The Morning Report
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Monday, May 08, 2006 | There is one thing that has gotten lost in the recent discussion about Mayor Jerry Sanders’ strategy to borrow hundreds of millions of dollars from Wall Street and invest the total into the troubled city employee pension system: Sanders’ reluctance to allow voters to weigh in on the proposal.
I’m not one to put a lot of faith in the masses – especially on something like this. Even the civically engaged and very intelligent local residents I meet sometimes don’t know what a “bond” really is.
That’s one reason, by the way, I wouldn’t mind if we passed a law prohibiting local leaders from using the word “bond” when describing what they do. How much more would it drive home what they’re really doing if politicians had to say something like “borrowing money and accruing interest that your kids will have to pay off” every time they want to say “bond?”
Just dreaming. No, regardless of my discontent with the way language is used to shape the public’s view of government fiscal policy, I recognize the voters’ function within a system like ours.
And I’m surprised that Mayor Sanders is doing everything he can to avoid giving voters a shot at his plan – even though giving his plan to voters may be the only legal route to getting it out of the starting gate.
What do I mean? When City Attorney Mike Aguirre took the first shot in what will eventually be the long war between him and Sanders, he did so by laying out an opinion with two parts: one that everyone focused on, and another that nobody did.
(And yes, that amazingly long honeymoon between Sanders and Aguirre surprised everyone, including me, is quite over.)
The part of Aguirre’s opinion that everyone focused on was the part in which Aguirre said Sanders’ plan to issue $574 million in bonds – and use part of that to pay the city’s annual bill to the pension system – were illegal. The part that nobody focused on was the part that says “unless the mayor gets them approved by a two-thirds vote of the people.”
And that, to me, is a very important part. But Sanders maintained that he disagreed with Aguirre and would push forward with his plans as they were: no vote of the people needed.
Heck, the city’s already in trouble, why not throw in another legally questionable deal?
The California Constitution prohibits local governments from incurring debt any year without approval from two-thirds of the voters in that government’s jurisdiction. In other words, it’s plainly illegal for a mayor and City Council to issue a bond – remember, “borrow money” – without first getting the voters to sign off.
Now, governments across the state, including the county of San Diego, have successfully issued pension obligation bonds, like the ones Sanders has planned, without a vote of the people. How? Each time they get the issuance validated by arguing that the debt they are financing is an already existing debt. In other words, they are not borrowing money, they are only refinancing it. The governments owe their pension systems money so that their employees can retire, so the governments are merely getting a loan now to invest the money and have it available in time for those retirements.
I think it’s a stretch. Judges in the state are starting to show signs that they do too. But I’m not holding my breath.
What’s most funny about the argument – or most troubling – is that if it’s true that these debts to local pension systems already exist, then how were they ever legally created without a vote of the people?
California law clearly gives voters a say in whether or not their local governments decide to get into debt. Yet under this system, voters not only don’t get a say, but their elected officials actively avoid it.
The reason voters were given a say is simple: Although they may not know what a municipal bond is, they can understand the significance of the decisions being made. If they know, for example, that the bond would make this year’s budget OK but in the future would force their kids to either pay higher taxes or live in an even less safe or clean city, they may think twice. And if they are asked to do this to pay for city employee pensions, they may think twice the next time they watch employees get pension increases.
On the other hand, if there is a good reason to raise employee pensions and a good reason to borrow money to pay for them rather than pay for them with, you know, money earned, voters might be willing to listen to those arguments.
Mayor Sanders should give them the chance. Even if he doesn’t think he needs to be worried about Aguirre’s bald-faced attempt to derail the plan by pointing out alleged legal problems with it, why not settle the question entirely with a vote of the people?
If it’s such a good plan, Sanders should be able to sell it to voters.
But as many have looked at the risks of pension obligation bonds in the last few weeks – especially with interest rates rising – Sanders’ is increasingly being seen as a questionable plan.
And voters, rightly, would probably shoot it down if given the chance.
Scott Lewis oversees voiceofsandiego.org’s commentary section. Please contact him directly at