Monday, July 24, 2006 | City Hall’s largest employee union is insisting that Mayor Jerry Sanders and the City Council not only should impose a new tax on San Diego property owners to cover pension costs, but are legally obligated to do so.
In a letter sent Friday to Sanders and council members, union attorney Ann Smith hinted that the city could be forced to deal with the issue in a courtroom if it fails by Aug. 31 to invoke a clause in the city charter that states “the Council, if necessary, shall levy annually a sum sufficient to meet the requirements of the pension fund” on top of the property tax it collects.
Under the scenario suggested by Smith, an attorney for the Municipal Employees Association, the tax would not be put before voters like most tax increases, but rather be added on to property tax bills.
“Adding such a ‘pension tax’ to the city’s annual levy is not a matter of discretion but rather a matter of duty, and therefore, enforceable by the courts,” Smith wrote.
The city levies a similar fee of 2 cents for every $100 of assessed property value to fund maintenance at the San Diego Zoo. Smith said she did not know how much the pension tax would cost property owners. But she said the city has not lived up to its obligation to pay down the pension deficit, and therefore must raise revenues.
The idea of instituting a pension tax has been discussed in and around City Hall before, but the position that the city is mandated to so is new. It’s unlikely the council would undertake the effort suggested by Smith. Public confidence in city government has been severely shaken in recent years as the city’s financial crisis has unfolded.
Elected officials and employee unions have borne the brunt of public outrage as a combination of fiscal policies and increased employee benefits have led to a pension deficit estimated to be at least $1.4 billion. Criminal charges and sizable budget cuts have resulted. Unilaterally imposing a tax increase would likely spell political disaster for council members.
If the issue is taken to the courtroom, it would add another player to the legal drama surrounding the city’s pension problems, which includes state and federal criminal cases and City Attorney Mike Aguirre’s lawsuit challenging the legality of a decade’s worth of pension-benefit increases.
Council President Scott Peters, who controls the council’s scheduling, hadn’t yet seen Smith’s letter and was unavailable for comment, his spokeswoman said Friday evening.
Mayor Jerry Sanders has opposed any new taxes to help solve the city’s financial pinch. Instead, he hopes streamlining, cost-cutting and borrowing can fix its ills. The mayor’s spokesman, Fred Sainz, said Sanders not only opposes the pension tax, but would fight any action brought to the courts by unions.
“He thinks that such a suggestion would be horribly out of touch with the reality of what the public expects from its elected officials,” he said.
Any legal action by the unions would surely be fiercely contested and likely be focused on whether voters would have to approve the tax increase and on the meaning of “if necessary” in the city charter.
Smith said she understands her stance is an unpopular one, but that city employees have to fight back for their rights at a time when the city is not living up to its obligation to pay down the pension deficit.
“This is not meant to pour salt on the wound of any resident who is unhappy with city government,” she said in an interview. “But the reality is even if this is a politically difficult time … this city has not had or been willing or able to have the revenues it needs to meet all the needs and expectations of the residents.
No one’s been able to deal with that. They’ve just blamed employees for their pension benefits.”
Smith argues that the pension tax is and has been necessary because of a low-tax revenue structure and the city’s inability to give employees competitive wages and benefits. As evidence of this, she cites in her letter the fact that MEA members were forced to make pay and benefit concessions in the latest round of labor negotiations, as well as Aguirre’s courtroom argument that the city doesn’t have the money to pay its obligations.
She said the city could avoid having to issue more debt – as envisioned by Sanders’ financial plan – by levying the tax. Smith also advocates selling any city land that doesn’t fit with the city’s core duties.
Former pension trustee Diann Shipione said the city imposed a pension tax from 1961 until 1978, when voters approved the tax-control measure Proposition 13. At that point, former City Attorney John Witt opined that the tax couldn’t be levied because it wasn’t approved by voters.
Tax increases generally must be approved by either a majority or two-thirds of voters, depending on the type of tax proposed. However, Smith’s analysis of the city charter says that the city can in fact unilaterally impose the tax on voters – if it calculates what’s needed based on pre-1978 pension benefits.
The cost of the tax would be calculated by multiplying the pre-Proposition 13 benefit levels by the current salary levels of employees, thereby generating a tax that would fund a portion of the retirement system’s costs. Smith said she didn’t know how much such a tax would cost San Diego property owners and that it wouldn’t be used as a measure to pay off the entire $1.4 billion pension deficit.
Aguirre said voters would have to approve any tax increase. Smith’s position “is not legally sound and, in addition, there’s no political viability to it either,” he said.
Smith said MEA, which represents the city’s white-collar workers, first broached the subject of a pension tax with city officials during the 2005 labor negotiations. She said in that time the city hasn’t made any significant contributions to the pension system above its annual payments and the infusion of $100 million in bond proceeds, which was backed by money freed up by employee concessions.
Sanders has plans to borrow an additional $574 million in pension obligation bonds in the next two years, but has so far been unable to as the city remains locked out of Wall Street over questions surrounding its accounting and financial reporting.
Shipione said she heard the idea of a pension tax floated as early as 2002 by fellow pension trustees.
“This is not a new idea with respect to labor,” she said. “The plan when I was on the board was that if somehow this got out of control the way it would be addressed is by selling off real estate and imposing the pension tax through the city manager, not the City Council.”
The city has until Aug. 31 to register with the county its tax levy for the coming year. It currently levies a property tax of $1.34 for every $100 of assessed value on a property. It then adds two cents for the maintenance of the zoo.
“If we’re charging two cents for the zoo, then I don’t know why we can’t charge two cents for the pension system,” Smith said.
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