Thursday, January 19, 2006 | San Diego’s pension crisis has officials bracing for a worst-case scenario where the city government pays nearly a third of its annual operating budget into the beleaguered retirement fund.
Although the city will probably not know how big its pension bill is until March, City Hall is abuzz with anxiety as the city forges into a new budget season with the specter of continued cuts to basic services and perhaps even bankruptcy hanging in the balance.
A spokesman for Mayor Jerry Sanders said the mayor is going into the upcoming budget season with the assumption that the city could owe the San Diego City Employees’ Retirement System as much as $300 million.
“It could be as high as that, but the truth is that we just don’t know,” Sanders spokesman Fred Sainz said. “Responsible people are bound to insert a worst-case scenario so you don’t get caught flat-footed.”
Sanders told the CBS Evening News in a Friday broadcast that nearly one-third of the city’s $857 million general-use fund could be used to pay for pension costs, and that the expense will force further cuts to the city’s already strained budget.
City Attorney Mike Aguirre said he estimates the city’s pension bill could possibly reach $305 million, nearly double the $163.5 million the city contributed this year.
An actuary will present the forecast in March, and Sanders and Aguirre have both said they believe the pension deficit will climb from $1.37 billion to closer to $2 billion when it is released. At that point, the city will have a better handle on what its exact debts to the pension system are.
Officials are crossing their fingers until then, hoping its pension obligation does not cut too deep into an already-strained day-to-day budget. A booming real estate market and upswing in the local economy allowed more cash to flow into the city’s coffers this year, but increased retirement costs triggered cuts to library staff, park maintenance and public pool hours.
If $300 million is the payment number, the city will have much more to cut than libraries, parks and swimming pools.
“There’s no questions that there are going to be serious painful cuts,” said Lani Lutar, president of the San Diego County Taxpayers Association. “They would make this year’s cuts look much less dramatic.”
Aguirre said he doubts whether the city could endure a worst-case scenario, and has argued that the city not pay for the portion of workers’ benefits he has sought to make illegal and void in an ongoing lawsuit.
The only way to sustain the city’s solvency is to pay retirement benefits at rates that were determined before 1996, he said. The city attorney has opined that the city should not recognize pension enhancements that were granted in 1996 and 2002 because they were granted in illegal and corrupt deals.
“For the same reason that we must pay the legal benefits, we cannot pay the illegal benefits,” Aguirre said.
Sanders believes the city has to continue honoring its agreement with pensioners until a court rules otherwise, his spokesman said.
“The mayor does not disagree that those benefits were granted inappropriately, but it’s a court’s place to determine their legality,” Sainz said. “Stopping payment would start a full employment program for attorneys.”
Councilwoman Donna Frye agrees with Aguirre, but the remaining council members have said that the pension enhancements should be honored until a judge rules they are illegal.
The City Council met Wednesday to discuss council members’ budget priorities, submitting wish lists that included programs and services that they believe should be funded in the next fiscal year, which starts in July.
Council members overwhelmingly agreed that they wanted to take care of the city’s retirement fund problems, but also argued in favor of several programs, such as graffiti removal and tree-trimming, that could potentially be on the chopping block if the city’s pension bill squeezed them out.
The mayor and the council will rely on each other to pass a citywide budget, as Sanders will propose a budget that council members will review and eventually approve over a matter of months leading up to a June 30 deadline. Before the city switched to the voter-approved strong-mayor form of government this month, the mayor voted with the council when approving a budget the city manager prepared.
Sanders touted his strong-mayor responsibilities in his State of the City address last week.
“One of the clearest breaks with the past will be my proposed budget for fiscal year 2007. Unlike budgets of the past, this budget will have a clear owner and champion – me,” he said.
The mayor will still have to rely on the council to approve the budget, and that might give way to a steady stream of compromises under certain circumstances. The council will have its own independent budget analyst to challenge the mayor’s fiscal proposals, as well as the final say on what version of Sanders’ spending plan passes. The mayor can veto the council’s version of the budget, but the same number of council votes is needed to pass the budget and override a veto.
Peters said the new mayor-council relationship could open up a climate for politicking for funding for certain projects or programs, but said there probably wouldn’t be a lot of flexibility in next year’s budget to negotiate.
“There’s just no room to maneuver,” Peters said. “Someday there will be politicking over the budget, but that doesn’t describe this year.”
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