The Morning Report
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Wednesday, June 22, 2005 | San Diego’s burgeoning pension battle, long simply a tussle over faraway, billion-dollar deficits, now for the first time tangibly threatens both core city services and the retirement checks of current and future retired city workers.
It’s boiling down to what appears to be a two-player game: city employees and taxpayers. One group awaits promised pension benefits; the other expects services such as clean parks and library books.
And the pot they draw from isn’t likely to grow substantially any time soon, as a public distrust of the current government, as well as the rhetoric on the mayoral campaign trail, hint to the fact that any new revenue plans seem destined to fail.
In recent days, City Attorney Mike Aguirre has prepared what is essentially a public information campaign to explain the bundle of legal actions he has planned for the coming weeks.
It began with a memo to Auditor John Torell demanding the halting of post-1996 benefit levels, and continued Tuesday with the official release of a rotund report detailing the 1996 pension deal that began San Diego’s historic pension problems.
The actions planned by Aguirre include a legal challenge to a series of pension benefits granted to city workers and elected officials in 1996, 2000 and 2002, as well as possible civil actions against the individuals who contributed to what Aguirre has characterized as a deliberate fraud to pass off the pension expenses of today’s employees onto tomorrow’s taxpayers.
If successful, Aguirre’s challenge would hit people such as Jack Russell square in the pocketbook. The 60-year-old boat operator, who cancelled his March retirement because of political uncertainties surrounding the pension, stands to collect about $3,500 a month upon retirement. He’s worked for the city for 32 years and makes about $48,900 a year.
The challenge would knock out a number of Russell’s benefits and leave him with about $1,890 a month.
“I’m just trying not to worry about it every day and see what happens,” said the mustachioed Russell.
At the same time, City Council members – each of whom will receive a city retirement check some day – are working their way through a grueling budget season. It is expected to draw to a close next week and has been dominated by substantial increases in pension contributions.
Despite a $40 million increase in revenues, the council faces the prospect of closing community swimming pools, curtailing library hours, eliminating funds for after-school programs and taking as many as 27 community policing liaisons off the streets of the city’s lowest-income neighborhoods.
Most of the increased revenue has gone to a mandated hike in the city’s annual contribution to the retirement system, which increased from $130 million to $163.5 million for the fiscal year 2006 budget.
One catch: Those close to the numbers say that payment won’t prevent the deficit – officially reported at $1.37 billion, but thought by many to be higher – from widening. That leads to the prospect that future budgets will contemplate further service cuts to make room for annual pension payments.
The voices giving public orations on the arguments came to a shrill Tuesday.
Aguirre officially released an investigative report that took aim at, among others, former City Manager Jack McGrory, retirement administrator Larry Grissom and labor union attorney Ann M. Smith, for their roles in the manifestation of a 1996 plan that began the city’s historic underfunding of the pension plan that at the same time increased the pension system’s burden by increasing benefits for employees.
The city’s history of inadequate payments into the pension system and the series of increased pension benefits are the principal drivers behind the pension deficit, which has attracted investigators from the Justice Department, the Securities Exchange Commission and the District Attorney’s Office.
The city attorney said money that could be going to fund police officers is instead going to what he deems to be illegal benefits. Additionally, he said voiding the benefits would free up funding for the legal benefits that also rely on pension funds.
“People want to say, ‘I don’t want to lose the benefits,’” Aguirre said. “But they have to understand that the benefits are not there. There’s not funding for the benefit. It’s not worth much to have a benefit that there’s no funding for.”
City and pension officials violated state and local laws that forbid the creation of unfunded debt and call for sound management of pension funds, according to Aguirre’s report.
Aside from the alleged fraud, he also honed in on one particular accounting method used in the creation of Manager’s Proposal 1, the 1996 pension deal. The pension system’s accounting methods have recently come under fire from a number of fronts.
According to the report, officials proposed to cover the costs of the increased benefits given to employees as part of the Manager’s Proposal 1 deal through the creation of a special reserve.
However, the reserve was simply funded by earnings taken from the pension fund’s investments, according to the report. Such gains are supposed to be squirreled away in pension accounting to make up for losses suffered during down market years.
“For each dollar transferred out of the system to the stabilization fund, the city would have to pay another dollar back. Thus, the funding plan to pay for the new benefits was merely smoke and mirrors,” the report states.
Union officials file their own claims
On Tuesday they announced the filing of unfair practices charges against Aguirre to the state Public Employment Relations Board. Last week, Smith filed a slander lawsuit against Aguirre and a deputy city attorney, Don McGrath, claiming they referred to her as “Ann Malpractice Smith” as a play on her middle initial.
The unfair practice charge asserts that Aguirre, known for his hot-headedness, has created a hostile work environment through his “speech, behavior and policies,” and has refused to meet with labor officials to discuss it.
It lists a number of other actions that Aguirre has taken that are “designed to eliminate effective opposition to his scheme to roll back vested pension benefits to 1996 levels.” The filing also cites Aguirre’s frequent calls for changes in the MEA’s leadership – calls he repeated again yesterday.
Additionally, Smith and MEA president Judie Italiano assert that the benefits are legal, agreed to in good-faith negotiations and would easily withstand Aguirre’s lawsuits. To date, many council members have sided with the labor representatives. They say their outside counsel has declared such an unprecedented challenge risky, costly and lengthy.
The crew of mayoral candidates in the July 26 special election align themselves with Aguirre and his analysis to the illegality of the benefits.
A number of council members, including Mayor Dick Murphy, have publicly applauded labor leaders in the past weeks. Many current lawmakers appear open to Smith’s suggestion of selling public lands and levying a pension tax to help corral the widening pension deficit.
Italiano has said that city employees have already done their part in agreeing to a two-year wage freeze and increased contributions to the retirement system in the recently signed labor contracts.
She said it is now the city’s time to step up and do its part.
“The city has the money to pay this pension bill, they just don’t want to,” Italiano said.
The public’s intolerance for tax increases is often cited as a factor in the budget problems that led to the pension deficit. In order to realize big-city projects on a low-tax revenue stream, officials skimped on its pension payments for nearly a decade.
However, the “no new taxes” mantra rules the debate of the day in the ongoing mayoral campaigns. Only Councilwoman Donna Frye has acknowledged that new taxes may some day need to be supported.
Aguirre plans to release shortly a report detailing possible revenue increases he wants the City Council to consider in order to fund those benefits that he says are legally created.
“It’s not a remedy that anyone is going to like,” he said. “But it is a remedy that is going to be necessary for us to restore our financial position so that we can get our city moving again.”
Russell, the boat operator for the Metropolitan Wastewater Department, echoed the city attorney’s suspicions somewhat.
“Everybody just thinks Aguirre’s a real jerk. That’s the general feeling of all the employees,” he said.
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