Mayor Calls To Eliminate Defined Benefit Pensions, Streamline City Services

Mayor Jerry Sanders released his plan last week for reducing the city's structural deficit by 2012. We talk to Reporter Katie Orr about the key elements of the mayor's budget plan. Why is the mayor backing a ballot initiative to eliminate defined benefit pensions for new hires? What are Mayor Sanders' ideas for streamlining the city's services?

Guest

Katie Orr, KPBS Metro Reporter

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MAUREEN CAVANAUGH: I'm Maureen Cavanaugh, and You're listening to These Days on KPBS. Proposition D has gone down to defeat, but mayor injury Sanders says he's still determined to fulfill his promise to eliminate San Diego's chronic deficit, his newest plan was introduced late last week, and it introduces a number of restructuring and cost cutting reforms, but the most ambitious cost saving proposal has to do with San Diego's deficit boogie man, city worker pensions. KPBS metro reporter Katie Orr joins us to explain. Good morning Katie.

KATIE ORR: Good morning, Maureen.

MAUREEN CAVANAUGH: What are the key elements of the mayor's plan to reduce San Diego's structural deficit by the time he leaves office in 2012?

KATIE ORR: Well, we're really dealing with two things here. One, we're dealing with the immediate budget deficit that the city keeps having. Next year's is 73-million dollars. And then as you mentioned, we have a chronic problem that keeps causing those budget shortfalls of the city spends more money than it takes in. So the mayor has it find a way to deal with next year's gap. But he also wants to change the way the city operates, so that it will fix the structural budget deficit. And he's going to be doing that or proposes to do that by reducing government services, streamlining services, and the biggest, getting rid of the pension system, which won't provide any major immediate relief though.

MAUREEN CAVANAUGH: And as you say, these restructuring and especially the changes to guarantees pension benefits for new city hires is a long-term look at the city's finances. What are some of the specific prospects to eliminate the deficit for next year?

KATIE ORR: Well, a lot of it is what we heard all along during the Proposition D debate. The debate over whether or not to increase the city's sales tax measure. There will be cuts to services, reduced hours, parks and libraries, be cuts to public safety, the mayor says he'll still pursue the ten performs that were associated with Prop D. He's putting this budget together now, we we don't have any specifics to point to now, but we'll have a bigger picture in the spring when he comes forward with this budget.

MAUREEN CAVANAUGH: Is it fair to say that what was announced on Friday was more hooking to the future of restructuring the way San Diego spends its money.

KATIE ORR: Yeah, absolutely. A pension is one of San Diego's biggest expenses, it keeps getting bigger, this year, payment is gonna be about $230 million, and that's about a quarter of the city's billion dollar operating budget. You know, and people are angry with this, and the mayor says he doesn't want San Diego to keep having to deal with it. And he says that pensions just don't make cents anymore. And we have a clip from him.

NEW SPEAKER: The notion that all public employees should have a richer retirement benefit than the taxpayers they serve while now also enjoying comparable pay and greater job security is thoroughly outdated.

KATIE ORR: And the mayor does state that his plan to include pensions for new hires would not include public safety employees, that police and fire would still be eligible to receive pension.

MAUREEN CAVANAUGH: Okay. So basically what is this proposal, Katie, that the mayor is making? How would this -- how would the pension for city workers change?

KATIE ORR: What he wants to do is eliminate the pension for all new hires of he's already said you can't touch pensions for current and retired employees. Those are vested benefits, they have been in the Courts, the city has locked -- there are still some court pending -- cases pending. But the mayor believes it's a settled issue. And that's it. So he would change it for all income employees. Basically if you work in the private sector and your. Er contributes to your retirement, they likely do it through something hike a 401 K, the employer says he'll contribute a certain amount, and you contribute a certain amount, and then see how it does in the market. What the city employees have is a defined benefit program, and that means they are guaranteed a monthly payment from their pension, and if the market dips and doesn't cover that, the city has to make up for it. And that's what costs the city a lot of money. So the mayor's plan would get rid of that defined benefit program and implement a defined contribution plan.

MAUREEN CAVANAUGH: Now, do we know, first of all, how does the mayor want this to happen? Does this have to be on the ballot?

KATIE ORR: Yeah, the mayor wants it to be on the ballot. He and counsel man Kevin Faulkner said they would lead the initiative to start putting signatures to put it on the ballot. They don't know exactly when that will happen because they're not sure when the next regularly scheduled election is, and the mayor says he doesn't want to hold a special election because it costs so much. So they will wait and see when the next regularly scheduled election comes up, and it will be some time in 2011 or 2012.

MAUREEN CAVANAUGH: Now, do we know how much this could actually save the City of San Diego.

KATIE ORR: We don't know that yet because it would only affect new hires. In the short term, maybe a couple million dollars or so as they hire new people, if this is approved ultimately, but if the approved, it would be decades before the city saw significant savings from this.

MAUREEN CAVANAUGH: So the mayor seems to be saying that the whole idea of allowing city workers to have these guaranteed pensions because they are paid less than -- private sector employees issue that's outdated. Of but I'm wondering do some people still think that these guaranteed pensions are crucial to maintaining a high quality of city workers?

KATIE ORR: Well, they do. And you know, when you first look at it, people might say, well, I have a 401 K, so what's wrong with the city workers having a 401 K? But the thing that's different about San Diego is that in the 1980s, it opted out of the Social Security system. Meaning if you or I retire with our 401 K, we get a supplement from Social Security. City workers don't get that because they haven't been paying into it. So people like Laurena Gonzalez with the San Diego and Imperial County's labor council says that's the problem, because the city workers don't have the same safety net that you or I might have. Here's a clip from her.

NEW SPEAKER: I can't imagine that anyone would want seniors to live with only a 401K, when we saw during the recession what can happen to individual 401Ks, and if you don't even have the safety net of social security, what that can mean for our seniors.

KATIE ORR: Gonzalez questions whether Sanders' plan is even legal, though the city attorney says he believes it is. And the IRS and city attorney will have to weigh in on the plan at some time too.

MAUREEN CAVANAUGH: So that as you say is in the long term for San Diego. I think you said it might take decades for us to see exactly how much might be saved for the city. What elements of the recently failed Prop D ballot measure would the mayor still like to see the city pursue and could those reforms actually generate any quicker revenue for the city?

KATIE ORR: Well, the mayor says that he wants to move forward with all of those ten reforms that were associated with Proposition D just because the sales tax increase didn't pass doesn't mean the city can't make those reforms and a lot of people at the city are saying they want to go forward with those too. Things like reducing the retiree healthcare liability, which is a huge expense for the city, outsourcing some city services of the projected savings though is really up in the air, and that was one of the criticisms people had of these reforms during the election. They didn't have any specific dollar value associated with them. So how many departments at the city you can out source, how much they reduce the healthcare liability, those things have an impact on how much money the city will save.

MAUREEN CAVANAUGH: In looking at some of the reforms that mayor Sanders released on Friday, exploring potential revenue streams by considering franchising operations at golf courses, airports. Do we know what that means.

KATIE ORR: Basically seeing if they can get somebody else to run those services, and seeing then if maybe the city then can strike an agreement with whoever runs these to get some revenue from these golf courses or these airports without having to pay to maintain them. It's just another way for the city to look into different revenue sources. As we say, the structural budget deficit, the city does not mean enough revenue to cover its cost, and this is just another option the city is considering to see if it can increase its rev flew.

MAUREEN CAVANAUGH: And also another topic of these reform measures the mayor introduced is restructuring city government, merging departments, eliminating redundancies, didn't we hear about the time of Prop D that that had already been undertaken by the city, and therefore that's why they needed an additional source of revenue from that extra sales tax?

KATIE ORR: Yes, they have tried to stream line government, they said they have done this, but they're gonna keep doing it hoar more. They're gonna keep stream lining. I asked him this at a news conference, what services he thought maybe the government should be providing. He said in the instance of the city plan update it is right now, the city handles those, and he thought that that's somebody that neighborhood plans objection do. Does the city really need to spend its time and money investing in these community plan updates? He didn't get a lot more specific than that. That was sort of the example, but as they go forth, you know, as he makes his budget, these are things he said, his objective, that he's going to be considering in drafting his budget?

MAUREEN CAVANAUGH: Well, in the short term, looking at the 73-million dollar deficit that San Diego will be facing next year, what are the chances that public safety will suffer cuts.

KATIE ORR: The mayor says they likely will. Public safety spending on police and fire make up half of the general fund billion. So when you're trying to cut $73 million, it would be difficult to do that without cutting public safety. Again, he doesn't know exactly where those cuts will come yet, but the police and fire have given a list of suggested cuts to the mayor's office, and he will be considering those. Of what will be interesting to see is whether or not the council will vote the port tax to members of public safety. There have been council member who have come out and said I will not do that when it comes to public safety, but when it gets down to the nuts and bolts of the budget, actually filling that $73 million gap, it might be difficult to do that without affecting public safety just because it makes up such a large percentage of the budget.

MAUREEN CAVANAUGH: Councilman Carl DeMaio has introduced a budget proposal of his own, are the core elements of this plan, do they and the mayor's just recently announced plan, are there any similarities between the two. ?

KATIE ORR: Had, they both call for pension reform. I asked 34 DeMaio what he thought of the mayor's plan, and he said he liked the idea, but he didn't think it went far enough. 'Cause like I said, the savings won't come for 25, 30 years. Counsel man DeMaio actually wants to lower cost in the short term by reducing employees' pensionable pay. Meaning they would be eligible for a smaller benefit when they retire because their pay has been reduced. He would also like to eliminate the retiree healthcare system which is, you know, a multibillion dollar liability for the city right now. And again, he says he likes the man's idea, he is all for reforming the pensions, but he just doesn't believe it goes far enough.

MAUREEN CAVANAUGH: So councilman DeMaio's plans would actually take benefits away from people who are presently expecting them.

KATIE ORR: Yes, yes. Reduce their pay and by reducing their pay would reduce the benefit they would receive when they retire.

MAUREEN CAVANAUGH: Now, we have two proposals, not counting counsel man DeMaio's budget right now. We have mayor Sanders proposal right now for this long-term savings plan, and you talked about something coming up in the Spring. Is that one we're going to be able to hear about possible public safety cuts.

KATIE ORR: Yes, that's -- April is when the fiscal year budget for 2012 will be introduced. And that is where we will see the specifics of whether library hours will be reduced, of whether more fire engines will be burned out, if some police officers will be laid off. Everything else, reducing these 401 -- or reducing the pension,y eliminating it, implementing 401Ks, those are long-term projections for the city.

MAUREEN CAVANAUGH: And as you said, especially the eliminating of the guaranteed perceptions for new city hires, that is gonna go on the ballot in some unidentified time in the future.

KATIE ORR: Right. If they can gather the signatures, yes. It will go -- the voters will see it in the next year or so. But, you know, it's gonna be a fight. I don't believe that the unions are about to let this benefit go away without fighting to keep it.

MAUREEN CAVANAUGH: Katie, thank you so much for explaining this to us.

KATIE ORR: Thank you, Maureen.

MAUREEN CAVANAUGH: I've been speaking with conscience metro reporter, Katie Orr. And if you have comment, please go on-line, conscience.org/These Days. Of coming up, we'll talk about the challenger future in San Diego as These Days continues here on conscience.