The Morning Report
Get the news and information you need to take on the day.
Thursday, October 13, 2005 | The two candidates competing to be San Diego’s next mayor made it clear they intend to live and die by their fiscal recovery plans Wednesday, as each assembled a group of experts to discredit the other’s plan.
First, City Councilwoman Donna Frye held a press conference with three financial experts outside of the offices of the distressed retirement system to claim that former police Chief Jerry Sanders’ numbers “don’t add up.”
Hours later, Sanders returned the favor with the help of three attorneys who said Frye’s plan to cease recognizing nearly a decade’s worth of allegedly illegal pension benefits was itself illegal.
In a campaign squarely concentrated on San Diego’s fiscal recovery – including the taming of a pension deficit estimated to be more than $1.4 billion – all eyes have been focusing in on the specifics of each candidates’ recovery plan.
Earlier this week, Frye and City Attorney Mike Aguirre announced a plan to ask the City Council to reverse a series of pension benefit enhancements and return workers to 1996 benefit levels, saying that a number of recently-released pension documents had removed any doubt as to the legality of benefits created in 1996 and 2002 deals between the City Council and pension board.
The maneuver would allow the city to remove the obligations from its scrolls until a court decides the ultimate fate of the benefits Aguirre has challenged in a suit against the San Diego City Employees’ Retirement System.
Former City Attorney John Witt said at a Sanders press conference that there was no legal basis for such a premature dispatch of pension obligations.
“You can’t just unilaterally discontinue pension benefits,” he said.
Witt was also joined by former Assistant City Attorney John Kaheny, a frequent Aguirre critic, and plaintiffs’ attorney Michael Conger, who has sued the pension system on behalf of employees, retirees and the taxpayers association.
“Donna Frye is promising something she cannot deliver,” Kaheny said.
Witt and Kaheny headed the city attorney’s office when the first of the controversial pension deals was inked in 1996. However, Witt hired an outside attorney to advise the City Council on the deal known as Manager’s Proposal 1 in order to avoid the appearance of a conflict of interest. Pension benefit increases were included as part of the deal.
Kaheny said he was party to the closed session hearings in which the 1996 agreement was discussed, but didn’t provide advice to then-City Manager Jack McGrory or the City Council related to the pension deal. He said he left the office before the benefit increases kicked in.
The agreements of 1996 and 2002 allowed the city to annually underfund its pension system, while granting increased pension benefits for employees. The pacts are largely blamed for the pension deficit that threatens to consume the city’s budget, as well as the numerous local and federal investigations into city finances and politics.
During her press conference, Frye and her group of economic advisors questioned the veracity of the numbers in Sanders’ fiscal plan.
“If you sit down and look at the numbers, ours add up and his don’t,” Frye said. “It’s pretty simple.”
She was joined by Ross M. Starr, a professor of economics at the University of California, San Diego; Steven Schanes, pension actuary and the first head of the U.S. Pension Benefit Guaranty Corp.; and John Gordon, a municipal and corporate finance consultant.
The group questioned a number of the assumptions in Sanders’ savings plan.
For example, the Sanders plan estimates $35 million in savings by instituting salary freezes. Frye said the savings would be more like $7 million a year.
According to numbers provided by the City Manager’s Office, for every 1 percent that salaries increase annually, city costs increase by $7 million a year.
Salaries are already frozen for the next two years in the new labor contracts. In the last year of the three-year contract, employees will receive a 4-percent pay increase.
So, the savings in the Sanders plan would be attained if he were able to rework the existing labor contracts of some labor unions and convince others to continue receiving no wage increases for multiple years. The savings wouldn’t be realized for three years and, according to the city’s numbers, would be closer to $28 million than Sanders’ $35 million.
When the former police chief released his financial plan, he called for a 10-percent, $64 million cut to the labor force if labor unions refused to rework their contracts. He has since said that police and fire departments would be exempted from that cut, leaving that threat ineffective for two of the city’s five labor unions.
Sanders’ advisors said that is one issue he will have to deal with if he wins the Nov. 8 election to replace resigned former Mayor Dick Murphy. Absent the public safety department, the contingent cut totals an estimated $35 million.
For his part, Sanders accused Frye of artificially inflating her numbers in order to justify a tax increase. Frye’s plan includes asking voters to approve a 10-year, 0.5 percent sales tax increase to close the pension and budget gap.
Aguirre said Sanders’ unwillingness to repeal the benefits now and raise taxes has left him little choice but to be critical.
“I had to live for six months with Murphy not telling the people of San Diego the truth – that they didn’t have to raise taxes and that the benefits were legal. Jerry Sanders wants to return to the days of Dick Murphy,” Aguirre said.
The city attorney argues that the benefit increases of 1996 and 2002 were illegal because they violated the City Charter, state statutes barring the creation of illegal debt and a state law that forbids public officials from voting on contracts in which they have a financial interest.
Conger, the plaintiffs’ attorney, doubts that Aguirre will succeed in his legal challenge. Conger filed suit early this year to void the 2002 benefits on behalf of the San Diego County Taxpayers Association, although he said the suit was intended to make the city fully fund its pension benefits.
He said employees have been providing work for years on the understanding that the benefits were part of their compensation.
Please contact Andrew Donohue directly at