San Diego begins to unwind illegal pension reform measure
Speaker 1: (00:00)
City workers who were hired without pensions may be in store for some retroactive relief. The San Diego city council has approved an agreement to restore pensions for nearly 4,000 city employees hired after proposition B eliminated city worker pensions. Prop B was overturned by the state city Supreme court in 2018. The agreement with this city's municipal worker's labor union is the latest in a years' long saga over city worker pensions, and how to unwind the effects of the city's pension reform. Joining me is KPBS Metro reporter Andrew Bowen, Andrew. Welcome.
Speaker 2: (00:40)
Speaker 1: (00:41)
Can you remind us what prop B was and what it did to change city workers' benefits
Speaker 2: (00:47)
Proposition B was a citizen's initiative from 2012 and the main point of the measure was to exclude future city employees from the pension system. People may remember the pension crisis that peaked in San Diego in 2004, 2005. Uh, the city had promised very generous pensions to its employees, but chose not to fund those, uh, increases to their pensions. Uh, the assumption being that the stock market would just pay for them. Uh, and the city wouldn't have to pay any of its own money. This, uh, when this all came crashing down, it really decimated city budgets and the city still is pay paying off all of the debt that it incurred from, from those bad decisions. The unions, uh, representing city workers agreed to pay freezes. They agreed to other cuts to their benefits, but a group of conservative activists in San Diego thought that all of those agreements didn't go far enough and that the city actually had to abandon the idea of Gar teed retirement, uh, or pensions altogether. So, uh, all the newly hired employees except for police officers after prop took effect got instead of a guaranteed pension, a 401k style retirement account, where the risks of actually losing money falls on the employee rather than, than the employer.
Speaker 1: (02:03)
Why was property overturned by the court?
Speaker 2: (02:06)
The state Supreme court ruled in 2018 that the city had violated labor laws when the city placed prop on the ballot. What this law requires is that the city has to, when it wants to make cuts or changes to, uh, pay or benefits to, um, were workers represented by unions. It has to negotiate with those unions first, before making the changes. The ambiguity came from the fact that prop B was a citizen's initiative, uh, regular citizens gathered, uh, signatures and, and placed on the ballot that way. And the supporters argued that it wasn't the city government that was taking these benefit way. It was actually the voters, but the justices ruled that, uh, then mayor Jerry Sanders played such a central role in crafting property and ultimately getting it passed that it was really a citizen's initiative in name only. And, uh, the city has since been ordered to make all of the employees that were impacted by prop B whole. In other words, uh, make it as if prop B had never passed for those people in terms of their retirement benefits.
Speaker 1: (03:12)
Okay. How much is that going to cost the city?
Speaker 2: (03:15)
Well, uh, the estimates are that if eligible employee opts into the pension system, the cost could be roughly 80.7 million that, uh, for, for a frame of references, more than the city spends on its entire library budget in, in a single year. Um, but in the grand scheme of things, it's actually less than 2% of the city's total spending in a year. So this could have been much worse. The amount that the city will ultimately have to pay for all of this also depends on how many employees opt to actually opt into the pension system, uh, versus how many will choose to stick with their current retirement plans. So we won't know the, the final number of how much all of this is costing for quite so on time. And where is
Speaker 1: (04:01)
The money gonna come from? I, is this going, going to create a deficit for San Diego,
Speaker 2: (04:06)
For those employees who do choose to opt into the pension system, they will be required to use their, uh, retirement funds, their for sort of 401k style accounts to purchase credits into the system. And the city will then to make up whatever difference there might be. Uh, so, so that sort of softens the blow a bit, but, uh, you know, ultimately the, the money that the city does owe will have to come from somewhere else in the budget, like the pension debt that the city has been paying off for many, many years. This just means that there will be less money for all of the city's other needs and priority.
Speaker 1: (04:41)
Now are city leaders saying anything about lessons learned from this whole debacle?
Speaker 2: (04:48)
The biggest lesson that I think the city has learned is that it cannot ignore its obligations under state labor law. If the city wants to cut benefits, uh, from employees or pay or, or impose any kind of new require, it has to sit down with the unions first to see if they can come to an agreement. Uh, and you know, and, and rather than just imposing it without the union's consent or, or, uh, letting them have a say, they may not come to an agreement. In fact, this just happened very recently with the police officer's union, the city declared an impase after negotiating them over the vaccine mandate. And it imposed that mandate over the, the police union's objections, but they have to at least try negotiations. First. The other main lesson is that if the city wants to hire qualified workers, uh, higher and retain qualified workers to do the jobs that keep the city running, it has to offer competitive of pay and benefits. It's very well documented that the city's turnover rate, uh, employee turnover rate went up after prop B took effect, um, because, uh, employees could find better pay or benefits in other cities or counties or even on in the private sector. So, yeah, and, and the city just had this chronically high vacancy rate in part, because of all of these issues.
Speaker 1: (06:04)
I've been speaking with KPBS, Metro reporter, Andrew Bowen, Andrew.
Speaker 2: (06:08)
Thank you. Thank you, Maureen.
The San Diego City Council on Monday voted to offer guaranteed retirement income to thousands of current and former city employees who were unlawfully excluded from the pension system, after a string of legal defeats for supporters of the 2012 ballot measure Proposition B.
The California Supreme Court ruled in 2018 that the measure, which replaced pensions with 401(k)-style retirement plans for all new city employees except police officers, was illegally placed on the ballot. State labor laws required the city to negotiate with its employee unions first before changing their retirement benefits, the justices found.
It took several subsequent court battles to finally reach Monday's action, which began the process of remedying the city's mistakes. All employees hired between July 20, 2012, which Prop B took effect, and July 10, 2021, when it was officially invalidated, will have the option of either sticking with their private retirement accounts or using those funds to buy into the pension system.
The city must also pay a 7% cash penalty to its employees impacted by Prop B. City officials estimate the total cost of undoing the measure could reach $80.7 million, though it will almost certainly be less depending on how many employees opt to stick with their current retirement plans.
Monday's actions covered only two of the four city employee unions covered by the invalidation of Prop B — those representing white and blue collar workers. Unions representing firefighters and deputy city attorneys are still in talks with city officials over how those employees will be dealt with.
Councilmember Vivian Moreno called Prop B a "disaster" and said the supposed savings promised by its supporters never materialized.
"In fact, the opposite happened," Moreno said. "The city began to have major problems in recruiting and retaining city employees because we couldn't offer competitive benefits. That means hundreds of positions sat vacant, which had the effect of service levels decreasing for city residents."
Councilmember Chris Cate, the only sitting councilmember to have publicly supported Prop B, acknowledged he and his allies had lost the legal battle and the city had no choice but to comply with the court's orders.
"We need to move on, we need to move forward and (make) the best decision for residents, taxpayers and our employees," Cate said.
Councilmembers Marni von Wilpert and Raul Campillo both recused themselves from Monday's vote because they previously worked in the City Attorney's Office and would be covered by future actions unwinding Prop B for deputy city attorneys.