The Pension Initiative’s Initial Costs: Fact Check

The Pension Initiative’s Initial Costs: Fact Check

Photo by Sam Hodgson

Bob Filner

 

Image: mostly true

Statement: “The referendum (Proposition B) on the ballot costs almost $100 million over the next few years to implement,” mayoral candidate Bob Filner wrote in an editorial published April 28 by U-T San Diego.

Determination: Mostly True

Analysis: One of the most prominent issues separating Filner from his election rivals is Proposition B, the pension initiative. Filner opposes it. His three rivals support it.

The initiative aims to replace pensions with 401(k)-style plans for most new city workers and pressure the city to approve a five-year pay freeze. The city’s financial analysis shows both steps would save nearly $1 billion over the next three decades.

But Filner calls the initiative a fraud. All of the possible savings would come from the pay freeze, which isn’t guaranteed to happen. Even if voters pass the initiative, the City Council would still determine how employees are paid.

At candidate debates and during media interviews, Filner often claims the initiative itself saves the city nothing. We’ve previously rated that True because the savings rely on the City Council’s future actions. They wouldn’t automatically happen.

In some cases though, Filner takes the claim a step further and argues the initiative would actually increase costs instead of shrinking them.

“It doesn’t do one thing for the existing pension system,” Filner said recently on Fox5′s morning show. “It sets up a new one — costs $100 million by the way — and saves no money for the general fund.”

In an editorial published by U-T San Diego, Filner cited a similar figure and added a time reference. He wrote the initiative “costs almost $100 million over the next few years to implement.”

That’s also possibly true, according to the city’s financial analysis. If the City Council doesn’t approve the pay freeze, the analysis estimates costs would rise by $101 million over the next eight years. However, if the council approves the freeze, the figure drops to $54 million over the first three years.

The graphic below helps explain these two scenarios. The orange line shows how much the city currently expects to pay into the pension system. The purple line shows how much the city would pay if voters pass the initiative and the council freezes pay. The blue line shows how much the city would pay if voters pass the initiative but the council doesn’t freeze pay.

With the pay freeze, the initiative is expected to increase costs in the short-term and reduce costs by nearly $1 billion over 30 years. Without the freeze, the initiative is expected to increase costs in both the short-term and the long-term ($13.5 million over 30 years).

In either scenario, costs are projected to climb for the first few years because the city would need to pay off roughly $2.1 billion in pension debt at a faster rate. At least initially, that could mean less money to spread around for basic city services like police, parks and libraries.

Filner’s claim is supported by one scenario in the city’s financial analysis. The initiative would create the 401(k) system and a starting point for labor negotiations on the pay freeze. Voters can’t legally freeze pay, and the City Council could still boost pay with a two-thirds vote.

We’ve rated Filner’s statement Mostly True because it assumes the council would not freeze pay in the next five years, which is at the very least an important caveat to consider.

If you disagree with our determination or analysis, please express your thoughts in the comments section of this blog post. Explain your reasoning.

Keegan Kyle is a news reporter for Voice of San Diego. He writes about local government, creates infographics and handles the Fact Check Blog. What should he write about next?

Please contact him directly at keegan.kyle@voiceofsandiego.org or 619.550.5668. You can also find him on Twitter (@keegankyle) and Facebook.

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28 comments
mary slupe
mary slupe subscriber

and has done his research

m slupe
m slupe

and has done his research

The_Gunny
The_Gunny

Yup managed competition at it's best.

Jim Jones
Jim Jones subscriber

Fair really is cutting every single city employee and putting those jobs out to bid in the private sector to achieve the best value for the taxpayer. We are a long way from fair, and Prop B is just a baby step in the fair direction.

Jim Jones
Jim Jones

Fair really is cutting every single city employee and putting those jobs out to bid in the private sector to achieve the best value for the taxpayer. We are a long way from fair, and Prop B is just a baby step in the fair direction.

Donald Rudesill
Donald Rudesill subscribermember

We got into this mess because we allowed the wrong people on the city pension board. If we do not pass prop "B", Slowly in time the unions will again get control of the board. Prop"B" will protect us for the next 30 years from another hijacking of the pension board

Donald
Donald

We got into this mess because we allowed the wrong people on the city pension board. If we do not pass prop "B", Slowly in time the unions will again get control of the board. Prop"B" will protect us for the next 30 years from another hijacking of the pension board

Jon Osborn
Jon Osborn subscriber

Or maybe it's just for non-profits.

Jon Osborn
Jon Osborn

Or maybe it's just for non-profits.

Vickie White
Vickie White subscriber

Jim Jones - Here's a question for you: What exactly is "fair pay for government"? Is it just less than you are making? As much as it pains a lot of people to admit it, there are a lot of competent, smart, well-trained, and hard-working professionals employed by the City of San Diego who more than earn their pay. We aren't all a bunch of unhelpful secretaries. Past news articles from the last year or so have shown that San Diego government employees make less than government employees in other California cities. And as another commenter said, City employees haven't received any cost of living increases or pay raises for 5 years. What exactly is unfair here?

V White
V White

Jim Jones - Here's a question for you: What exactly is "fair pay for government"? Is it just less than you are making? As much as it pains a lot of people to admit it, there are a lot of competent, smart, well-trained, and hard-working professionals employed by the City of San Diego who more than earn their pay. We aren't all a bunch of unhelpful secretaries. Past news articles from the last year or so have shown that San Diego government employees make less than government employees in other California cities. And as another commenter said, City employees haven't received any cost of living increases or pay raises for 5 years. What exactly is unfair here?

Vickie White
Vickie White subscriber

Jim Jones - You call Prop. B fair, when it proposes that future City employees will receive neither Social Security benefits nor a pension, unlike all other San Diego citizens? You call it fair that they will have no guaranteed retirement income, just a 401(k) subject to uncontrollable market losses like those that have hit others during this recession? Please remember, the City doesn't participate in Social Security, and it doesn't plan on doing so if Prop. B passes unless the IRS makes the City re-enroll once the pension system is dismantled. Prop. B is a joke, and an unAmerican joke at that.

V White
V White

Jim Jones - You call Prop. B fair, when it proposes that future City employees will receive neither Social Security benefits nor a pension, unlike all other San Diego citizens? You call it fair that they will have no guaranteed retirement income, just a 401(k) subject to uncontrollable market losses like those that have hit others during this recession? Please remember, the City doesn't participate in Social Security, and it doesn't plan on doing so if Prop. B passes unless the IRS makes the City re-enroll once the pension system is dismantled. Prop. B is a joke, and an unAmerican joke at that.

Jim Jones
Jim Jones subscriber

Fair pay for government, no more over the top pay and benefits, and the only way to keep pensions from ramping back up to absurd levels is to eliminate them entirely.

Jim Jones
Jim Jones

Fair pay for government, no more over the top pay and benefits, and the only way to keep pensions from ramping back up to absurd levels is to eliminate them entirely.

Robert Parkinson
Robert Parkinson subscriber

The new hires will be easily recruited to greener pastures as their standard of living becomes more devalued due to their pay being exempt from going up like the cost of living, once they have the training desired elsewhere. No fixed pensions to hold them down, they can just roll over their 401K's after they leave.

Ben Shaton
Ben Shaton

The new hires will be easily recruited to greener pastures as their standard of living becomes more devalued due to their pay being exempt from going up like the cost of living, once they have the training desired elsewhere. No fixed pensions to hold them down, they can just roll over their 401K's after they leave.

Jeffry Stevens
Jeffry Stevens subscribermember

The City could implement the pay freeze without the initiative. What would the curve look like with the current pension system plus the pay freeze? Forgotten by almost everyone is that the City did already put in place a substantially less expensive pension system for new employees. City employees have also had no pay increase for ~5 years now.

JffStevens
JffStevens

The City could implement the pay freeze without the initiative. What would the curve look like with the current pension system plus the pay freeze? Forgotten by almost everyone is that the City did already put in place a substantially less expensive pension system for new employees. City employees have also had no pay increase for ~5 years now.

Chris Brewster
Chris Brewster subscribermember

As I have written previously, the biggest problem here is that the independent analysis by the actuary based the major savings on an assumption that the pay freeze would occur and that its effects would continue to depress pay not for five years, but for 30 years. This is a completely absurd assumption. As well, as Mr. Filner notes, there are major up-front costs to closing the pension system in the tens of millions of dollars each year for several years. All of the budget struggles the city has faced the past few years will return. The city will be saddled with a major budget drag in the first years, then become non-competitive in the job market, and there will be huge expenses down the line. This is a pig in a poke.

B Chris Brewster
B Chris Brewster

As I have written previously, the biggest problem here is that the independent analysis by the actuary based the major savings on an assumption that the pay freeze would occur and that its effects would continue to depress pay not for five years, but for 30 years. This is a completely absurd assumption. As well, as Mr. Filner notes, there are major up-front costs to closing the pension system in the tens of millions of dollars each year for several years. All of the budget struggles the city has faced the past few years will return. The city will be saddled with a major budget drag in the first years, then become non-competitive in the job market, and there will be huge expenses down the line. This is a pig in a poke.

Donald Crawford
Donald Crawford subscriber

Thank you Bob Filner for focusing light on the reality of Proposition B. It would not only hurt our city workers and city servies, but also the taxpayers of San Diego. Smart pension reform includes policies such as preventing pension spiking.

DonaldSD
DonaldSD

Thank you Bob Filner for focusing light on the reality of Proposition B. It would not only hurt our city workers and city servies, but also the taxpayers of San Diego. Smart pension reform includes policies such as preventing pension spiking.

David Hall
David Hall subscriber

There is smart reform and then there's prop B. Apparently for some people the message is more inportant than the result.

sdguy
sdguy

There is smart reform and then there's prop B. Apparently for some people the message is more inportant than the result.

Mark Giffin
Mark Giffin subscribermember

Change often costs money. Its called an impairment charge.

mgland
mgland

Change often costs money. Its called an impairment charge.