costs of the program. It had not been doing that before. Councilwoman Marti Emerald called it a historic day for the city. She said that while plan is not perfect, it will make the benefit sustainable going forward.
"If we do nothing this city will continue to dig a deeper and deeper financial hole for itself," she said. "And we will find ourselves in the same position that the underfunded pension has now put us in."
But not everyone agreed. Councilmembers Carl DeMaio and Lorie Zapf voted against the plan. They say the city should not continue to give generous benefits to unions while core services are being cut. And DeMaio was indignant that the actuaries who studied the agreement did not look into what the savings would be if retiree healthcare were completely eliminated.
"Today the public is not seeing all the numbers," he said. "The full reform option of eliminating the benefit as of June 30 is not being presented for public information."
DeMaio said it's not fair that taxpayers have to fund the retiree healthcare for city employees on top of paying for city pensions. He said San Diego can't afford this plan. Zapf agreed. She said the deal doesn't go far enough and that the possibility the city may be taken to court if it didn't come to an agreement with the unions on retiree healthcare is not a good enough reason to enter into a 15-year contract. Supporters point out the city can reconsider the deal beginning in 2014.
"This is all about the threat of lawsuits," she said.
Supporters of the deal have acknowledged that the threat of ongoing litigation was an incentive in reaching a deal. City Attorney Jan Goldsmith has said he can't guarantee the city would win in court and that San Diego has an obligation to negotiate in good faith with the unions.
He said he believes San Diego's past experiences with MP1 and MP2, the notorious agreements that lead to the underfunding of the city's pension, have made some lawmakers gun-shy about new agreements.
"Just because it's an agreement and we've made bad ones in the past, that's not enough, in and of itself, to shy away from any future ones. We just need to be careful," he said.
Goldsmith said it's a good thing to ask questions. And the public will get to do just that. The mayor's office will hold two public information meetings on the agreement before the council has the second and final reading of the plan at the end of May.