Pondering the Pension Tax

Tuesday, February 06, 2007 | By EVAN McLAUGHLIN

Buried in the finance section of the San Diego city charter is one sentence that some say could allow the City Council to charge residents a tax to pay down the mounting pension deficit.

Section 76 of the charter reads, “The council, if necessary, shall levy annually a sum sufficient to meet the requirements of the pension funds herein provided for the police and fire departments and the city employees’ retirement fund.”

Several individuals who are monitoring the issue say the city has already determined that the City Council can impose such a tax on property owners in the city of San Diego without a citywide vote. City officials would not confirm that suspicion, but say the idea is currently being studied.

“I have not seen any opinions that say ‘yay’ or ‘nay’ on that,” said Ron Villa, the city’s financial management director. “We’ve preliminarily done some work with the City Attorney’s Office on that issue.”

Calls placed to the City Attorney’s Office were not returned by press time.

The pension tax concept could possibly be included as part of a broader package of pension solution options that staff will present to the council either later this month or in early July, Villa said.

Ann Smith, an attorney for the 6,000-member Municipal Employees Association, said she interprets the charter to allow the City Council to proceed with a pension tax as one option in solving the pension deficit, which is estimated to be between $1.37 billion and $2 billion.

Under her interpretation, the council can raise property taxes in the city to cover only a key factor in the pension formula known as the multiplier to the level used before Proposition 13’s passage in 1978.

The multiplier, which is currently 2.5 percent for general city workers, was 1.48 percent before Proposition 13, she said. Staff at the San Diego City Employees’ Retirement System said it was not possible to immediately verify if that was the actual pre-Proposition 13 rate.

An employee’s pension check is determined by multiplying their total years of service, final year’s salary and the multiplier.

Figuring out how much a San Diego property owner would be taxed on that would require an analysis by the system’s actuary, several people said.

Mayoral candidate Pat Shea said Wednesday that imposing a pension tax would basically be asking the owner of a $450,000 single-family home in San Diego to pitch in $51,000 to solve the pension deficit. Shea also estimated the shortfall to be about $6.2 billion.

Smith and Bill Kay, the city’s labor negotiator, said the $51,000 figure was off-base because it assumed the pension tax amount would be for the full recovery of $6.2 billion. The candidate clarified his comments Thursday, saying the five-figure amount was the quotient of what a homeowner in the city would be charged with in the hypothetical case that he or she was picking up the full tab.

Shea said he wanted the attention to be put on the enormity of the deficit and its burden on the city. He said the city is contributing six times more into SDCERS than its employees.

Smith said the city workers have done their part to help fix the retirement system by making various concessions in the labor agreements slated to take effect next year by accepting wage freezes and by contributing more into the pension plan. The next phase of fixing the plan’s shortfall is for the City Council to raise revenue to help pay it down, Smith said.

“Pension taxes and tax increases in general are certainly not popular and even more so in light of the current times,” she said in an interview Thursday. “Whether any of these ideas are going to get consideration: I don’t know.”

Carl DeMaio, president of the Performance Institute, a private think tank, said a legal analysis had been prepared for the city manager sometime before last summer claiming that a citywide vote would not be needed, but that every other attorney he has talked to about the pension tax disagrees.

“I can’t find a lawyer who reinforces that argument,” DeMaio said.

San Diego County Taxpayers Association president Lisa Briggs said she believed Proposition 218, passed by California voters in 1996, would disallow the tax without a vote of the electorate. Proposition 218 mandates that all taxes and most charges on property owners are subject to voter approval, according to the state’s Legislative Analyst’s Office.

“Anyone who wants to push this should enact this because I guarantee a number of taxpayer organizations across the state would challenge it,” she said. “On its face, I don’t see how the question could not go to the voters.”

Councilman Scott Peters said he is interested in considering the pension tax, but that he has been unable to find any more information about how it would work or the amount that could be generated from city staff.

“It’s been raised by the public and nobody’s given me an answer about how much it would cost people and how much it would bring in,” Peters said. “It’s not the time to cross anything that’s an option off the list — and I’m not saying I support it or don’t support it — but I can’t get any information on it at all.”

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