How Much Can San Diego Save By Freezing Pensionable Pay?

How could a proposal to freeze city employees' "pensionable pay" affect San Diego's more than $2 billion pension liability? KPBS Political Correspondent Gloria Penner provides her analysis of the proposal. Plus, Vince Mudd, one of the people behind the failed Prop. D ballot measure, and Councilmember Carl DeMaio share their thoughts on the idea.

Guest

Gloria Penner, KPBS Political Correspondent and host of Editors Roundtable and San Diego Week

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MAUREEN CAVANAUGH: I'm Maureen Cavanaugh, coming up on These Days, the new idea to bring down the City of San Diego's crushing pension obligation is designating a freeze on city workers' pensionable pay. KPBS political correspond Gloria Penner is here to explain what makes pay pensionable and how likely it is this change will be enacted. And then California's high speed rail plans are dissed by the venerable Washington post. We'll consider whether they have a point. That's all ahead this morning on These Days. First the news.

I'm Maureen Cavanaugh and you're listening to These Days on KPBS. In his state of the city address last week, San Diego mayor, Jerry Sanders, focussed on pension reform, calling pensions for most city workers outdated and a destabilizing force for San Diego's budget. The mayor expanded on his proposal to replace pensions for most future city workers with a 401K style retirement plan but he also embraced an idea that may result in more immediate savings for the city, that is freezing city workers' pensionable pay. Here to explain the proposal and what it would change about the city budget is my guest, KPBS political correspondent, Gloria Penner. Good morning, Gloria.

PENNER: Good morning, and I'm ready for this, Maureen. I think you've explained it already.

MAUREEN CAVANAUGH: No. No, no, not at all. And we invite our listeners to join the conversation. Are pensions outdated? Or is the city trying to fix its budget problems on the backs of city workers? Give us a call with your questions and your comments. The number is enemy numb. That's 1-888-895-KPBS. So Gloria, you must explain what is pensionable pay.

PENNER: Well, I'm going to. I'm gonna go at it a little bit backwards. Those pension benefits that have already been earned by city workers cannot be taken away from them. And they are mushrooming, they're getting bigger and bigger. And so the leadership in San Diego, we can talk about who the leaders are later, they want to come at it from the other end. They want to center there'll new tactic on what is called pensionable pay. Now, what pensionable pay is is that portion of what the worker earns has pension benefits attached to it. And how much that is out of each salary extends on the salary. For example, there may be bonuses in there, and maybe bonuses don't have pensions coming with them. Or there may be some kind of incentive pay. There was one level of pay for multilingualism. And at the moment, that does have pension benefits coming along with it 234 some indicates. But maybe that would be excluded. So if it's got pension benefits locked in with the pay, that is pensionable pay. And right now, the city has more than $2.1 billion, billion, B, in pension debt. And the payment each year that the city must make varies: But next year it's gonna be $231 million. And that's about 16 percent off our day to day billion. Our day to day budget's a little over $1 billion, so two hundred and 31 million is establish percent. Steams like more than that to me, but that's what the calculation is. So the only way to reduce that, really, is to reduce the amount of pension that the city puts into the coffers. And the way they're gonna do that, they hope, is with this pensionable pay which they will cap. They'll say only a certain amount of the salary can be related to pensions.

MAUREEN CAVANAUGH: So that doesn't necessarily mean that the city workers' pay would be frozen, but only that amount which the pension would eventually be based on. So they could get extra bonuses and extra frees, as you said, for multilingualism, as you said, their actual salary could increase without that amount going toward the pension increasing.

PENNER: Okay. And Carl DeMaio who really is spearheading this along with a few other people, he came up with an idea of shared savings so that when a department within the city, for example, saves, and he doesn't say how that saving would occur, but if there is a saving there, the employees could actually share in that savings, and this would be added onto their salary, but there wouldn't be any pensions associated with it. Interesting.

MAUREEN CAVANAUGH: Well, how did this idea come up? Who came upon with it.

PENNER: Actually it was part of Carl DeMaio's roadmap to recovery. Last fall, if you will, as the city was starting to wrestle with the fact they had this structural deficit, and Proposition D had been put out with all the conditions associated with that, Carl DeMaio had this as part of his roadmap to recovery. And it's bye-bye embraced. I mean, it's been embraced by the city attorney now who issued a legal opinion saying, yeah, that's okay. And it looks like the San Diego City Council and even the mayor are on board on this. In fact, Carl DeMaio's website says something to the effect, and I'm paraphrasing, that this of -- this idea of pensionable pay is now the center piece of the mayor's concept of limiting pensions in the City of San Diego.

MAUREEN CAVANAUGH: You spoke with counsel man DeMaio about this. What'd he have to say?

PENNER: I did. I spoke to him, and I asked him what his motivation was behind this proposal. And this is what he had to say.

NEW SPEAKER: Their pension will be calculated based on a frozen based salary. A total maximum amount for the next five years. We looked at how city employees in essence work the system to not only get their pension based on their base salary but there are things called special pays, and add ones, that are used to spike the pension calculation. What we want to do is prevent that from happening, freezing in today's dollars the pensionable pay for the pay outers of pension benefits for the next five years. Not only does it reform pensions and allow us to save money on the pension side of the ledger, but it will also allow us the flexibility to continue to provide rewards, financial rewards, better take home pay for our city employees.

MAUREEN CAVANAUGH: And that is Councilman Carl DeMaio explaining his idea about pensionable pay and freezing the amount of pay that city workers receive that can go towards their pension amount. Now, we are taking calls at 1-888-895-5727. Let's take a call from chuck in La Jolla. Good morning, chuck, welcome to These Days.

NEW SPEAKER: Good morning thanks for taking my call, Gloria.

PENNER: Yes.

NEW SPEAKER: In all the discussion of the city employees' pay, one thing that I haven't heard is if this -- and I've been told this, and maybe your speakers can confirm it, do the city employees pay into Social Security? And if they don't, well, how does the pension reform affect that? And I'll take your answer off the air. Thank you.

PENNER: Sure, and this is when I know. I know that the city workers now do not pay into Social Security. That years and years ago, Social Security was Barted away when this new pension system came into effect. I actually spoke to Carl DeMaio about that a couple of days ago when we were talking about 401K plans. You know, a 401K is where you put money into it, and to a great extent, you decide where that money is gone be invested. Of but that can be pretty risky, it can be pretty chancy. You put it into a 401K, and if the 401K goes downhill, you've lost your retirement income. And so I said what? Don't you need a base of Social Security to at least know that they're gonna get something when they retire? And he said that there would be a mechanism whereby the amount put into 401K would be tied to something saver than just any kind of investment. But he didn't rule out that Social Security might be able to come back in for those who opt for the 401K. But right now, there's no Social Security. So thanks for your question. And I'm glad I had an answer.

MAUREEN CAVANAUGH: Let me take another call. Ray is calling from San Diego. Good morning, Ray, and welcome to These Days.

NEW SPEAKER: Yes, good morning. A very quick question. For city workers, does that include the fire and police?

MAUREEN CAVANAUGH: Fire and police does this include fire and police.

PENNER: Yes, yes, it does include fire and police. And interestingly enough, I put out calls to both the firefighters' union and the police officers' association, which is their union, and I spoke to the president of the union, Brian Marvel, and Brian marvel was pretty clear about how he felt about all that. He said it's really a matter of trust that there is something on the books already, there is a settlement that was done with the police officers' association on something called what is compensation, and that it's a settlement because the city said, okay, we're gonna settle on this, and we're not gonna fight it anymore in court. And he sent over a letter from the attorney who represented the police officers' association, basically saying to the city attorney, you know, this violates -- this contradicts that assessment which was called the Corbett judgment. And thus we are basically saying that you really need to rethink this before you go ahead with the whole idea of the -- the pensions being linked to a capped amount on the salaries. Of.

MAUREEN CAVANAUGH: Now, ray had an additional question, and I would imagine this falls under the heading of to be negotiated, and that is, does a policeman or a fire man's over time take-home pay also go into a pensionable pay cap or is it something additional or -- that's -- those are the kind of details that have to still be worked out.

PENNER: Yes, assuming that this goes forward.

MAUREEN CAVANAUGH: Right. Uh-huh.

PENNER: And I have to tell you that there is some concern among the various leaders of the unions. Of some say they're confused. They're just plain confused and they don't understand what's going on. And then the word trust comes up a lot. Of so there are contract, that have already been negotiated with some of the unions. Some are a year or two years old. And what would this do to the contracts? The attorney general, Jan Goldsmith, wants to have --

MAUREEN CAVANAUGH: City attorney.

PENNER: I'm sorry, what did I --

MAUREEN CAVANAUGH: Is it attorney general? City attorney.

PENNER: Oh, I keep elevating him. No, Jan, I'm really not. He has come forward with something called a global settlement. And this would include pensionable pay. Of it would include settling all of the many lawsuits that are out there, having to do with the pensions, it would bring the whole thing together and save the money -- save the city, he says, a great deal of money. And so, yes, the unions are involved. What steps they're going to take at this point, I don't know.

MAUREEN CAVANAUGH: Now, Gloria, you also spoke to local businessman, Vince Mudd, about this proposal. Vince was one of the people behind the Prop D budget proposal [CHECK AUDIO] which they did, I believe in 2009. Of what did he say about this idea?

PENNER: Yeah. And Vince does have some gravitas here, because he's someone that was brought forth by the mayor to head up something called the fiscal sustainability commission. And he's also now the head of the -- the chairman of the Chamber of Commerce, the greater San Diego regional Chamber of Commerce, and I asked him about the whole idea of pensionable pay, and this is what he said.

NEW SPEAKER: I don't disagree that the City Council has always had and should always have the right to figure out what it's going to pay its workers. They have that right. They've always had that right. I mean, actually nothing's really changed. They have had that right. As a matter of fact less than, what? Two and a half years ago or three years ago, they did in fact pass a wage concession of up to six percent on some employees. [CHECK AUDIO] it's when everybody's done in the private sectors of it's what everyone has done in the nonprofit sector. Because there's only so much money coming in, and somehow you have to wind down your expense and your liability.

PENNER: And you know, there are those who would agree with Vince Mudd and say all the City Council really has to do is sit down and make a decision. And the counsel itself can make a decision on capping salaries. Of course, the unions would say, well, not if you're in negotiations with us. But within the law, as far as I can tell from what I've read and what I've heard, they can actually do that.

MAUREEN CAVANAUGH: We are taking your calls about this idea of pensionable pay freeze, and been trying to whittle down the City of San Diego's pension obligation, 1-888-895-5727. Daniel is calling from Clairemont. Good morning, Daniel, ask welcome to These Days.

NEW SPEAKER: Thank you very much, Maureen for this, and Gloria for all your reporting work.

PENNER: Thank you.

NEW SPEAKER: I think one of the big things that people don't understand, and this is why I'm the only person who sued the City of San Diego in 1995, 1999, I mean, is because if a City Council members' elected officials that have to keep boosting the pension so they can get a higher pension because under California state law, the only way an elected official can get a higher pension is if it's higher for public safety personnel. Because they cannot go higher than public safety personnel.

MAUREEN CAVANAUGH: Okay, well, Daniel thank you for the comment.

PENNER: Well, I think that's an interesting comment. I think that there have been members of the City Council who have said I'm not gonna take my pension. I think the mayor has said [CHECK AUDIO] [CHECK AUDIO].

Privatizations to cap or decrease the city's current pension obligations. He's talking about settling all major litigation, and he's talking about creating a new voluntary 401K style retirement plan. I --

MAUREEN CAVANAUGH: For new city employees.

PENNER: For new city employees.

MAUREEN CAVANAUGH: Right, right.

PENNER: So my sense is that, once again, this will have to be negotiated by the unions. The unions are certainly part of it. Of they're not gone crop out of the conversation. But I think that if there is the impetus, and if there really is unanimous support from the council and from the mayor, and from the city attorney, it could get done. Now, what Carl DeMaio is saying, and of course, you know, Carl has filed his intent to run for mayor. So he's very much in there. When he's saying is that if this doesn't move because it's being stymied by one almost or another, whether it be the unions or the city itself, that he's gonna take it straight to the voters. Sounds very Jerry Brownish, doesn't it? S you know, if the city isn't gonna work it, I'm gonna have the voters take care of it. And so we might see a very interesting election year coming up next year.

MAUREEN CAVANAUGH: Let's take another call, Gary is calling from San Diego. Good morning, Gary, welcome to These Days.

NEW SPEAKER: Yes, ma'am, thank you for taking the time to speak with me. I'll keep it brief. My thing is that we are with the state, the City Council is always talking about they want to cut the budget, cut the budget. Let's start with all those top heavy City Council members we got. Why do we need [CHECK AUDIO] two districts and if they don't make that contract, their jobs on the line, see how they like it.

PENNER: Well, you know, we have eight City Council members now, and you are right that a ninth one would be part of the redistricting when the census is all taken care of and they carve up the districts and give them fewer numbers of individuals per district. There are several ways of looking at that. Unrepresented people, especially ethnically identifiable people in some distribute, might get someone who better represents their needs, that's one reason to have nine. Another reason is that you have fewer people in the district so you theoretically can better represent them. Right now, the districts have grown as the population has grown. And so what you have is one council member representing lots and lots more people than, let's say, that person did 15 or 20 years ago. Council members don't make all that money. All that much money. What? They were somewhere around 75, 80000 of that's significant for somebody who's earning 1250 an hour, but it's not all that much. Where the money comes in is how much they are paying their staffs. Now, there you'll see some money extended. Some of the top people on their staffs are earning the six figures.

MAUREEN CAVANAUGH: Right.

PENNER: And they're adding to their staffs in some cases. So yeah, I mean, if they all took a pledge and say I'm gonna limit the salaries of my staffs, boy, am I gonna be popular. Or I'm going to limit the number on my staff, you would see some smaller numbers coming out in the budgets.

MAUREEN CAVANAUGH: A final question from bill in Escondido. Good morning, bill, welcome to These Days.

NEW SPEAKER: Hi, my question is that -- or comment is that I'm retiree of la sera, which is the Los Angeles county employees' retirement system, and we're solvent as far as what the, you know, what the fund has to pay out to retirees.

MAUREEN CAVANAUGH: Right.

NEW SPEAKER: And so my question is, why is it that the San Diego retirement system is insolvent and they're having to pay these large amounts to stay solvent?

MAUREEN CAVANAUGH: That's a great question, bill. And it's a long answer.

PENNER: I love it, you're digging into my history. It all started in 1996, Maureen of how much time do i have?

MAUREEN CAVANAUGH: Not much.

PENNER: Not much. Okay. In 1996, the city needed some money. They were going to host the Republican National Convention. They needed to pay over time, and all that kind of stuff. So an agreement was made whereby the city could pay less into the pension fund in return for higher pension benefits. And that was the beginning. That was 1996. In 2002, the City Council at that time, at the advice of the city manager, confirmed those higher ratings for the pension fund and actually one upped them a little bit. So we had two years when additional benefits were granted by the City Council into the pension fund. And that was the beginning of what we now see. Then of course we had, you know, the economic slow down, so we had problems in terms of what the investments were bringing in. There was a point, and I don't know how much it is now, where pensions were vested at eight percent. Hey! I'd loaf to have my money invested at eight percent. But there was no eight percent out there.

MAUREEN CAVANAUGH: Right.

PENNER: Yeah, so there's a lot involved here. Why don't you sit down with me some time, Brian, and I can tell you the whole story?

MAUREEN CAVANAUGH: Before we leave, Gloria, you did speak with councilman Carl DeMaio about another topic, and that is the proposal to eliminate redevelopment agencies.

PENNER: Oh, you talk about a hot topic. Do we have time to listen to what he had to say?

MAUREEN CAVANAUGH: Yes we do.

PENNER: Okay, yes, well, you know, you can't talk money and politics these days without looking in the direction of governor Jerry Brown's proposals to eliminate redevelopment agencies responsible for building our downtown. And maybe responsible for building a Chargers stadium. And so this is what he had to say about Jerry Brown's proposal.

NEW SPEAKER: I think what it does is it shifts the problem to our local governments. I would rather see the governor do what I proposed here in San Diego. Focus on the costs of services starting with pension reform, looking at outsourcing over competing state services, looking through all the labor contracts the state government has with the various labor unions to find how can we reform compensation packages down to more appropriate levels in line with the local labor market in each of the regions of California? Unfortunately what's chose to do was gut and cut services which will affect the most needy of Californians, and he also chose to raid local government moneys such as the redevelopment agencies.

PENNER: And we really shouldn't drop away from all this without saying that there are other ways to reduce the budget deficit in San Diego for the next fiscal year. I mean, there are things like laying off workers. You can do that. Like shutting down parks and libraries. You sure can do that. You can cut expenses by outsourcing city jobs. I interviewed council president tone I young last week, and he said he'd like to see the city golf courses and the city run airports turned over to the private sector. Of and then there's that favorite of so many people, charging for trash collection. So there are other ideas as well.

MAUREEN CAVANAUGH: Well, that's fabulous. And I'm sure that we're gonna talk about this over and over and over again. But Gloria, thank you so much.

PENNER: You're welcome.

MAUREEN CAVANAUGH: And I've been speaking with KPBS political correspondent, Gloria Penner, she is host of Editors' Roundtable on KPBS FM and San Diego week on KPBS television. Coming up, we'll hear from skeptics and supporters of California's high speed rail project. That's as These Days continues here on KPBS.