Be Careful of What You Vote for

I’m sure most of us readers are getting little tired of the Yes/No debate over Propositions B and C. I know I am.

I’m fairly certain both propositions are going to pass easily. I believe both will pass because people in San Diego truly want reform in city government and they believe Propositions B and C will achieve that reform.

I’m not so certain it will. Propositions B and C appear to be more about a political response to the need for reform, rather than a practical response toward achieving reform. But, that’s just my opinion and I don’t really want to debate it.

What I am curious about is whether anyone actually considered if there were any unintended consequences in the event these propositions should pass? You know any hidden ramifications that may exist by having these laws on the books that are not known to the voters, or maybe even the proposition designers.

Nonsense you say. Well, I don’t think so.

Do you remember Propositions H and G in 2004? They were part of a political response, disguised as reform, intended to fix the retirement system. Well the voters did get some unintentional consequences from Proposition H, and in 2008 may get more unintended consequences than they can handle from Proposition G.

Confused? Let’s look at what G and H produced and may continue to produce come 2008.

Let’s start with Prop H. Prop H, as you might remember, was the ballot measure to “reform” the pension board by reducing the number of city employees that sat on the board and replacing them with independent appointees with specific qualifications.

So, what happened? Almost as soon as the new board was impaneled they refused the city attorney’s demand to release attorney/client privilege between former board members and their pension attorneys over the MP-1 and MP-2 deals. They also refused to allow the city attorney to sit as the pension board’s legal council, even though historically it’s always been done that way. And last, they refused to roll-back the purported illegal benefits. When the mayor asked for their resignations, they again refused.

The unintended consequence of Prop H was that – unlike some previous city employees that sat on the pension board and were used to taking their queue from the council, mayor, city manager, city auditor, and even union leaders – these appointees were truly independent. They correctly recognized that their fiduciary duty belonged only to the trust and not the people who appointed them.

Now that’s not what the voters intended when they voted for Prop H. They wanted reform, not independence!

What about Prop G? Well, Prop G was designed to give voters the comfort of knowing that if the pension system’s unfunded liability couldn’t be paid down by July 1, 2008, it would adopt a 15-year amortization schedule and any new benefits would have to be paid down over a 5-year amortization schedule.

Sounds good, so what’s the problem?

Well, city finances were worse than first thought when Prop G was put on the ballot in 2004 and the pension system’s unfunded liability still remains at $1.4 billion. So, now the 27-year amortization schedule adopted under the Gleason Settlement is looking a lot more practical to the city.

So can we just forget about Prop G in 2008? Well it may not be that easy. Even though the pension board has authority over establishing the payment schedule, and not the city or the voter, there happens to be another problem that popped up in 2005 that no one thought of in 2004…retiree healthcare.

Like the SDCERS retirement trust, retiree healthcare is also a trust that is administered by SDCERS. The difference between these two trusts is that SDCERS is approximately 70 percent funded with a $1.4 billion Unfunded Accrued Actuarial Liability (UAAL) and the city retiree healthcare trust is 0 percent funded with a $1.4 billion UAAL.

Now here is where it gets sticky. The voter language in Prop G speaks to reducing the UAAL of the pension system related to retirement benefits, which retiree healthcare clearly is. It also directs the Pension Reform Committee to set the amortization schedule for any remaining UAAL that may exist by July 1, 2008. The PRC did identify in their report a retiree healthcare UAAL estimated at between $500 – $700 million (revised in 2006 to $1.4 billion).

The last thing the city needs is a second $1.4 billion amortization payment schedule in 2008. That, my friend, is more reform than the city’s General Fund can handle.

So, how does any of this apply to Prop B and C? Well, I’m not quite sure yet, but that’s the problem, you might not fully understand all the unintended consequences until you’ve committed to the action. A good idea of some unintended consequences of Prop C was the topic of Evan McLaughlin‘s piece “The Indianapolization of San Diego.”

What concerns me the most about Prop C is that there is this belief that it won’t apply to safety personnel. Outsourcing law enforcement services is nothing new in this county. Matter of fact, the largest outsourcer of law enforcement services is not private security, it’s the San Diego Sheriff’s Department. They outsource law enforcement services to about a half a dozen charter cities in this county. Charter cities just like the city of San Diego.

So, on Nov. 7th, the real question voters need to ask themselves about Prop B and C is whether they’re truly reform efforts, are they reform efforts we need, and are there any unintended consequences?

Just be careful for what you vote for, because you just might get it!

– MARK SULLIVAN