Sanders Presents Updated Plan for City Finances

Thursday, September 29, 2005 | Packaging his core financial recovery plan together with a handful of new proposals that included a hybrid pension plan for incoming city employees and further trimming of city jobs, mayoral candidate Jerry Sanders on Wednesday released his “action plan” for rebuilding San Diego’s downtrodden finances.

The former police chief reiterated many of his previous pension proposals, such as his hopes to renegotiate labor contracts with employee unions and his plans to shrink city government.

He also added new ideas, such as slicing the city’s 300 middle management positions by one-third at a savings of $10 million a year, threatening to cut the city’s workforce by 10 percent should unions not agree to further pension concessions, and introducing a hybrid pension system for new employees that would add some of the safety measures of a public plan with the free-market tenets of a private system.

“It provides longer-term reforms that go beyond today’s crisis and ensures that the city never gets in this kind of trouble again,” Sanders said of his plan.

The city’s pension system carries a deficit estimated to be more than $1.4 billion. The deficit threatens to dominate city budgets for years to come and related activities have attracted investigators from the Securities and Exchange Commission, FBI, U.S. Attorney’s Office and the District Attorney’s Office.

During his Wednesday press conference, Sanders also pooh-poohed several aspects of the new financial plan just released by his competitor, Donna Frye.

The councilwoman released a plan Friday more drastic than Sanders’ plan. It would cease acknowledging nearly a decade’s worth of pension benefit enhancements, as well as ask voters for the sole authority to negotiate a settlement package and place the city in a Chapter 9 municipal bankruptcy reorganization should unions not agree to new contracts.

The final reorganization package would then be taken to the voters within a year of the Nov. 8 election, Frye said. She has vowed not to sell city land and says a temporary sales tax could be part of the package in order to fund the benefits the city is obligated to pay.

Although the two candidates’ plans revolve around many of the same themes and end goals, they differ greatly in style.

Frye’s acts more like a stick of dynamite, essentially blowing up the current structure and embarking on a more hostile path with the employee unions both camps know are key to any recovery.

Sanders, on the other hand, envisions skillfully chiseling a new city structure from what exists, coaxing the unions and the City Council he has heavily criticized to an agreement through leadership.

The former police chief plans to reinvigorate the city’s revenue stream by revisiting the city’s new labor contracts, leases, land holdings and other smaller measures designed to sweep out cash from the city’s nooks and crannies.

On Wednesday, Sanders was joined by April Boling, the former chairwoman of the Pension Reform Commission, the group convened by former Mayor Dick Murphy in late 2003 to study solutions for the pension deficit.

Sanders’ plan starts with renegotiations with the city’s labor unions, the largest of which signed three-year contracts that began in July. He plans to use the threat of bankruptcy to force them back to the table and go further on contracts that included salary freezes, increased employee contributions to the system and benefit freezes.

The renegotiations would not affect current benefit levels for employees, Boling said. Rather, they would rely on more extreme salary freezes, employee contributions and work furloughs to free up more cash to pump into the pension system.

Sanders also supports City Attorney Mike Aguirre’s legal challenge to pension benefit increases dating back to 1996.

The Sanders team plans to begin injecting between $200 million and $250 million a year into the system in the next two or three years, Boling said. The annual costs would include the city’s annual contribution to the system, as well as at least $17 million in annual debt service costs to cover at least $200 million in pension obligation bonds the team hopes to put in the system by 2008.

This year, the city put in the $163.5 million it was contractually obligated to put into the system, however that figure was about $40 million short of what was needed to keep the pension deficit from growing.

At a minimum, the city will be required to put in $230 million a year by fiscal year 2009.

Sanders said the cuts made in the workforce and other labor costs will free up enough cash to cover the increased annual payments. He estimated saving $35 million a year by extending salary freezes, $63 million should he cut the workforce by 10 percent, and potentially $10 million by privatizing certain services.

Voters would also be asked to approve two ballot measures. One would create a hybrid pension plan that would also require the public to approve all new pension benefit increases in the future. The second initiative would change the City Charter to permit city services to be contracted out to the private sector.

Frye criticized her opponent for taking a piecemeal approach.

“I hate to tell Jerry that getting rid of 100 employees isn’t going to fix the city,” she said.

The hybrid plan proposed by Sanders would create a new, layered system for new city employees. It would contain the “safety net” provided by defined benefit pension plans common in the public sector, creating a smaller level of benefits that would be guaranteed to employees upon their retirement but easier on taxpayers.

The employees would also be offered a 401k-style plan if they desire.

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