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But before we go there – lets see what’s “current” on the pension scram.
First, a lot of recent articles and letters to the editor are pouring out of the pension system folks assuring us that the clouds are parting and the sunshine is just ever so slightly out of sight. Nearly time to break out the party hats and horns, have a parade and go back to the days when we were assured that “there is no problem here.”
Joe Flynn, a pretty nice guy and the retirees’ only representative on the pension board recently wrote, in a particularly well drafted blurt (voiceofsandiego.org, June 17) that the pension board might simply ignore the 2004 citywide vote (Proposition G) requiring any amortized pay off of the pension deficit to not exceed 15 years straight time. Remember, that was one of then Mayor Murphy’s “solutions” to the deficit problem. The idea of Prop. G was to require prompt catch up to solvency, and the refusal of leaving this stink-ball for our kids. It had the benefit of appearing rational even if it did not actually get to the problem.
But the SDCERS rationale, as I read it, is that the attorney general wrote an opinion to the effect that pension boards can ignore these types of solvency efforts. And, our pension board gratefully may very well decide that ignoring your vote would be just the best way to go. Flynn reports that the pension board feels the Gleason settlement underfunding program is more to their liking, and that should bind both the system and the city.
The way I read this position is, the voters can’t exercise control of the city’s failing financial efforts to insist on solvency, but the unelected pension board and a settlement judge in a case that did not even address if underfunding was legal, can lock in a continued underfunding program. Sounds about right.
The second clarifying article was the July 17 letter in the U-T from pension board President Peter P. Preovolos, wherein he reassures us that the pension system has been making over 10 percent per year and is only obligated on its (previously hidden) deficit at 8 percent, so we have actually been making BIG money for the past two decades. No real discussion on how we got billions underwater. But, he also opaquely picks up on the Flynn theme of “we might not be using that 15-year amortization” thing you knuckleheads jumped through your ears to vote on in 2004. Instead he finishes his blurt as follows:
This plan will help ensure the full amortization of all unfunded liabilities over a prudent time period without undue burden on future taxpayers.
I read this quote essentially as follows, “if we try to pay this massive bomb off in 15 years all of you will figure out just how big this thing really is. We can’t have that. So, we will likely try to mask this with a ’15 year rolling’ amortization schedule, which means it would be paid off in several hundreds of years.”
I’m not kidding.
But, I understand the pension system’s problem. A number this massive can not be addressed honestly in conventional time frames without consequences to those that got us here. A projection “run” done by the last pension actuary (gone now) confirms that if the deficit as of 2004 was amortized over a longer 30 years (not 15) after the enactment of MP II, the deficit would actually grow to over $5 billion by 2021, and the city contribution rate would be in excess of 50 percent of all general fund revenue.
So, we can be pretty certain that the amortization schedule of whatever winds up as our deficit after the California Supreme Court has its final say some time in the next decade, it won’t be 15 or even 30 years. Might be just a teensy bit longer.
OK, let’s get back to “happy talk.” Here’s the good news.
You read recently that the Port of San Diego had voted to remove its assets ($141 million allocated as of June 4 – but there was no back up detail from SDCERS regarding that number) from the SDCERS administration, hardly a mind boggling event given what we know. (The port fully funds its pension obligations as opposed to the city’s 65 percent, and SDCERS had previously overcharged the port $6 million and was forced to return this sum to the port.) The port’s exit is supposed to happen not more that one year from their notice of intent to leave.
Well, it turns out that the getting out is just not so easy as the getting in (isn’t that always the case?).
See, the port has been doing some homework here. They might have obtained a bankruptcy analysis regarding their 100 percent funded asset interests in SDCERS (you have to assume that all of the unions, the city and SDCERS have done the same). If so, the port now knows that having “commingled funds” in San Diego’s seriously shorted system is not where you want to be. So, “check please” – time to leave.
But, not so fast.
Seems the city and the SDCERS may have some interest in those scrumptious looking fully funded port pension funds.
For one, on May 2 the port board was advised that SDCERS tax counsel, Ice Miller (no relation to Andre “Ice Cold” 3000), had advised SDCERS that, get this, “all of the SDCERS trust [assets], including earnings, no matter who from, are available to pay for all the liabilities of the trust.” It went on with the following helpful example:
If the City of San Diego’s pension assets are drained to zero, then the pension assets of the Port and/or the Airport could be used to pay the benefits of the City’s retirees.
Whoa, Nellie! Gimme some of that SUGAR.
This moment of clarity follows the letter of SDCERS Peter Preovolos to Bill Lynch of the similarly situated airport authority on Feb. 6 wherein he identifies all sorts of IRS, SD Charter, Muni Code and other “technical” reasons why the airport authority’s pension assets, like those of the port, just simply can’t be segmented, sequestered or otherwise protected from the commingling that makes all that money available to SDCERS.
But when sending bad news, there’s no reason not be contrite. Preovolos concludes his correspondence to Lynch as follows: “based upon the cautionary advice we have received from out tax counsel, I cannot support approval of the amended agreements [to protect your assets] at this time. Please accept my sincerest apologies for this unfortunate and unforeseen delay.”
You think these guys are getting their money back?
– PAT SHEA