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Tuesday, October 11, 2005 | Mayoral candidate and City Councilwoman Donna Frye joined the city attorney Monday in proposing an ordinance that would immediately reduce city workers’ pension benefits to what they were nearly a decade ago, a move that intensifies the ongoing campaign to void pension benefit enhancements central to San Diego’s fiscal and political crisis.
If Deputy Mayor Toni Atkins agrees to place the measure on the docket for Monday’s council meeting, the City Council would be asked to essentially undo many of their own votes on a series of pension benefit enhancements blamed largely for a deficit estimated to be more than $1.4 billion.
They would also be asked to roll back their own expected pension benefits.
The announcement comes the week after a robust archive of private pension documents became public. The release has led to the public airing of opinions and statements from a number of the system’s outside attorneys concluding that pension agreements struck in 1996 and 2002 could be illegal and nullified.
During their Monday press conference, Frye and City Attorney Mike Aguirre seized on the fresh evidence, saying the pages buttress their previous assertions that the benefits be voided because they were created illegally.
“The council now has a factual picture that clearly establishes that these benefits were illegally created. They don’t have to wait for a court, and in fact, their duty is not to wait for a court, but in fact, to immediately correct the situation,” Aguirre said.
The city attorney has already filed two lawsuits seeking to roll back benefits to 1996 levels. Although he said he would drop his current suits if the council abided by Frye’s ordinance, litigation from labor unions would quickly follow.
In the time between a court’s ruling, Frye and Aguirre said the ordinance would allow the city to move $641 million of the pension deficit from a liability to a footnote on its financial disclosures. It would be reported as a contingent liability until a final judgment.
“The city will have the benefit of not having the legal benefits on its books and that will reduce the pressure that’s on the budget to come up with more and more money to fund it,” Aguirre said.
Frye and Aguirre said they hope Atkins will schedule the ordinance to be heard at next Monday’s council hearing.
Atkins said in a written statement that she had heard of the ordinance only from reporters. “So I don’t feel comfortable commenting on something I’ve yet to receive and haven’t been given the opportunity to review,” she said.
The proposal comes at the height of a mayoral campaign focused squarely on the two candidates’ plans for fixing the pension deficit, which threatens to dominate city budgets for decades absent a substantial remedy.
It highlights what is emerging as a key, fundamental contrast between the two mayoral plans leading up to the Nov. 8 election. Frye’s plan starts with the immediate cessation of the post-1996 benefits. Her opponent, former police Chief Jerry Sanders, has said he believes the benefits are illegal, but that only a judge can make the determination to wipe them from the city’s books.
In a written statement, Sanders called Frye’s ordinance “an irresponsible and reckless stunt.”
“She is asking the City Council to take an illegal action that will likely cost the City and the taxpayers millions of dollars in litigation,” he said.
Frye said the aggressive move is the only way to deal with the pension deficit outside of bankruptcy.
“The solutions that have been proposed do not work,” she said.
The City Council is contemplating a package that would include injecting $100 million from land sales and $500 million from bonds and loans by 2008. Even under that scenario, the fund would drop below the lowest of advised funding levels within three years absent a significant cash infusion.
Sanders’ plan includes supporting Aguirre’s legal challenge, issuing pension obligation bonds once the city regains its credit rating, selling non-essential land and freeing up budget funds by reworking employee contracts and other measures.
Passed with little discussion in an era of economic prosperity, the benefit enhancements have since become the focus of high controversy and numerous local and federal investigations. For more than a year, the four current council members who voted in favor of the pension agreements have been forced to defend the actions at the heart of the city’s political unrest.
The District Attorney’s Office has charged six current and former pension board members with felonies related to a 2002 agreement between the city and board. The Securities and Exchange Commission, U.S. Attorney’s Office and FBI are investigating the pension system and other City Hall business.
If Atkins were to docket Frye’s ordinance, the council would be essentially admitting that its previous contracts were illegal.
“We’re presenting them with a second chance to undo the damage that has been done,” Aguirre said.
The move appears to be more political than practical; it is unlikely the council would agree to such a measure. Although the idea that these benefits are illegal has become quite popular since Aguirre suggested so months ago, the current council has shown little favor for the city attorney’s work and less for suggestions it approved allegedly illegal contracts.
“The pension benefits are valid until a court determines otherwise. I don’t see how we can stop payment on that,” said Councilman Scott Peters. “We ought to try to work to resolve the amount we owe the retirement system by paying it off in legal ways.”
Ann Smith, attorney for the Municipal Employees Association, said the City Charter forbids any changes to retirement benefits without the vote of employees or retirees.
“No ordinance amending the retirement system which affects the benefits of any employee under such retirement system shall be adopted without the approval of a majority vote of the members of said system,” the charter reads.
“For any public official to say he or she is going to ignore a lawful agreement … tells us we are dealing with anarchy here,” Smith said.
The ordinance aims to strike what Aguirre calls “paper benefits” from the city scrolls -those benefits of employees who have not yet retired and, therefore, aren’t actually collecting a check. A separate system would be worked out for those who retired between 1997 and Nov. 1, 2005, he said. It is likely mediation would be used on a case-by-case basis so that retirees aren’t stranded without sufficient pensions.
Rolling benefits back to 1996 levels is also complicated by a settlement finalized in 2000 that increased pension benefits separately of the council-approved enhancements. It is a wrinkle that will have to be dealt with, Aguirre said.
He said the city will be forced into bankruptcy if benefits aren’t reduced, as projections show the city’s pension payments will consume ever-larger chunks of its day-to-day budget in years to come.
Aguirre also hinted that by approving the ordinance, the council could avoid a possible lawsuit surrounding the implementation of the 2002 pension deal – something Aguirre suggested filing last week.
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