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Tuesday, March 21, 2006 | Whoa! Could everyone please take a time out and a deep breath?
On Friday, the San Diego City Employees’ Retirement System’s (SDCERS) actuary presented preliminary numbers related to the unfunded liability (UAAL) and the required payment for fiscal year 2007. Before we get too excited about why it is so low, let’s remember the ground rules.
In July of 2004, the city, SDCERS, and the plaintiffs in the now-famous Gleason lawsuit entered into a settlement agreement. Under the terms of that agreement, the annual valuation by SDCERS (that’s the document that calculates the system’s unfunded liability and sets the next year’s payment), must be calculated using the assumptions and methodologies unanimously approved at the SDCERS meeting of February 2003.
Furthermore, the agreement stated that a 30-year fixed amortization schedule must be used to calculate the payment on the debt.
The other important provision of that agreement is that SDCERS holds a Deed of Trust securing payment of the FY07 retirement plan contribution.
Put another way, if the payment calculated using the methods and schedules shown above does not occur by July 3, 2006, the Qualcomm parking lot belongs to the retirement system.
Now, I believe the assumptions approved in 2003 are not ones that the Board of Administration of SDCERS would use currently if they had an option of changing them. And one would hope that the SDCERS board, given an option, would not choose to use an amortization schedule that doesn’t amortize the debt, but increases it instead. But absent a modification to the Gleason settlement, they can’t change those assumptions.
That said, the SDCERS board certainly had the right and, I believe, the obligation to attempt to revise the settlement. Both Jim Gleason and his attorney, Mike Conger, have appeared before the SDCERS board, indicating a willingness to revise the assumptions. Since the settlement was a 3-way settlement, I would have expected the SDCERS Board to hold hands with Gleason and march over to the city requesting a release from those assumptions. But that hasn’t happened. At least not that we know of.
And if I was a city official, I would be willing to agree to a more realistic set of assumptions conditioned upon the release of the July 3, 2006 payment date requirement. There is no particular reason (other than the Gleason settlement) why the entire payment for the full year of FY07 needs to be made on the first day of that fiscal year. Yes, it is true that an up-front payment will be less in total than a staged payment (maybe four quarterly installments), but at this point in history, relief from that July 3 date would be helpful.
But city officials probably want to know what that bill will be if the assumptions are changed. That’s a reasonable question and the SDCERS Board needs to be hot on the trail of providing that information. Bill Sheffler, a member of the SDCERS Board and a professional actuary, now pegs the number at about $210 million.
During a press conference Sept. 28 while he was campaigning for mayor, Jerry Sanders (with me standing behind him at the podium) pledged to stop digging the pension hole deeper. My estimate at that time was that such a payment would be between $200 and $225 million. He said he would find a way to get that much into the budget. I have heard nothing from Mayor Sanders indicating a change in that position.
So where are we now? City officials, SDCERS officials, and Mr. Gleason need to get together. The topic is a larger payment in exchange for timing relief. Discuss.
April Boling was the chairwoman of the city’s Pension Reform Committee while also chair of the San Diego County Taxpayers Association. Agree? Disagree? Send a letter to the editor.