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Pension geeks will remember that one of the few reforms that have taken place in the last two years of this ongoing saga was actually on former Mayor Dick Murphy’s watch.
It was Proposition G – an amendment to the City Charter approved by voters in 2004 that will supposedly force the city to pay off all deficits in its pension system within a 15-year timetable. What this means is that if the city has a shortfall – or “unfunded liability” – in its employee pension fund, the pension board will obligate the city to adhere to a 15-year plan for paying it off. Right now it’s in the first few years of a 30-year plan.
But it’s not like a 30-year mortgage. With a mortgage, a person pays the same amount for 30 years until the interest and the debt are all paid off.
The pension amortization is done as a percent of the city’s payroll. Since payroll is projected to grow with inflation and, of course, salary increases for city employees, the chunk of money moving over to the pension system will grow. In other words, city leaders – assisted by an always compliant group of pension trustees – push the debt off into the future.
That means, in the early years of the amortization schedule, the city can get away with not even paying down the interest of the $1.4 billion deficit its fund faces. Why? Because it plans on paying it off in the future.
Of course, the problem is, every time they start to get to the point where they pay it down, city leaders redo everything and start from the beginning again. They have that same habit at the county.
With the new 15 year plan, the city will have to undoubtedly make a massive investment into its pension system to make up for all the past years under the 30-year system. This makes it a bit scary for city leaders. Council President Scott Peters, for instance, has attacked Proposition G since its inception.
Now he appears to not be alone in the fight.
The city’s pension board apparently is ready to avoid Proposition G at all costs as well.
Why? Good question. Why in the world would a group of people whose sole purpose is to ensure the health and viability of the retirement fund want to avoid a law that would bring more money and health to the retirement fund?
You’ll have to ask them, but Trustee Bill Sheffler says his colleagues on the board are preparing to ignore Proposition G.
“Our legal counsel has taken a position that the attorney general’s recent opinions render Proposition G unenforceable,” said Sheffler who is an actuary for pension funds himself. “My position is that even if it is, we should comply with it simply because it’s prudent practice. When I fought with legal counsel on this, I did not receive much support.”
It’s important to bring up that even pension whistleblower Diann Shipione opposed Proposition G – but only because it seemed to allow the city too much room to wiggle its way out of the obligation.
Looks like she may have been right.