Mayor, Councilman Faulconer Propose Major Change To City's Pension System

Mayor Jerry Sanders and City Councilman Kevin Faulconer recently proposed a ballot measure to switch new non-public safety workers from a guaranteed pension plan to a 401(k) retirement account. Coucilman Faulconer and the president of AFSCME Local 127 talk about how the proposal could impact the city's budget deficit and workforce.

Guests

Kevin Faulconer, San Diego City Councilman representing District 2

Joan Raymond, president of local 127 of the American Federation of State, County and Municipal Employees (AFSCME) International Labor Union

Read Transcript

CAVANAUGH: It looks like a proposal that would eliminate guaranteed pensions for most new hire city workers in San Diego could be on the ballot next year. The plan was formally announced last week by mayor Jerry Sanders, and the City Council machine Kevin Faulconer. [CHECK] eventually retire. And instead, have those workers rely on Social Security, and 401K savings plans of the change would not ally to police, firefighters and life guards of the idea is it the late of the in an effort to halt the city's mounting pension costs, which are squeezing the city budget. But there are many critics both sides of the isle who say the plan is not the most effective or the fairest way to resolve San Diego's pension burden. I'd like to introduce my guests, one of the proposal sponsors is Kevin Faulconer.

CARLESS: Good morning, thanks very having me.

CAVANAUGH: Speaking for city workers, Joan Raymond is president of hole 127 of the American federation of state county and municipal employees, also known as ASME, the international labor union, and good morning Joan.

RAYMOND: Good morning, Maureen. Thank you for having me.

CAVANAUGH: Let me start with you, councilman Faulkner, if I may. [CHECK] when it comes to trying to get city pension benefit pay outs in some sort of a -- you know, to bring them down to where the city feels like they can handle handle it. Why are you introducing this measure now.

CARLESS: Well, Maureen, I think it is aggressive, it's tough medicine, but it is necessary for the City of San Diego. And you've looked at what our explosion of pension costs has been over the last several years, and what it would continue to be if we did not reform this system, it becomes unsustainable in order for us to provide the city services that all of us in all of our neighborhoods count on, whether that be libraries issue street repair, rec centers, police and fire, etc. [CHECK] 401K style system is good enough for virtually every priority sector business in the country. We believe it's the right thing to do for city employees as well. So not only if we have come out with our 401K proposal, but also you know [CHECK] it's aggressive. But I think we must control these run away pension costs in the City of San Diego, this is a fair way to do it. But at the same time, it's fair to taxpayers who have been burying the brunt of this explosion in pension costs and are demanding change. We think it's the right way to go about it. The mayor and I have been working together with a variety of groups over the last self months. And we're gonna put this on the ballot in June, and I'm confident, Maureen, that voters will support it.

CAVANAUGH: Give us an idea of what projected costs the city might have to face if we don't have a measure like this. And how much you expect this measure will save the City of San Diego.

CARLESS: If no changes were made, you could look the potential costs up in the 20, 25 of pension costs close to $500�million a yore, half a bill $81. We need to change that curve. Our proposal which we've outline in the first five years ark hone saves a hundred and $40�million for the City of San Diego. And that is a hundred and $40�million that we will be able to put into neighborhood services. Long-term, 29�years, Maureen, we will save a billion and a half dollars by making this very important reform. That's good news for San Diego taxpayers, and whether, you know, you talked earlier about by partisanship, and across the isle, I think wee gonna get strong support. People know we need to change this [CHECK].

CAVANAUGH: And just to be clear, this is potentially going to be on the ballot in 2012; is that right?

CARLESS: Yes. We are gonna be out collecting secretaries soon, and our goal is to have this on the June�2012 ballot.

CAVANAUGH: And why be public service workers, public safety workers, that is, police, firefighters, lifeguards, not included in this plan to eliminate guaranteed pensions? Well, several reasons, and one of which is the issue of retension and attraction. Particularly if you hook at our Moors in our police department where we had so many problems retaining qualified men and women, and great men and women that served our city several years ago, we think there is a defense with public safety. And so that's why we have excluded them from this proposal but have included them as part of the reforms that we're suggesting. And so in our measure, we have a pension cap for public safety that would be 80�percent, which would be the towerest in the State of California, and pension spiking, so I think a combination of what we're proposing is tough. But it's going to save us hundreds and hands of millions of dollars.

CAVANAUGH: Joan Raymond, let me bring you into the conversation, you're president of local 127 of the mesh federation of state county and municipal employees, ASME, tell us first of all what city workers are represented we ASME?

RAYMOND: We represent the but collar workers, the worker that is have their hands on their shovels, and are in the man holes fixing [CHECK] where their hands on the work.

CAVANAUGH: So you've heard these -- this new ballot measure being proposed. Let me get your reaction.

RAYMOND: I think it's time to stop making the city workers scapegoats for the problems that they didn't create. We didn't raid the pension system, we dependent cause a global recession. And we don't have excessive compensation. Now, we've already taken the tough medicine. In 2009, we agreed to a new hybrid pension system that drastically slashed the benefits for our new employees, the employee benefits factor was slashed by 250�percent. And it was lotted by the mayor at that time as being a model for pension reform. Now, we have this new ballot measure coming at a time when there's a mayor's race going on with councilman Faulkner is one of the candidates. And under this new ballot measures, taxpayers are gonna be the losers here because they're gonna be locked into a Social Security tax, a payment of anywhere from 6 to 12�percent that they're not paying now. And the only one that I can see is gonna be the real winner on this ballot measure is the administrators of the 401K plans, the wall street administrators that charge fees for these plans. By closing off the silence to new hires, you're going to immediately have the city's annual required contribution pension system go up at a time when the city can at least afford it. So it does not solve the budget deficit problem.

CAVANAUGH: Let me ask you, councilman Faulkner, one of the criticisms, and I think we heard some of it there, about this proposed ballot measure is that right now, the city basically puts aside -- contributes 90�percent for new hire when is they come on board towards their pension. But with the combined Social Security am payments that the city is going to have to make, and the contributions to the 401K, that actually, that initial contribution for newly hired city workers might actually be larger.

DEFENDANT: Well, Maureen, any time you want to change the status quo, there's going to be criticism. But as we spent the last several months developing this measure, taking into account all of that, not only Social Security, but an employer match and running the numbers with an actual consultants, so these are real numbers, these have been vetted, and as I mentioned before, this plan in the first five years will save the City of San Diego $140�million dollars. So from my standpoint, we have to make changes to this. The status quo is unsustainable. And if we do not make this change, we are going to see a degradation of our neighborhood services, and I think your average San Diegan wants fair salaries, and they want a fair retirement. Why should city workers get a much generous retirement than the people that they're serving? I mean, that is the fundamental question that we're talking about here this morning.

CAVANAUGH: Indeed. And mayor Sanders spruced that almost sort of annide logical under pinning for this whole concept of stopping guaranteed pensions for new hired workers. And I -- and it struck me that since public employees should not have any better retirements than the people they serve, that was the statement they made, but most peel, who feel they have lousy retirement benefits, do you think that that should be the standard now?

CARLESS: Well, I think the standard has to be one that's fair and one that's sustainable. And as I mentioned before, for the vast majority of individuals, they have a 401K style system, where you know how much you're putting in, you know what your employer matches, and that should be, I think, the standard for city government. One of the biggest issues that we've seen in terms of our pension explosion, and that risk at stock market hos, etc, that's warred on the San Diego taxpayers. And it works, as I said, virtually everywhere else across the country, [CHECK] because it's sustainable, it's fair, but it also insures that you're able to plan out your expenses to make sure that you have money for the things that are most important in our neighborhoods.

CAVANAUGH: Joan, let me put that to you, if most people do have Social Security, and maybe a 401 K plan, why should city workers have more than that?

RAYMOND: Our workers do not have more than that. Our workers have a very modest retirement, and I think it's completely ludicrous that the mayor brings up that comment about not having better benefits than -- the people that are paying the benefits. Because the mayor and a big hundred thousand dollar per year pension as being in the police department. So nobody you know, gets a more benefit from retirement pension than the mayor does. We have I chart from ki-Ron that is a consultant that was paid to figure out what these cities' retirement system assets versus. Liabilities are gonna be into the future. And if you look at that chart, you will find that by the year 2041, it balances, and there's a hundred percent funding. So there's not perceptions are a long-term thing that people should look at. They shouldn't look at it as a snapshot. You have to understand that pensions are a long-term investment. And when you go to a 401K only and have a Social Security tax, then you won't have the tax payers ing from the investment gains as the stock market recovers, as it is starting to recover, the more the gains go up, the less the city has to pay. But when you go to the straight 401K, that's not going to benefit the taxpayers.

CAVANAUGH: I'm speaking with Joan rain, she is speaking for city workers, president of local 127 of the American federation of state county and municipal employees, and I'm also speaking with San Diego City Council man Kevin Faulkner, wee talking about [CHECK] in San Diego, replace that with Social Security, and 401K savings plans, and that's a ballot measure that if it gains enough signatures would be on the ballot in June of 2012. Let me talk a little bit about the provision in this measure that would eliminate the requirement that city employees must approve any changes to retirement benefits. Why is that provision in this proposal?

CARLESS: Well, I'll start with why is that provision in the city charter. And you're talking about section 143.1. Which, in essence, allows employees to have a veto if you make a notion and propose changes to retirement benefits. That is I section that is virtually unheard of in almost any other city in the country. We have put that in to eliminate that out of the charter because we believe, you know, if you -- for example, you look at the drop issue that we're doing with right now, we can negotiate that, you can make changes to it, and then in essence, you would have employee groups that would center a veto over making change to that benefit. We think that's an anachronism, it should not be in the charter, it prevents a lot of important reforms from going forward. This is why we've included it in this pension perform measure, as I said before, I think you look at every other city doesn't have this type of mechanism, and I think it's time to make that change in San Diego.

CAVANAUGH: And I'm wondering, Joan, do you think if indeed this retirement is eliminated that the more changes could be made to contracts with employees without employee approval?

CARLESS: That's possible. But the employees should have a voice in how the retirement system is changed because the employees are the ones that are making the contribute jobs out of any paycheck. We have been making the contributions all along when the city was not making their contributions because they wanted to put money towards the building of Petco Park or the expansion of Qualcom stadium. The employees were still making their contributions, thank God, and as far as vetoes go, City Councilman Kevin Faulconer just exempted his own staff from having cuts to the program. All of our workers have to take those cuts. But his staff was exempted along with the rest of the City Council. So --

CAVANAUGH: Would you like to respond?

CARLESS: Well, I think Ms. Raymond knows that all of my staff took a six percent cut, and she also knows that none of my staff are in the drop program. But I think she just outlined pretty effectively why you would remove 141.1 from the charter Maureen, is because you could have the counsel and the labor unions to negotiate something, and then at the same time it has to go to the employees to be approved. That makes absolute no sense to me whatsoever. And folks that have followed city hall politics for quite some time, have always scalped their head to say, why is this secondary process there? It makes no sense, and it is an extreme barrier to reform. I'm confident that we're going to get that out of there, and it's gonna allow us to fundamentally still have employee groups working with the City Council and the mayor, but not have this veto provision in there.

CAVANAUGH: Joan, city officials have been trying to negotiate with labor in an effort to reach a settlement to reduce pension costs, those talks haven't really progressed very much. What's preventing a setment from being reached?

RAYMOND: Well, we are actually already have taken a lot of cuts, and many significant deep cuts to our benefits, so there has been a lot of progress in the past. As far as the city attorney's try for a mediation in -- through a mediator, state mediator, we were delighted to go to the mediator's conference and we're hoping that some progress could be made. But unfortunately there was no proposal to respond to.

CAVANAUGH: We heard that talks hospital been very fruitful, and then a couple weeks later, Kevin, we hear this proposal. Is that in access to the fact that the talks about reducing the notions with the unions to reduce pension benefits or get some sort of more of a co-pay report really going very well.

CARLESS: Well, I'm a strong supporter of the process that our city attorney has outlined and established, and has asked all the unions to come to a table on a global settlement, entering this I think sos that are substantially equal, and that's separate discussions on retiree healthcare, those are important to happen. Separate and apart from that, Maureen, the mayor and I and others have been working on this proposal for the last several months because we know that San Diegans want to have an end, once and for all, to the pension wars. And we need to get out of the pension business. And the status quo is not serving the City of San Diego very well at all, and I believe that when voters have a choice on this in June of 2012, they are gonna say yes, let's establish a retirement system this is fair to city employees. But most personal, let's establish a system that is I benefit to taxpayers and will allow us to provide the services that we do. If we continue on this path, if we continue with pensions that eat up our general fund far into the future, we're not gonna have that type of future. That's why this change is critical, and that's why we must move forward on it now.

CAVANAUGH: Well, let me get your take on councilman DeMaio's proposal to freeze pensionable pay, and that would apply to public safety employees as well as other city workers, to basically make a cap on the amount of the salary that people get that could be used towards how much pension they ultimately receive when they retire. Let me get your take on that, councilman Faulkner.

DEFENDANT: Well, I haven't seen the proposal from my colleague yet, but I know that one of the theories of pensionable pay is is it legal, can you do it, how would that work? But we've focused on issue of a payment cap. We know it's legal. We know it will save money from day one. That is the approach in the mayor and I have taken. And I think it's an approach that we know will work, and most personal saves us money from day one.

CAVANAUGH: There are people who say that that freeze on pensionable pay would actually increase the amount of savings for the city. And do it more quickly than the proposal that you've just come out with the mayor. How would you respond to that?

CARLESS: Like I said, I haven't seen a proposal. We know what ours does, we know we have numbers that have been vetted and run by an act youry, and we know that in four [CHECK] a billion and a half dollars. Those numbers are real. That's gonna be real savings for the City of San Diego. And as we've worked to craft this ballot measure in conjunction with certainly attorneys that specialize in labor law and election law, I'm pretty confident that it'll with stand any challenge, and it'll save the City of San Diego the type of money we need to reinvest back into our neighborhood serves, and at the end of the day, Maureen, this is what this is about, which is providing a mechanism that works, and that's fair for our employees but also a mechanism that veries that we have the money we need to move forward, particularly on this basic, everyday services, street repair as an example. This measure allows that.

CAVANAUGH: Joan, I want your take on that idea about freezing pensionable pay. Is that a better idea as far as labor is concerned than the one that came out with the mayor's -- this one that we've been talking about? The mayor's new 401K plan?

RAYMOND: There's gonna be legal problems with that, are with the state labor laws issue because the city is required to negotiate pay and benefits with city employees, up in the Myers billius Brown Act. As far as putting a freeze on payroll, this is something that our workers are no strangers to. We haven't had a pay raise in many, many years, and the mayor says that there's gonna be another five-year freeze on pay raises. Even though the mayor just gave two big salary increases to two of his top bureaucrats that equal about $50,000. But it is true that the citizens, they want the services. They want the quality services. So I know we need to continue on with the 2009 reform that we've already agreed to. It's going to save the taxpayers a lot of money, drop this idea of a Social Security tax and stop looking to only the employees to solve the problems. We've given more than our share. I think it's time to look at the private contractors and consultants and cut their contracts, because they are a big part of the budget, and the city is -- doesn't have over sight over these contracts.

CAVANAUGH: Joan, I'm interested, have you heard anything from the city firemen or police officers or life guards that would show that there's come solidarity with the blue collar city workers, union rised workers, about the idea that the blue collar people will be losing their guaranteed pension and the public safety unionized workers would not?

RAYMOND: I know that the safety, the police have said that they do not want us to be exempted out of the system. For one thing, by closing down the system, you're decreasing the main -- the amount of contributions that are going into the system and making the contributions higher for the other employees that are left. The other thing is I heard councilman Faulkner talk about the -- the dangerousness of safety jobs that, you know, give -- that deserve police and fire and safety. They should deserve a guaranteed pension because of the dangerousness of this job. I agree, totally. But I think that if you're talking about dangerous jobs, you have to look at the top eight dangerous jobs, and those include our workers, garbage collectors, roofers, laborers, and truck drivers above police and firefighters. So you shouldn't be exempting one group on that grounds, and not exempting another. It has to be fair.

CAVANAUGH: Another. My final question, councilman Faulkner, is could the City Council, could a vote of the City Council just make this happen?

CARLESS: The counsel could put anything on the ballot that at the present times to. The type was changes that we're talking about, the significance of those changes, I believe, macks it unlikely that the council would move forward on that. That is one of the reasons that the mayor and I have been out, we're gonna gather signatures on this, and put this directly to the citizens of San Diego. And I think that's important to note, is that ultimately the voters will have their say on what we're tucking about today. My friend, Mitch Raymond, has not disputed the numbers or the savings that I've talked about. And the hundreds of millions of dollars that this will safer San Diegans. That is real. Those numbers have been vetted by an act youry. Just last November, there were some out there who were saying the solution to San Diego's problems is the salesing that. Let raise the sales tax, and voters spoke overwhelmingly, [CHECK] you get your house in order first, and we must see pension reform. This, Maureen, is the right way to go about it. We think it's the fair way for employees, but most personal, autofair to the citizens of San Diego who want to see these changes to save money, to once and for all end the pension problems in the City of San Diego and they will have that final jay in June in 2012.

CAVANAUGH: We are out of time. I want to thank you so much for speaking with us today, I'm sure that this is an issue that wee going to revisit between now and June�2012. Kevin Faulconer, thank you.

CARLESS: Thank you.

CAVANAUGH: Joan Raymond, thank you very much.

RAYMOND: Thank you for having me.

CAVANAUGH: And if you'd like to comment, please go on-line, KPBS.org/These Days.