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Friday, September 23, 2005 | Mayoral hopeful Donna Frye released a financial plan Friday that she trumpeted as the only real fix for San Diego’s systemic financial breakdown. The plan begins with stopping payment on nearly a decade’s worth of pension benefit enhancements the city attorney has declared illegal and ends by taking a comprehensive recovery package to the voters for approval within a year of taking office.
“With my approach the game ends,” Frye said.
The councilwoman said she would return to voters within months of being elected to ask for sole authority over negotiating a recovery package alongside the city attorney and for the authority to take the city into a Chapter 9 municipal bankruptcy proceeding should all parties not agree to a compromise.
Such a situation, Frye said, would remove the City Council from the equation and force labor unions back to the table to renegotiate pension benefits.
“That’s my hammer,” she said. “If you don’t come back to the table, that’s where we go – Chapter 9.”
She envisions taking a comprehensive recovery package that likely includes lower pension benefits for workers and, as a last resort, a temporary sales tax increase to voters for their approval in either June 2006 or November 2006.
Frye said benefits would be lowered to “levels the city can afford to pay.”
Former Police Chief Jerry Sanders, her opponent in the Nov. 8 runoff, criticized Frye’s inclusion of a possible temporary sales tax increase, which she said she would only present to the public if all other parts of her plan fell short of containing the city’s financial problems.
“Going up to taxpayers isn’t a viable solution,” Sanders said. “It always strikes me that when somebody says it’s a last resort, that they’re planting the seed so you can go to them later.”
Sanders’ plan for dealing with the pension deficit includes selling at least $200 million in pension obligation bonds, supporting City Attorney Mike Aguirre’s legal challenges to benefits, and asking unions back to the negotiating table to rollback benefit levels.
He, like Frye, has not ruled out bankruptcy.
“That’s the leverage we need to get the unions back to the table,” he said.
Sanders has also promised to increase city revenue by maximizing leases and downsizing the city’s workforce. Frye on Friday said that “lopping off the heads of 300 workers” was a piecemeal approach to solving the city’s financial problems.
The former police chief said his proposal to ask for the resignations of 300 top city officials was a “fundamental change to city government.” The resigned employees would all have a chance to reapply for their positions, he said.
Frye and Sanders are vying to replace former Mayor Dick Murphy, who resigned in July. The two beat out nine other candidates in a primary that month to advance to the runoff, which is scheduled for Nov. 8.
The city is in the midst of a deepening financial crisis highlighted by the pension system, which has a deficit that’s estimated to be at least $1.37 billion. It is also the focus of a number of local and federal investigations.
Federal civil and criminal probes have recently spread beyond the pension system and into the wastewater department.
A report delivered this month by the city manager painted a bleak picture for pension recovery. It calls for pumping $500 million in bonds and loans and $100 million in land sales into the pension system by 2008. Even under that plan, the fund would begin heading southward three years later while occupying a larger chunk of the city’s day-to-day budget.
In the plan, Frye acknowledges that her recovery package will have to address issues beyond the pension and wastewater problems. She also plans to address the city’s accounting problems, its real estate accounting, infrastructure deficit and “unfunded needs.”
City Manager Lamont Ewell released a report in late 2004 stating that the city was short $532 million needed to maintain the basic service levels expected of a major city. The report didn’t include the police and fire departments or capital needs.
Frye’s proposal doesn’t include issuing pension obligation bonds or selling city land, she said.
In releasing the plan, Frye discarded her earlier goal of asking unions to renegotiate the benefits at the heart of the pension system’s deficit. Only the threat of bankruptcy, where unions could be faced with the prospect of losing all of their benefits, will force leaders back to the table, she said.
Frye’s plan also allows City Attorney Mike Aguirre to negotiate a settlement with the Securities and Exchange Commission, which has been investigating the city’s financial disclosure process for 19 months.
Frye plans to circumvent a number of the parties that she said have been holding up the recovery process, such as the current council and the pension board. The plan calls for the pension system to be put into receivership and to reinstate the city attorney as the pension system’s attorney.
“What this does is put the people of San Diego at the table,” Frye said. “Everyone’s had a seat at the table except one – and that’s the public.”
She said she will go to voters to ask for the authority to unilaterally negotiate the deal and send the city into Chapter 9 in early 2006 to coincide with the potential runoff elections for council Districts 2 and 8, but said that she may have to wait until the June primary because the council elections aren’t citywide.
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