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Monday, May 08, 2006 | Ask yourself if this is where you want to go.
City of San Diego employee retirement benefits were increased every year from 1989 to 2003. The true cost of this was hidden from all of us because it was completely unaffordable. That is why the contributions were not paid. That is why we now owe billions.
The “secret” is now out. The city is clearly insolvent. So what are we doing about it?
Look closely at the budget proposals. There is no comprehensive solution to the insolvency. There are no long-term financial projections that confirm the problem will be solved.
Now, think about the recent “tobacco revenue securitization” deal. The presentation on this was more quick than complete. Again, no long-term projections were provided. The reasons for doing it in the first place were not legitimate. No one issues bonds in the high 7 percents to capture the “spread” to 8 percent. It’s too teeny.
Even if bonds are issued at 7.17 percent the “interest saved” is only about $174,000 per year in exchange for losing an approximate $11 million dollars every year for at least the next 18 years. It’s a joke.
If bonds are issued at above 7.75 percent and the pension’s assumed rate of return is lowered to 7.75 percent (as recommended by the former actuary and outside auditor) there are no “savings” at all. In fact, we actually lose money. Every year. Nobody does this!
As the city’s credit rating agencies noted, this is just a solution in form rather than substance.
To claim the city must issue bonds in order to comply with employee contracts is equally goofy. If bonds aren’t issued the “extra” money from employees simply goes directly into the pension plan. What’s wrong with that?
These frantic attempts at high-wire borrowings and secretly whispered plans to sell public lands will not fix the pension problem. Hidden financial projections confirm that even if a BILLION dollars were dumped into the retirement system the weight of ongoing annual pension obligations will crush the general fund – the city’s day-to-day budget – in just a few more years.
There is no such thing as a “good first step” towards solving this problem without a comprehensive plan including 15-year financial projections that confirm annual pension obligations can be met and the deficit will be paid off.
We have a right to know at the beginning how any proposal saves us in the end. Otherwise we just keep on pretending.
Diann Shipione was a trustee of the board of administration of the San Diego City Employees’ Retirement System from 1997-2005, representing the general public. She is a vice president of investments for a national brokerage firm.