The Taxpayer Solution

Monday, June 26, 2006 | When you think about the city of San Diego’s ongoing pension crisis, you’re likely to fall into one of two camps. The first camp believes it’s not a problem. Members of this brigade, of course, have seen many comrades fall to criminal indictments, resignations in disgrace and complete disregard.

The second camp believes it is a problem. But you shouldn’t think of its members as united. In fact, the bitterest divisions in this debate are between folks in the second camp.

This camp believes the city is facing a massive pension debt that will cripple city services as we get closer to the time when we can no longer avoid paying it. Some of us in this camp think it’s time to start making tough decisions. Decisions like whether we should explore bankruptcy as an option, or raise taxes dramatically.

City Attorney Mike Aguirre, of course, is in this second camp. He has said he’s willing to support a tax increase, but has admitted it wouldn’t be enough to take care of the problem, and that the city must find a way to cut what it owes to the pension system. He has steadfastly denied that he is interested in bankruptcy, arguing there’s an alternative route. This route takes us through the Superior Court. And this week, we’re starting to see how bumpy the road might be.

On Friday afternoon the Superior Court judge overseeing that case, Jeffrey Barton, was scheduled to release a tentative ruling on the matter.

Turns out, what we saw in his “ruling” was a window into Barton’s big brain. I mock the term “ruling” because it’s really more of an opening to a long story than it is a conclusion.

But there’s nothing to mock about the document itself. It’s quite impressive.

Barton is thinking. And the questions he raises about this landmark case – which, if ever resolved, may have implications for public pension systems across the country – are as insightful as they are inquisitive.

Take this one:

If the City is seeking to set aside the pension portion of the agreements with its employees, can they do so without setting aside the entirety of the collective bargaining agreements covering more than 10 years and involving thousands of current and past employees?

That’s a great question. Aguirre, of course, argues two things: first, that pension trustees had illegal conflicts of interest when they let themselves participate in deals in 1996 and 2002 that increased their – and all employees’ – expected retirement benefits.

His second argument is that, by promising these increased pension benefits, the city essentially went into debt. And, in California, governments can’t go into debt without a vote of approval from taxpayers.

Longtime readers know that my heart lies with the second argument. It asks for recompense for the short-sighted illegal stupidity of a government concerned only about placating special interests in the immediate future and too ignorant or mischievous to properly disclose the consequences of its decisions.

Aguirre says that because of these illegal conflicts of interest, the pension benefit enhancements put into law by the city and its employee unions in those years are illegal and should, therefore, be voided.

Aguirre focuses too much, unfortunately, on this argument. It’s not that he’s necessarily incorrect about the conflicts of interest – both the U.S. attorney and district attorney agree that pension trustees acted illegally. But in this case, I think that argument is a distraction from the larger issue. It’s a gimmick with what he hopes is enough leverage to push instant reform.

But the judge rightly points out that those deals with employees had a lot more to them than just pension enhancements. They included agreements about every aspect of the work environment and compensation level under which city employees would perform their duties.

If Aguirre’s right and the pension deals were illegal, the judge is correct to wonder why all aspects of the agreements aren’t illegal.

I’m no lawyer – and I will be reminded of that once I post this – but I wonder if this all could have been avoided had Aguirre focused on the second argument about why these pension benefits are illegal: the fact that they caused the city to go into debt without authorization from taxpayers.

And maybe Aguirre shouldn’t even be filing this case. Maybe this needs to be a taxpayer complaint: brought by a taxpayer, for taxpayers.

Isn’t this the way to separate the pension benefits from the rest of the collective bargaining agreements? Couldn’t taxpayers use Aguirre’s second argument and claim that they weren’t given their rightful opportunity to weigh in on whether the city could incur such debt?

There’s no need to contend that the entire agreements between the city and employees were illegal and therefore void, a taxpayer would only have to argue that the aspects of them that sent the city into debt were.

Aguirre cannot effectively represent the taxpayer in this case because – like it or not – he represents the city. And to get what he wants, someone has to sue the city. Right now, Aguirre is the city and therefore his legal actions can’t be against the city, they have to be against someone else. In this case, that someone else is the retirement system.

But the retirement system can’t provide taxpayers the relief Aguirre is seeking. So, the judge is rightfully confused.

Here’s the judge again: “In other words, doesn’t this dispute always return by definition into an action by the City against its own employees to undo a collective bargaining agreement enacted by the City Council ten years ago?”

It’s clear, from his questions, that the judge has identified a core contradiction that will cripple resolution of this case for years: The city can’t change its mind about past actions and then sue somebody else in order to fix them. It can and should fix them itself if it really believes past actions were illegal and need to be remedied. The city could, right this minute, pass a new law and stop paying the “illegal benefits.”

The only problem with that, of course, is that the city’s government hasn’t totally changed its mind about its past actions and those benefits. The mayor refuses to say he agrees with Aguirre’s position – waiting to see if Aguirre’s ship sinks or sails and ready to either watch the city attorney drown or jump aboard and sail into the sunset with him. The City Council’s leader actually derides Aguirre’s position whenever he’s given the chance.

City Hall is awash in confusion. All of it may, in any other situation, be enough to warrant a complete dismissal of the case. But the judge also appears to sense that there’s an important point to the complaint. He appears to be aware that something wrong may have happened and something may need to happen to make it right.

Only by arguing from the perspective of a taxpayer can we push him through all of his questions to that main point.

Aguirre should step aside and let someone sue the city alleging that it raised pension benefits for city employees so much that it incurred a massive illegal debt. That would force the city to come to a position. It would force reluctant city leaders to make a clear decision about where they stand and what they do or do not want to fight for.

If it were a taxpayer complaint like this, Judge Barton would only have to answer one simple question: Did the city illegally go into debt? And if so, can we somehow return the city to its pre-debt state?

If it were a taxpayer complaint like this with which Aguirre agreed, it’d be his job to persuade his client – the city – to come around to that view and settle with the plaintiff.

And that may finally get us to the really critical question in all this: How do you take back money that, in many cases, has already been paid out and, in some cases, is something on which city employees have based “life-changing decisions?”

It’s really for that type of question that we should make the judge use all of his big brain.

If I’m full of it, please let me know. We’ll, of course, continue discussing it at the Scott Lewis on Politics, or SLOP, Blog.

Here’s the judge’s full ruling if you haven’t yet seen it yet.

Please contact Scott Lewis directly with your thoughts, ideas, personal stories or tips. Or send a letter to the editor.