Monday, April 03, 2006 | Here’s a proposition: Go to Fashion Valley Mall and walk into one of your favorite stores. Pick out something you like and decide not to buy it.
Say the something was, um, a new computer game at the Apple Store for $50.
What happened? Did you officially save money with that decision or just not spend it?
Let’s try again: Let’s say you set a budget for your whole year that included $50 a month for new computer games. You go into the Apple Store every month and dutifully find the most engrossing game possible – one that’s sure to really help your marriage. But after six months, you go on a trip to Las Vegas and lose $300.
So, you decide that for the other six months of the year, you’ll avoid the Apple Store.
Now, let’s look at this again. By not spending the $50 bucks a month for the rest of the year did you:
A. “Save” $300 dollars
B. “Earn” $300
C. Or did you just come out even – except that you don’t have six months worth of computer games (but you probably still have a wife.)
If you answered “C” you’ll have a chance at maintaining good credit and financial security. But you’ll never get a job with the city of San Diego.
It appears as though you must answer “B” on a test like this to get a job advising the city on how to handle it finances. Maybe that was just in the pre-Jerry Sanders world, and maybe after the mayor finishes with a nagging little tobacco deal, he’ll embrace a different philosophy as well.
But for now, old traditions die hard.
As we discussed several weeks ago, the mayor and City Council are considering a deal that would send all of the money the city receives from tobacco companies to Wall Street investors indefinitely in exchange for a one-time infusion of cash into the city’s beleaguered pension system.
Why would they do this?
Let’s see if we can start from the beginning. A while back, former Mayor Dick Murphy asked the city’s labor unions to start renegotiating their contracts a bit early. They did, and they eventually came out with some complicated resolutions. For one thing, most of the city’s employees agreed to allow more money to be taken from their paychecks to invest in the struggling pension fund.
To be specific, the employees allowed 3.2 percent of their salaries to be taken out of their checks and earmarked for the pension system.
While the city and its employees are supposed to share the so-called “normal cost” of funding the pension system, for years taxpayers have agreed to pay more than 50 percent of this cost as an added benefit to employees. The city is not alone in this; several local governments do the same thing for their employees.
Securing a reduction in that agreement – in other words, persuading the employees to pick up more of that normal cost – meant the city “saved” money.
One group of employees chose a different option. The blue-collar workers represented by the local American Federation of State, County and Municipal Employees decided to take a pay cut: a 1.9-percent salary reduction that was implemented two days after the group received a 3-percent pay increase.
Yes that does mean that their paychecks didn’t actually get smaller – nor did the cost to taxpayers. But to the city, just keeping employee wages at a lower rate of growth is considered a “savings.”
All of these great savings added up to about $17 million a year. But there was a catch. According to its agreement with employees, the city can’t use that “money” to pay for things like cops and swimming pools. It must take that money and put it in the pension system. Actually, what it has to do is more complex. It’s required to take the money and give it to Wall Street investors as an annual payment in exchange for a fat, one-time cash infusion to the troubled employee retirement fund.
The problem with this is the reason why I put “money” in quotation marks: there’s no actual money there. The city doesn’t have $17 million hidden under the mayor’s mattress. It spent that money (and far more) on lawyers, consultants, investigators and who knows how many other things. In the pre-Jerry Sanders City Hall, city leaders used budgeting techniques that the mayor now tells us were deceptive at best.
In other words, the city went to Las Vegas and lost money long before it ever saved a dime from these latest employee negotiations.
So now the mayor and his advisors are stuck with a problem: they have to spend money they supposedly saved, but is actually gone. So they come up with things like this tobacco bond measure, hotly debated last week, that appears to do nothing to either a) help the pension system significantly, or b) protect taxpayers and city services.
In the tobacco deal, the city will send the money it gets annually out of the massive tobacco settlement to Wall Street investors in exchange for a one-time $100 million investment into the troubled pension fund. The mayor’s advisors say the money supposedly “saved” with the employee deals will back-fill what the city loses in annual tobacco revenue. I think it’s clear where I stand on how well that’ll work out.
The City Council will be asked to approve the whole deal on Tuesday.
But if the city does nothing, the employees will lay claim to this money the city supposedly saved. In fact, much of it is still being held in an escrow account ready for the employees to take back unless the city does the Wall Street dance.
So, unbelievably, we’re faced with the potential that unless the mayor can find a way to spend money that has already been spent, he’ll have to give it back to the people that provided it in the first place.
We’ll see how he figures this one out.
Scott Lewis oversees voiceofsandiego.org’s commentary section. Please contact him directly at