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Tuesday, Nov. 7, 2006 | Former City Manager Jack McGrory said the 1996 agreement between the city, its retirement system and labor unions – now one of the foci of the current pension trial – was a “fiscally responsible” approach to accommodating costs expected to soar in later years.
Called today as City Attorney Mike Aguirre’s first witness in the opening phase of the trial, the ex-city manager said the city administration worked with the retirement system and the employee groups to forge a “fiscally responsible” plan for managing its future retiree costs.
Monday’s testimony illustrated the mindset of the city’s top executive during the crafting of a deal that has since been scrutinized publicly for its impact on the city’s tattered financial condition, which currently includes a $1.4 billion pension deficit. The scope of Aguirre’s questioning was limited to deal with the narrow issues in the opening stage of the trial, but the city attorney’s questions prompted responses that shone some light onto the reasoning behind the deal.
McGrory said his idea for the proposal was spurred by the advice he received from the retirement system’s actuary to alter the city’s pension funding practice to a more consistent method. The actuary predicted that the increased longevity of retirees and the oncoming flood of baby boomer retirements at the city would strain the system under the method the retirement board adopted in 1991, known as projected-unit credit, or PUC, he said.
McGrory said his goal was to shift the city onto the more conservative entry-age normal, or EAN, schedule, which would have caused the city to ramp up its annual payments considerably but also provided more predictability in its future pension bills.
Instead of jumping immediately into the larger yearly payments at a time when the city was rebounding from a recession as well as the state of California’s raid on local tax coffers, McGrory proposed to gradually move the city into the new funding method, he said.
“There was incredible stress and pressure on the general fund,” said the former city manager, who left the city of San Diego a year after the pension deal was struck.
The original plan envisioned by McGrory was later scrapped. Last month, the retirement board elected to switch to EAN by the time the city receives it annual pension bill for the 2009 fiscal year.
The 1996 deal, known as Manager’s Proposal 1, is more famous for other things that the EAN funding plan. More notoriously, it provided the city with short-term relief from its pension bill, something that allowed the city to shortchange the pension fund almost $110 million in underfunding over several years, Aguirre has argued.
The deal also granted a slew of new retirement benefits to employees, including members of the city’s management (McGrory included) and the retirement board who struck the deal.
Aguirre argues the arrangement created a conflict of interest for the officials who created it and is seeking to nullify those 1996 benefits, as well as enhancements that were granted as part of a similar pension deal in 2002.
However, the conflict-of-interest argument, and the companion allegation that the retirement board violated a law that prevents the government from incurring more debt than it can cover in a year, is not being vetted by Superior Court Judge Jeffrey Barton in this phase of the trial.
Instead, Aguirre appeared to primarily be using McGrory’s testimony to argue against one of the five potential obstacles that are being flushed out in this opening stage of the trial. The workers are arguing that retirees, police officers, deputy city attorneys and many other employees whose future retirement pay would be cut if Aguirre gets his way are not being represented in the litigation.
As such, they argue that the judge cannot grant Aguirre’s wish that the benefits be voided.
Aguirre showed McGrory records detailing a number of the meetings that took place in the run-up to the 1996 deal’s approval, noting the involvement of several union leaders in the discussions leading up to its adoption. The city attorney also played a video of the City Council meeting where McGrory thanked the heads of the city’s unions along with his staff and retirement officials for their diligence in molding Manager’s Proposal 1.
Municipal Employees Association lawyer Ann Smith elicited responses from McGrory, who formerly taught labor relations at the college level, that affirmed the employees’ position that unions only negotiate on behalf of their members, not other workers who weren’t represented by attorneys in the case.
The judge said Monday that he was seeking arguments from both Aguirre and his opponents about whether the court can roll back benefits from employees who aren’t represented in the case because the union officials who negotiated those benefits had “sufficient” knowledge about the deals.
McGrory will continue his testimony tomorrow. MEA general manager Judie Italiano, former Labor Relations Director Dan Kelley, and attorney Timothy Pestotnik are slated to be called by Aguirre after McGrory.