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San Diego, San Jose voters asked to cut pensions to help financially stressed budgets

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POSTED May 10, 2012 7:35 p.m.


 

SAN DIEGO (AP) — Seven years ago, the nation's eighth-largest city was a poster child for fiscal mismanagement. Criminal investigations were in full swing, its bond rating was suspended, audits were long overdue, and the mayor resigned in disgrace.

San Diego has bounced back since then, but a central question driving budget debates at City Hall is the same: How should it tackle ballooning public pensions?

San Diego and San Jose — California's second- and third-largest cities — are turning to voters for answers. While measures on the cities' June 5 primary ballot propose different remedies, the bottom line is that taxpayers would guarantee retirees much less money.

"We're coming at it from different directions, but it's trying to solve the same problem," said San Jose Mayor Chuck Reed, a Democrat who took an interest in public pensions when San Diego's crisis made national headlines. "The fundamental problem is that these benefits cost too much money. We can't afford to pay for them, and the employees can't afford to pay for them."

The votes come as public pension costs have caught the attention of lawmakers and taxpayers in states and cities across the country. In California alone, the two major public pension systems for state workers and teachers face unfunded liabilities of at least $150 billion.

Gov. Jerry Brown's plan to rein in pension benefits for state workers faces an uncertain fate in the Legislature.

The results in San Diego and San Jose are being closely watched in California as more cities and counties struggle to pay pension obligations while still finding enough money to pay for adequate police and fire services, keep libraries open, maintain parks and make payroll.

In San Diego, payments to the city's retirement fund soared from $43 million in 1999 to $231.2 million this year, equal to 20 percent of the city's general fund budget, which pays for day-to-day operations. San Jose's payments jumped from $73 million in 2001 to $245 million this year, equal to 27 percent of its general fund budget.

As those obligations grew, San Diego's 1.3 million residents saw roads deteriorate and libraries and recreation centers cut hours. For a while, some fire stations had to share engines and trucks. The city has cut its workforce 14 percent to 10,100 employees since Mayor Jerry Sanders took office in 2005.

In San Jose, voters approved construction bonds at the beginning of the last decade, but four new libraries and a police station have never opened because the city cannot afford to operate them, in part because of rising pension obligations. The city of 960,000 cut its workforce 27 percent to 5,400 in the last 10 years.

Shrinking tax revenue caused by the recession also is to blame for the spending cuts, but supporters of pension reforms have seized on the decline in city services to sell the ballot measures.

A U-T San Diego poll showed 52 percent support Proposition B, while 29 percent oppose it. The poll of 404 registered city voters was taken May 1-2 and has a margin of error of 4.9 percentage points. There has been no reliable published polling on San Jose's Measure B.

Another factor is the voters themselves. Many private-sector workers have seen their own retirement savings plummet on investment losses, while city workers continue to get guaranteed pensions for life.

"In the private sector, there aren't any guarantees of anything," said Cecilia Moreno, 54, who owns a restaurant in San Diego's Hillcrest area.

She already submitted her ballot by mail and voted in favor of the pension reforms.

Sanders, the San Diego mayor, struck a compromise on the ballot measure with Carl DeMaio, a Republican councilman who has made slashing pensions the thrust of his bid for mayor in the June 5 election. Sanders, a former police chief, prevailed in exempting police officers from some of the pension changes.

More than 100,000 voters signed petitions to get the measure on the ballot. It would impose a six-year freeze on pay levels used to determine pension benefits unless a two-thirds majority of the City Council votes to override it and puts new hires, except for police officers, into 401(k)-style plans.

San Diego's independent budget analyst estimates the freeze on "pensionable pay" will save the city $963 million over 30 years. The switch to 401(k)-style plans is expected to cost $13 million, although it would shift the risk of investment losses to employees from taxpayers.

In San Jose, Reed joined an 8-3 City Council majority to put that city's measure on the ballot.

It would force current employees, including police officers and firefighters, to pay much more toward their retirements or accept lower benefits. New hires would receive less generous benefits.

The ballot material sent to San Jose voters does not include a savings estimate if the measure is approved. The mayor's office estimates savings of about $25 million the first year, with higher amounts as new workers enroll in the lower-cost plan.

If voters approve the pension reforms, labor unions are expected to challenge them in court on grounds they violate laws requiring the cities to negotiate with employees in good faith.

Robert Cronk, a library branch manager and president of the San Diego Municipal Employees Association, worries the measure will jeopardize his ability to pay for college for his two children.

He went to work for the city because he wanted to serve the public and counted on a fairly stable retirement, but the ballot measure has given him second thoughts.

The 22-year employee bristles when ballot measure supporters trumpet examples of workers with six-figure annual pensions — such as the retired San Diego library director who receives $234,000 a year. The city has 71 employees making a base pension of at least $120,000, but the average base pension is $41,350.

"Over the last few years, when the economy started to turn sour for people, it seems we have come under constant attack because we're easy targets," said Cronk, 47. "It's politics of anger, turning people against one another."

San Diego workers took 6 percent pay cuts in 2009 and haven't had raises in years, a cost savings that has contributed to the city's fiscal turnaround. In 2009, labor unions agreed to lower guaranteed pensions for new hires.

Cronk, 47, acknowledges that San Diego promised more generous pensions than it could deliver but notes it found money for projects such as Petco Park, the Padres' baseball stadium that helped fuel a downtown renaissance when it opened in 2004.

"You choose how you want to spend your money. If you say your people aren't worth it, maybe that's OK for some. I don't think it's right," he said.

San Diego agreed with labor unions in 1996 and 2002 to enhance pension benefits in exchange for putting less money into the retirement system. The city diverted pension money to operating costs, including hosting the 1996 Republican National Convention, but the tactic soon backfired.

Normalcy returned slowly. Several city workers were accused of various crimes in state and federal court for their roles in the pension debacle, but charges were dropped or dismissed. Sanders — who, like Reed in San Jose, is being forced from office by term limits — last month proposed San Diego's first budget in years that doesn't rely on one-time measures to be balanced.

Sanders, a Republican, dismisses criticism that the city's financial turnaround makes the pension-reform measure unnecessary, saying it will prevent past blunders from being repeated.

"We need to do it to protect politicians from themselves," he said. "In the future, politicians can't say, 'Hey, we're with you, labor unions. We're going to raise your benefits without paying for them.'"

 

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