Labor Deals and Pension Savings: Fact Check

Labor Deals and Pension Savings: Fact Check

File photo by Sam Hodgson

Mayor Bob Filner

 

Image: TRUEStatement: “(Five-year deals with the city’s unions) give us in the first year $25 million, almost free money, because of a calculation of our pension payments, and $25 million in the second year,” Mayor Bob Filner said in an April 8 interview with KPBS.

Determination: True

Analysis: Last June, San Diego voters approved a pension reform initiative that supporters claimed would save the city nearly $1 billion over the next 30 years.

The measure aimed to accomplish that with a five-year freeze on pensionable pay, which will shave an estimated $963 million from the city’s long-term pension bill. (Another element of the initiative, a transition to 401(k) plans for new workers, will cut into those savings.)

To achieve those savings, the city must persuade its six labor unions to agree to freeze staffers’ pensionable salaries for five years.

Mayor Bob Filner has publicly pushed for five-year agreements. He aimed to pressure City Councilmembers and union negotiators who aren’t yet sold on the idea in a Monday appearance on KPBS’s “Evening Edition.”

The mayor claimed the city’s pension bill could shrink by $25 million in both the 2014 and 2015 fiscal years if five-year deals can be reached.

If that happens, Filner said he could close an estimated $40 million budget gap by tapping into those savings rather than the city’s reserve funds.

We decided to fact check Filner because the statement is likely to make its way into discussion of the mayor’s first budget and the city’s labor deals.

Mark Hovey, CEO of the city’s pension system, said the city approached the San Diego City Employees’ Retirement System last month to inquire about the actual savings associated with five-year pensionable pay freezes.

Hovey asked Cheiron, an outside firm that calculates potential pension costs, to run the numbers on the following scenarios, among others:

• Projected savings if the city and all six labor groups agree to a five-year pensionable pay freeze

• Projected savings if the city implemented the freeze on a year-by-year basis over the next five years

The response: The city could save $25.2 million in the fiscal year that begins in July and $26.9 million in the 2015 fiscal year. (You can check out the full report here.)

Come July, the city is expected to pay $275.4 million in pension costs. The bill could drop to about $250 million with six five-year labor deals.

These savings are possible because the pension system assumes an annual 3.75 percent increase in staffers’ pensionable pay. A pensionable pay freeze that lasts more than a year allows the system to assume savings over the long haul, Hovey said.

So if the mayor can only persuade the City Council and the city’s six unions to agree to pay freezes on a year-by-year basis until 2019, as Proposition B requires, the city’s pension bill won’t change in the first two years. That means potential pension savings wouldn’t be available to help the city balance its budget this year or next year.

Here’s a visual look at the potential savings over the next five years, according to the report:

Graphic by Lisa Halverstadt

 

The pension savings Filner cited on KPBS are very close to the mark so we decided his statement is true.

But what are the chances he’ll see these savings?

Union and city leaders are meeting behind closed doors in hopes of hashing out a deal.

If the city reaches five-year deals, Hovey said an actuary will need to assess their impacts and share them with the pension system board. The board would need to agree to reduce the city’s pension bill before it comes due on July 1.

There’s an irony worth considering here: Last August, then-Councilman Carl DeMaio stood with the city’s current Republican council members, all of whom supported Prop. B, and pledged there would be enough council support to ensure the pensionable pay freezes assumed under the initiative would go forward despite ongoing legal battles.

Nearly a year later, Councilmembers Kevin Faulconer, Mark Kersey, Scott Sherman and Lorie Zapf may have a choice: Endorse labor deals that incorporate a five-year pay freeze, instant budgetary savings and a win for the mayor, or agree to one-year deals that diminish those bragging rights and the associated savings.

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

Lisa Halverstadt is a reporter at Voice of San Diego. Know of something she should check out? You can contact her directly at lisa.halverstadt@voiceofsandiego.org or 619.325.0528.

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Lisa Halverstadt

Lisa Halverstadt

Lisa Halverstadt is a reporter at Voice of San Diego. Know of something she should check out? You can contact her directly at lisa@vosd.org or 619.325.0528.

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2 comments
Augmented Ballot
Augmented Ballot subscriber

2) Would SDCERS change accounting policy to assume that a 1-yr freeze never rebounds, the same as a 5-yr freeze is assumed to never rebound? Doing so would net savings for 1-yr deals.

Augmented Ballot
Augmented Ballot

2) Would SDCERS change accounting policy to assume that a 1-yr freeze never rebounds, the same as a 5-yr freeze is assumed to never rebound? Doing so would net savings for 1-yr deals.