Detroit Does to Pensions What SD Officials Said Couldn’t Be Done

Detroit Does to Pensions What SD Officials Said Couldn’t Be Done

File photo by Sam Hodgson

Jerry Sanders now leads the San Diego Regional Chamber of Commerce, one of the business groups unified against the affordable-housing fee.

Tuesday was a big day for pension changes.

The Illinois Legislature pushed through a dramatic pension cut and a federal judge gave the go-ahead for Detroit to cut pensions through bankruptcy proceedings. Even though pensions have dominated San Diego politics for the better part of a decade, no changes to the pension system here appear to go as far in cutting pensions for current workers as the moves made in the Midwest yesterday.

Pension cutting through bankruptcy became taboo for former Mayor Jerry Sanders and City Attorney Jan Goldsmith after a task force of business leaders impaneled by Sanders raised the issue in late 2009. Sanders said it couldn’t be done.

“Bankruptcy cannot be used to void employee pension benefits once they are vested, which occurs the first day of employment,” he wrote in a 2010 op-ed.

Detroit’s federal bankruptcy judge, Steven Rhodes, disagreed.

“Pension benefits are a contractual obligation of a municipality and not entitled to any heightened protection in bankruptcy,” Rhodes said Tuesday.

Former Sanders spokesman Darren Pudgil and I had this exchange on Twitter Tuesday night. (Note that my use of “jerks” was meant as a cheeky reference to the ex-mayor’s PR flaks.)

 

 

Through a spokesman, Goldsmith said the main points from his own 2010 op-ed on pensions and bankruptcy still stand: San Diego could reform its pension system without bankruptcy, and the city wouldn’t qualify for bankruptcy because it’s not insolvent. Goldsmith also noted the judge in the Detroit case hadn’t made a final decision yet.

“It will be interesting to follow the Detroit case if the judge, in fact, changes vested pension rights over objections and there are appeals,” Goldsmith said.

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Liam Dillon

Liam Dillon

Liam Dillon is senior reporter and assistant editor for Voice of San Diego. He leads VOSD’s investigations and writes about how regular people interact with local government. What should he write about next? Please contact him directly at liam.dillon@voiceofsandiego.org or 619.550.5663.

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69 comments
Chris Brewster
Chris Brewster

Perhaps the Detroit situation is meaningless in California? The article below suggests as such.

Chris Brewster
Chris Brewster subscribermember

Perhaps the Detroit situation is meaningless in California? The article below suggests as such.

Chris Brewster
Chris Brewster

Stockton apparently plans to exit bankruptcy without pension modifications.California City's Return to Solvency, With Pension Problem Unsolvedhttp://www.nytimes.com/2013/12/06/us/stockton-set-to-return-to-solvency-with-pension-problem-unsolved.html?hp&_r=0STOCKTON, Calif. - Before Detroit filed for bankruptcy, there was Stockton. Battered by a collapse in real estate prices, a spike in pension and retiree health care costs, and unmanageable debt, this struggling city in the Central Valley has labored ...

Chris Brewster
Chris Brewster subscribermember

Stockton apparently plans to exit bankruptcy without pension modifications.California City's Return to Solvency, With Pension Problem Unsolvedhttp://www.nytimes.com/2013/12/06/us/stockton-set-to-return-to-solvency-with-pension-problem-unsolved.html?hp&_r=0STOCKTON, Calif. - Before Detroit filed for bankruptcy, there was Stockton. Battered by a collapse in real estate prices, a spike in pension and retiree health care costs, and unmanageable debt, this struggling city in the Central Valley has labored ...

Jamie Edmonds
Jamie Edmonds

I find it ironic that in my Morning Report email the article following this one was about how cities can't find enough police officers. We want you to take a bullet for us, work long shifts on weekends and holidays, miss your kids' events, but we're still going to kick you in the nuts for most of your career over how much you're overpaid, whilst cheering on rabid ideologues like Jim Jones to help us take away your ability to keep up with inflation, or even live comfortably after you've served the city for your whole career.
Gee, I wonder why recruitment's a problem? [/sarcasm]

Jamie Edmonds
Jamie Edmonds subscriber

I find it ironic that in my Morning Report email the article following this one was about how cities can't find enough police officers. We want you to take a bullet for us, work long shifts on weekends and holidays, miss your kids' events, but we're still going to kick you in the nuts for most of your career over how much you're overpaid, whilst cheering on rabid ideologues like Jim Jones to help us take away your ability to keep up with inflation, or even live comfortably after you've served the city for your whole career.
Gee, I wonder why recruitment's a problem? [/sarcasm]

Glenn Younger
Glenn Younger

The challenge with trying to have a rational discussion about pensions-
Many of those who give their legal or professional opinions have a SERIOUS conflict of interest. They are, or will be, receiving pensions. I believe that this conflict of interest needs to be pointed out every time a prospective pensioner voices their opinion about pensions.

As long as Jerry or Jan will be getting pensions it will be difficult, if not impossible, to be impartial about the subject. Frankly Judges who might hear these cases also start out with this challenge.

I can not even imagine the conversation with the spouses for Jerry or Jan;
“Hi Honey I’m home. Good news, I solved the cities budget problem. Bad news, my pension is now cut by 1/3”. I say let’s assume that those with pensions will want to keep them and will not speak or council on getting rid of them. Is that so far fetched?

Glenn Younger
Glenn Younger subscribermember

The challenge with trying to have a rational discussion about pensions-
Many of those who give their legal or professional opinions have a SERIOUS conflict of interest. They are, or will be, receiving pensions. I believe that this conflict of interest needs to be pointed out every time a prospective pensioner voices their opinion about pensions.

As long as Jerry or Jan will be getting pensions it will be difficult, if not impossible, to be impartial about the subject. Frankly Judges who might hear these cases also start out with this challenge.

I can not even imagine the conversation with the spouses for Jerry or Jan;
“Hi Honey I’m home. Good news, I solved the cities budget problem. Bad news, my pension is now cut by 1/3”. I say let’s assume that those with pensions will want to keep them and will not speak or council on getting rid of them. Is that so far fetched?

Chris Brewster
Chris Brewster

Here's the opinion of the San Diego City Employees' Retirement System.

Chris Brewster
Chris Brewster subscribermember

Here's the opinion of the San Diego City Employees' Retirement System.

Chris Brewster
Chris Brewster subscribermember

I am of a similar view that San Diego was never close to qualifying for bankruptcy, based on insolvency. While Mr. Sanders did opine in the linked op-ed, based on an opinion of Mr. Goldsmith, that the California constitution precluded discharging vested benefits in bankruptcy, that assertion has neither been tested nor debunked yet. He also stated, "But the truth is talk of bankruptcy impedes progress on real substantive pension reform, and it poisons the climate for thoughtful solutions to our structural deficit." His point was that there was a structural deficit, not the insolvency required to file for bankruptcy. I am concerned that there is some gloating in this article that lacks basis. It is true that IF the City of San Diego had been insolvent, and IF it tried to file for bankruptcy, and IF it qualified, then a federal court MIGHT have allowed it to abrogate the California constitutional protections, but as Mr. Sanders noted at the time, "Based on Orange County’s experience, bankruptcy would cost San Diego taxpayers between $100 million and $300 million in attorney fees. After that money has been spent, a judge could easily dismiss our case, particularly if he or she feels the city has not done enough to solve its financial problems by raising taxes."

Jim Jones
Jim Jones subscriber

You would have a point if the taxpayer wasn't the one really being abused by excessive, bloated pensions and pay. Public union workers are still grossly overcompensated, and it needs to be brought in line with regular people's pay and benefits. No more gold plated jobs and pensions for city workers.

realitychick
realitychick

Liam, it would be helpful to all for you to report facts as well as accurate headlines. The pay cut taken for many years to help out is being given back in dribbles over a couple years,, that is what you are calling a "raise". San Diego was never close to qualifying for bankruptcy. Let's do an ethical check on going bankrupt just to avoid paying promised pensions to elder workers, when their best working years are gone. It is Elder Abuse. Start looking at the many plans out there for a real, affordable retirement system. Do some useful reporting.

Bob McDaniel
Bob McDaniel

Liam, I disagree with your statement that pensions for current City employees haven't been cut. By the time the current labor agreements expire in 2018 City employees (with the exception of the Police) will have gone 13 years without a cost of living increase. That equates to about a 25% reduction in their pension benefits assuming an annual cost of living increase of 2%.

Bob McDaniel
Bob McDaniel subscriber

Liam, I disagree with your statement that pensions for current City employees haven't been cut. By the time the current labor agreements expire in 2018 City employees (with the exception of the Police) will have gone 13 years without a cost of living increase. That equates to about a 25% reduction in their pension benefits assuming an annual cost of living increase of 2%.

Brian Flynn
Brian Flynn

It's my understanding that SD pensions are protected by the State constitution. Apparently, Michigan doesn't have that protection in their State constitution.

Jim Jones
Jim Jones

The analysis in that article is flawed, Calpers has no more 10th amendment protection against federal law than the individual union retiree does.

Jim Jones
Jim Jones subscriber

The analysis in that article is flawed, Calpers has no more 10th amendment protection against federal law than the individual union retiree does.

Jim Jones
Jim Jones

Recruitment is not a problem. You could cut pay by 10% and push retirement to 60 or even 65 and still be turning applicants away like they are today.

Recruitment is slow because it serves it police union to create the bottleneck, but the bottleneck is absolutely artificial.


mlaiuppa
mlaiuppa

Not only that. There's a bill coming in the state that would allow pensions to be cut not just for current workers but could cut the pensions of retirees. If it passes, kiss your police, firemen, nurses, teachers, public employees goodbye.

So add "work for us, we'll promise you anything but after you retire we'll cut your pension and hang you out to dry. "

Yeah, wonder why recruitment is so slow. Who wouldn't want to sign up for that?

How are those numbers on new nurses, firemen and teachers entering the profession? How will they be once they find out that pension they are promised is nothing but a promise and could be cut or eliminated at any time including after they retire?

Jim Jones
Jim Jones subscriber

Recruitment is not a problem. You could cut pay by 10% and push retirement to 60 or even 65 and still be turning applicants away like they are today.

Recruitment is slow because it serves it police union to create the bottleneck, but the bottleneck is absolutely artificial.


mlaiuppa
mlaiuppa subscriber

Not only that. There's a bill coming in the state that would allow pensions to be cut not just for current workers but could cut the pensions of retirees. If it passes, kiss your police, firemen, nurses, teachers, public employees goodbye.

So add "work for us, we'll promise you anything but after you retire we'll cut your pension and hang you out to dry. "

Yeah, wonder why recruitment is so slow. Who wouldn't want to sign up for that?

How are those numbers on new nurses, firemen and teachers entering the profession? How will they be once they find out that pension they are promised is nothing but a promise and could be cut or eliminated at any time including after they retire?

Glenn Younger
Glenn Younger

I am shocked that SDCERS believes that this ruling has nothing to do with them. (insert sarcasm emoticon here). If the city does not have enough income to pay for ALL of their normal and expected expenses they are not viable. If a city closes parks to pay for pensions they are morally bankrupt even if not legally so. If a city promises retiree healthcare and they do not set aside the money for it they are lacking in their ability to do basic actuarial math. A real budget would include all the currently un-funded or under-funded liabilities such as pension costs, healthcare costs and the cost to maintain the infrastructure.

There is no magic fairy dust that can be sprinkled on the budget to create the money for these things next year. In fact the longer we put off paying for them the worse it gets. Besides being financially bankrupt, the city is bankrupt in their abilities to manage the money and expenses that they have. To call it a “structural” problem is to believe in magic.

Mark Giffin
Mark Giffin

Concerning San Diego it is a non-issue. It always remains a possibility though no matter how unlikely.
As long as the city can service its debt the discussion is moot.

Glenn Younger
Glenn Younger subscribermember

I am shocked that SDCERS believes that this ruling has nothing to do with them. (insert sarcasm emoticon here). If the city does not have enough income to pay for ALL of their normal and expected expenses they are not viable. If a city closes parks to pay for pensions they are morally bankrupt even if not legally so. If a city promises retiree healthcare and they do not set aside the money for it they are lacking in their ability to do basic actuarial math. A real budget would include all the currently un-funded or under-funded liabilities such as pension costs, healthcare costs and the cost to maintain the infrastructure.

There is no magic fairy dust that can be sprinkled on the budget to create the money for these things next year. In fact the longer we put off paying for them the worse it gets. Besides being financially bankrupt, the city is bankrupt in their abilities to manage the money and expenses that they have. To call it a “structural” problem is to believe in magic.

Mark Giffin
Mark Giffin subscribermember

Concerning San Diego it is a non-issue. It always remains a possibility though no matter how unlikely.
As long as the city can service its debt the discussion is moot.

Chris Brewster
Chris Brewster subscribermember

Mr. Jones: I was replying to your statement that, "... averages mean nothing because we don't know the lengths of service or the positions behind them." I therefore provided the lengths of service and positions behind them as I know them. As for your final comment, "the city" is not hiding things with misleading averages. These factoids came from a report of the pension system that is put out once a year and that is rather exhaustive with respect to facts. I chose to extract the facts I noted, not them.

It seems unreasonable to me for you to complain that there were key facts missing in my earlier post and then, when I provided those facts, to make new arguments. How about, "Thanks for providing the lengths of service?" In that context it seems pointless to address your most recent concerns.

Worry not. I don't think anyone who has been on this site for any length of time would be unclear about your general views about city employees, their pay, and their pensions.

Jim Jones
Jim Jones subscriber

Chris, the average pay for a city employee to date is right around $50k according to the budget, that they are getting almost full pay after a little more than 20 years is abusive. Also remember in that average are people who retired before the pensions skyrocketed. There is no real doubt that pay is as good or better than similar private jobs, and the pensions are way way way better, with younger retirement, better health care, etc...

The city needs to stop abusing the taxpayer, and hiding it with misleading averages.

Chris Brewster
Chris Brewster subscribermember

Mr. Jones: Thanks for posting this example of someone with particularly high benefits and apparent abuses. He's obviously an outlier who pulls the average I cited up. The median income is actually significantly lower than the average because of some of those outliers. To answer your question in 2011 there were 7,902 retirees drawing benefits, with an average annual benefit of $41,350, an average age of 66.4, and an average of 23.8 years of service at the time of retirement. I can't speak to the positions of each of these 7,902 retirees, but realistically they are a cross-section of full time city workforce. That is, I don't know that one class of employees is more or less likely to retire than another.

Using anecdotes of system abusers, as you have done, gets a lot of attention. Sadly it draws attention away from the typical, hard working, city employee who retires with a moderate pension and lives a simple life.

Jim Jones
Jim Jones subscriber

Chris, averages mean nothing because we don't know the lengths of service or the positions behind them.

How about this guy, ten years before the social security retirement age, six figure retirement and even trying to get unemployment on top of voluntary retirement.

The system is a massive abuse of the tax paying public.

http://www.utsandiego.com/news/2013/Oct/04/drop-beneficiaries-unemployment/Subscription | Login Page | UTSanDiego.comhttp://www.utsandiego.com/news/2013/Oct/04/drop-beneficiaries-unemployment/Local news stories from U-T San Diego; breaking news, business and technology, local and national sports coverage, entertainment news and reviews

Chris Brewster
Chris Brewster subscribermember

For the record, According to the San Diego City Employees Retirement System (SDCERS) the average pension of a city retiree was $41,350 per year in 2011 (the most recent year for which I could find a report). The average age of a retiree was 66.4 years. According to a recent Voice of San Diego article, the adjusted poverty level for a household in San Diego is $31,307.

Mark Giffin
Mark Giffin subscribermember

Reality check. The system is 68% funded with hundreds of millions a year opportunity costs till 2025(or longer) with the taxpayer responsible for any losses but retirees get a thirteenth check on any gains with a pension scheme backed by the unions(except police) and the city employees get a raise(non pensionable) and we're the ones who are unreasonable suggesting compensation and benefits, in addition to early retirement are out of sync with the private sector.

Chris Brewster
Chris Brewster

I am of a similar view that San Diego was never close to qualifying for bankruptcy, based on insolvency. While Mr. Sanders did opine in the linked op-ed, based on an opinion of Mr. Goldsmith, that the California constitution precluded discharging vested benefits in bankruptcy, that assertion has neither been tested nor debunked yet. He also stated, "But the truth is talk of bankruptcy impedes progress on real substantive pension reform, and it poisons the climate for thoughtful solutions to our structural deficit." His point was that there was a structural deficit, not the insolvency required to file for bankruptcy. I am concerned that there is some gloating in this article that lacks basis. It is true that IF the City of San Diego had been insolvent, and IF it tried to file for bankruptcy, and IF it qualified, then a federal court MIGHT have allowed it to abrogate the California constitutional protections, but as Mr. Sanders noted at the time, "Based on Orange County’s experience, bankruptcy would cost San Diego taxpayers between $100 million and $300 million in attorney fees. After that money has been spent, a judge could easily dismiss our case, particularly if he or she feels the city has not done enough to solve its financial problems by raising taxes."

Jim Jones
Jim Jones

You would have a point if the taxpayer wasn't the one really being abused by excessive, bloated pensions and pay. Public union workers are still grossly overcompensated, and it needs to be brought in line with regular people's pay and benefits. No more gold plated jobs and pensions for city workers.

Bob McDaniel
Bob McDaniel

Liam, SDCERS calculates the City's required pension payments based on an assumed increase in labor costs which includes a yearly cost of living increase. If the goal is to reduce the City's pension obligation, a 13 year pay freeze is one way to accomplish that goal.

In regard to the 5 year deal, this deal reduced the mandatory furlough, lowered employee contributions to the retirement system and increased the amount of flex benefit. The employee reduction to the retirement system didn't materialize and the increase in flex benefits may or may not cover the increases in health insurance premiums. For many employees, their take home pay in 2018 will be less than there take home pay was in 2005.

Liam Dillon
Liam Dillon

Hi Bob. Not giving someone a raise doesn't equal a pension cut. Also, city employees are getting across-the-board raises in the 5-year deal, they're just not pensionable.

Bob McDaniel
Bob McDaniel subscriber

Liam, SDCERS calculates the City's required pension payments based on an assumed increase in labor costs which includes a yearly cost of living increase. If the goal is to reduce the City's pension obligation, a 13 year pay freeze is one way to accomplish that goal.

In regard to the 5 year deal, this deal reduced the mandatory furlough, lowered employee contributions to the retirement system and increased the amount of flex benefit. The employee reduction to the retirement system didn't materialize and the increase in flex benefits may or may not cover the increases in health insurance premiums. For many employees, their take home pay in 2018 will be less than there take home pay was in 2005.

Liam Dillon
Liam Dillon memberadministrator

Hi Bob. Not giving someone a raise doesn't equal a pension cut. Also, city employees are getting across-the-board raises in the 5-year deal, they're just not pensionable.

Mark Giffin
Mark Giffin

Trump card depending on the process.

Jim Jones
Jim Jones

Federal bankruptcy law trumps state law, regardless of your state constitution. No federal judge is going to decide otherwise.

In the end it doesn't matter, Detroit's debt load is huge, it's population a fraction of what it was, and if they diverted 100% of their revenue to paying off debt it would take years to do so. There is no way out except Bankruptcy or insolvency.

Technically they no longer even meet the requirements under the state to be a city.

Scott Lewis
Scott Lewis

Michigan does have a similar constitutional protection. The judge overruled it saying pensions are just contracts subject to bankruptcy like all contracts.

Chris Brewster
Chris Brewster

Mr. Jones: I was replying to your statement that, "... averages mean nothing because we don't know the lengths of service or the positions behind them." I therefore provided the lengths of service and positions behind them as I know them. As for your final comment, "the city" is not hiding things with misleading averages. These factoids came from a report of the pension system that is put out once a year and that is rather exhaustive with respect to facts. I chose to extract the facts I noted, not them.

It seems unreasonable to me for you to complain that there were key facts missing in my earlier post and then, when I provided those facts, to make new arguments. How about, "Thanks for providing the lengths of service?" In that context it seems pointless to address your most recent concerns.

Worry not. I don't think anyone who has been on this site for any length of time would be unclear about your general views about city employees, their pay, and their pensions.

Jim Jones
Jim Jones

Chris, the average pay for a city employee to date is right around $50k according to the budget, that they are getting almost full pay after a little more than 20 years is abusive. Also remember in that average are people who retired before the pensions skyrocketed. There is no real doubt that pay is as good or better than similar private jobs, and the pensions are way way way better, with younger retirement, better health care, etc...

The city needs to stop abusing the taxpayer, and hiding it with misleading averages.

Chris Brewster
Chris Brewster

Mr. Jones: Thanks for posting this example of someone with particularly high benefits and apparent abuses. He's obviously an outlier who pulls the average I cited up. The median income is actually significantly lower than the average because of some of those outliers. To answer your question in 2011 there were 7,902 retirees drawing benefits, with an average annual benefit of $41,350, an average age of 66.4, and an average of 23.8 years of service at the time of retirement. I can't speak to the positions of each of these 7,902 retirees, but realistically they are a cross-section of full time city workforce. That is, I don't know that one class of employees is more or less likely to retire than another.

Using anecdotes of system abusers, as you have done, gets a lot of attention. Sadly it draws attention away from the typical, hard working, city employee who retires with a moderate pension and lives a simple life.

Jim Jones
Jim Jones

Chris, averages mean nothing because we don't know the lengths of service or the positions behind them.

How about this guy, ten years before the social security retirement age, six figure retirement and even trying to get unemployment on top of voluntary retirement.

The system is a massive abuse of the tax paying public.

http://www.utsandiego.com/news/2013/Oct/04/drop-beneficiaries-unemployment/Subscription | Login Page | UTSanDiego.comhttp://www.utsandiego.com/news/2013/Oct/04/drop-beneficiaries-unemployment/Local news stories from U-T San Diego; breaking news, business and technology, local and national sports coverage, entertainment news and reviews

Chris Brewster
Chris Brewster

For the record, According to the San Diego City Employees Retirement System (SDCERS) the average pension of a city retiree was $41,350 per year in 2011 (the most recent year for which I could find a report). The average age of a retiree was 66.4 years. According to a recent Voice of San Diego article, the adjusted poverty level for a household in San Diego is $31,307.

Mark Giffin
Mark Giffin

Reality check. The system is 68% funded with hundreds of millions a year opportunity costs till 2025(or longer) with the taxpayer responsible for any losses but retirees get a thirteenth check on any gains with a pension scheme backed by the unions(except police) and the city employees get a raise(non pensionable) and we're the ones who are unreasonable suggesting compensation and benefits, in addition to early retirement are out of sync with the private sector.

mlaiuppa
mlaiuppa

Yes. It does.

It reduces the amount of money being deposited into the pension system.

Pensions are based on highest salary for a certain number of years, age and years of service. If your salary is frozen for 13 years your pension is not going to be what it should have been. How long would you have workers work to make up the difference? Until they're 67? 72?

mlaiuppa
mlaiuppa subscriber

Yes. It does.

It reduces the amount of money being deposited into the pension system.

Pensions are based on highest salary for a certain number of years, age and years of service. If your salary is frozen for 13 years your pension is not going to be what it should have been. How long would you have workers work to make up the difference? Until they're 67? 72?

Jim Jones
Jim Jones

That is a bit of a misrepresentation, the law says a muni must be authorized to be a debtor under state law, but is not further qualified as to the states power to claim a muni is not a debtor. Of course in the strictest sense if a muni is not a debtor, then it owes nothing to anyone and will never go bankrupt. If it owes money it must pay by a contract under the state law, a pretty good argument can be made that it is a state authorized debtor.

Since none of it has been tested in court, it really depends on what the bias of the courts are if and when it gets tested. Really though, Detroit's debt load is 60% of it's income and climbing, a muni that is not a debtor won't have that time bomb of underfunded debt and the unanticipated cost of a hit to credit ratings that makes it insolvent. And more to the point, in this state we are a state authorized debtor.

Chris Brewster
Chris Brewster

According to the article below: "Federal law permits all local governments to file for Chapter 9, but only if a municipality’s state government allows for it. The degree to which laws limit Chapter 9 filings varies greatly from state-to-state. James Spiotto, a Chicago attorney who has studied municipal bankruptcy extensively, reviewed state laws, grouping them into different categories. He found 12 states specifically authorize Chapter 9, while 12 others permit bankruptcy filings given a further action taken by a state, official or other entity." Mr. Lewis has opined above that Michigan's protection is similar to California's. I have no idea. There is a map in the article below that shows indicates different treatment in different states.