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Thursday, Jan. 25, 2007 | There’s been a lot of talk these days about the supposedly improving state of the city’s pension system. It’s funny how open organizations like public pension systems are when they have good news to report. All the documents are out, officials are clear and accessible.
When bad news comes out — more like seeps out — you have to squeeze documents and information out as if you were trying to get enough toothpaste out of the skinny, rolled-up tube you should have replaced days ago.
But no matter. Yes, the unfunded liability of the city’s pension system — the billion-dollar-plus shortfall that we’ve been talking about for years — came in a little less this year.
There were a number of reasons for this: The pension system changed its accounting practices giving it a one-time boost; the system’s investments have earned money at a high rate; and the city gave away all of the rights to its tobacco settlement money over the foreseeable future in exchange for a cool $100 million. The city, of course, didn’t get to hold onto that check very long before it had to sign it right over to the pension system.
But another major contributor to the drop in the pension system’s revenue shortfall was the fact that city employees’ salaries have not gone up in recent years.
In calculating its health and future needs, the San Diego City Employees’ Retirement System assumes that the city will give its workers about a 4.25 percent raise every year over the long term. Each year that it doesn’t give this kind of raise, the pension system becomes healthier. Now looking at the other side of the coin, if the city decides to give bigger raises than 4.25 percent to employees, the pension system’s health will deteriorate accordingly. In fact, it was that practice, according to numerous studies, that caused us to get to where we are.
Some, including the Union-Tribune‘s editorial board, have looked at those facts and suggested that the city should freeze salaries for several years, if not the next decade. That way, they say, we could have no pension shortfall.
It’s not the worst idea that board has ever come up with, but it faces perhaps the most powerful opponent imaginable — one with a lot of guns: the police.
Mayor Jerry Sanders and the city’s Police Officers Association have just begun negotiations. The cops have been upset for several years now because they haven’t actually come to an agreement with city’s management during these yearly discussions. The city has merely imposed its will on them.
In case you haven’t noticed, the police officers have revolted. So mad are they that they actually threw out many of their own union leaders hoping that a new generation of leaders might be able to get the message across better and help them bring home more money.
I’ve talked about this before.
The main gripe the police have is with their take-home pay — the amount of money that they actually get to take to the bank. This would be compared to gross pay — the amount of money we really pay them before we take out the cost of the medical care and their contribution to the pension system and a couple of other things.
Jeff Jordon is one of the young leaders of the Police Officer Association and he put this concern into a recent letter to the City Council.
“Shockingly, our newest officers … could receive as much as a 50 percent increase in take-home pay by joining other departments as soon as they finish probation,” Jordon wrote in his letter.
His analysis, based off of this one conducted by the city, seems to have merit.
Everything I’ve heard Jordon talk about — and other police officers — has revolved around their take-home pay. So I’ve come up with a solution.
Actually, I can’t take credit for the idea. Dick Vortmann, the former president of the National Steel and Shipbuilding Co., gave me this one.
The police don’t seem to be happy about the idea of getting a simple 4 percent raise as some have projected might happen.
But what if, Vortmann thought, the mayor and City Council gave police a significant raise in take home pay and, in exchange, the police agreed to gradually increase the retirement age?
Right now, police officers can retire with a full pension at age 50.
That’s a benefit they own. It’s theirs. We can’t just take it away unless we give them something of equal value.
Vortmann and I agreed that some good thinkers with calculators would have to really plan out the idea — somebody has to figure out how much it’s worth to police to be able to retire that early and how much that would calculate into a boost in take-home pay. But if the police union says that good officers are leaving the department just because of the take-home pay, then let’s give them what they want.
Vortmann makes a good point. For too long, agencies like the city of San Diego have had a flawed theory of compensation — underpaying police officers now but promising them a very good pension.
“I would hate to run an organization and have to tell the people I’m trying to hire ‘Come work here and make 10 percent less than you can somewhere else, but 20 or 30 years from now, you’ll do better. It puts forth the entirely wrong psychology,” Vortmann said.
Asking officers to wait until they are 55 for a full retirement is not an unreasonable demand. They have great protections if they are disabled. Heck, the police union still wants to protect the so-called F.I.T. program for officers. If a police officer gets hurt running on the beach with his kid, he can say he claim that he was training to keep up with the police department’s physical fitness standards and get a full disability retirement.
With such protections for their wellbeing, a retirement age of 55 for officers is fine. That’s the age needed to receive a full retirement in San Francisco. And the city can implement it gradually so as to protect those older police officers who are getting ready to hang it up.
In exchange for agreeing to this, we could provide the cops with a steady stream of significant raises. Perhaps, 5 percent this year, 4 percent next year and 4 percent every year after that. Because the pension system already anticipates this sort of inflation, pushing the police retirement age out to 55 would lower the pension shortfall the city faces. That would, in turn, ease the burden on a city that has watched its taxpayer payments into the pension system rise so much so quickly.
At the same time, the police couldn’t scoff at such a significant series of raises. After all, the police aren’t complaining about their pension benefits, because that would be ridiculous. They want more take-home pay, so let’s give it to them.
And those salary increases could even be higher if the city froze the pay of firefighters for a significant period of time. There is absolutely no need for the city to tie those two groups’ compensation together.
All of this still forces the city to come up with a significant amount of cash this year — cash that is just not available. People like Council President Scott Peters love to talk about how all the city’s problems are long term and nothing we should worry about.
This is the perfect way to test him. Right now, even after the mayor makes his planned severe cuts, a significant gap looms between how much the city plans to spend next year and how much money it will have. And that doesn’t include what might happen if the city does raise the salaries of police officers.
But, let’s frolic in Petersland for a bit and assume the city really buckles down, makes major service cuts and raises some taxes eventually coming up with the money. Implementing a new strategy with the police as outlined above would be a good way to spend it.
Note: In it’s original form, this column referred to “firemen.” This has been changed to “firefighters.”