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Committee Rejects San Diego Mayor's Pension Proposal

San Diego Mayor Kevin Faulconer presents his revised 2016 budget at the Kearny Mesa Recreation Center, May 15, 2015.
Nicholas McVicker
San Diego Mayor Kevin Faulconer presents his revised 2016 budget at the Kearny Mesa Recreation Center, May 15, 2015.

A proposal by the San Diego mayor's office to create a reserve fund to cover unexpected increases in pension contributions was voted down Wednesday by the City Council's Budget Committee.

The city's annual contribution to its employee retirement system fluctuates based on several outside factors, including the performance of the fund's investments.

Chief Financial Officer Mary Lewis said the reserve account was a "prudent" idea since the amount of the San Diego City Employees Retirement System bill each year is outside the city's control. Higher pension payments have led to city service cuts in the past, such as reductions in library hours.


However, committee Chairman Todd Gloria noted that the bill has been paid on time and in full for 11 years running.

"At first blush, I think this is a solution in search of a problem," Gloria said. "Even with these variations, we have managed to address it, pay it and move forward."

He also rejected the argument that a new reserve account would protect neighborhood services, since the $21.2 million proposed for the account could be used for other purposes during the current fiscal year. The money comes from a surplus generated in the fiscal year that ended June 30.

On the other side, Councilman Scott Sherman said it would have helped if a pension reserve account was around several years ago, when a $75 million contribution increase led to a large reduction in basic library and recreation center hours, and prompted rolling cutbacks at fire stations.

"This to me seems like a way to assure that we at least have some cushion there when the time comes, that we don't have to start cutting into other services," Sherman said.


He said the San Diego City Employees Retirement System's board is considering a change in the way the payment is computed.

If the adjustment is made, the city's pension bill next year would increase $12 million, according to Lewis.

She also said that a preliminary estimate of the investment portfolio showed a 3 percent increase, below the annual target of 7.25 percent. If the goal isn't met, the city's contribution has to rise to make up the difference, which could be an additional $6 million.

Mayor Kevin Faulconer issued a statement saying San Diegans "have seen firsthand how volatile pension costs hurt neighborhood and infrastructure services, but today's vote ignores that painful history and unnecessarily injects uncertainty into the city's ability to continue making big investments in streets, parks and other programs.

"We recently learned that next year's pension payment is projected to be millions more than expected, so delay is not an option," the mayor said. "Putting away money today specifically to protect neighborhood services when pension costs unexpectedly balloon, and setting a policy to do so every year, is the right thing for our communities. I will continue to push for council to adopt this proposal."

The city's pension contribution in the current fiscal year was nearly $255 million, down 8.7 percent from the previous year. The decrease was due, in part, to a solid investment performance last year.

Gloria noted that the city has $67 million in its general fund reserve. He, along with council members David Alvarez and Myrtle Cole, directed staff to study whether that account should be increased.