Saturday, May 31, 2008 | Will it ever end? Just when San Diego thought it might have distanced itself from its “Enron-by-the-sea” image, a Pulitzer-prize winner, and best-selling author highlights San Diego in a book on the looming pension crisis facing governments and businesses across the nation.

This month, Roger Lowenstein hit the bookshelves with “While America Aged: How Pension Debts Ruined General Motors, Stopped the NYC Subways, Bankrupted San Diego, and Loom as the Next Financial Crisis.” The book explores the origins of the ruinous pension deals made by corporations and governments over the past several decades through three case studies, San Diego being one.

Lowenstein is a former Wall Street Journal reporter and the author of three best-selling books including “Origins of the Crash: The Great Bubble and Its Undoing,” one of the seminal books on the dot-com bubble.

We caught up with Lowenstein this week, and talked to him about fun stuff like pensions, cowardly politicians and one of San Diego’s darkest chapters.

What spurred you to write this book?

I’ve been a corporate reporter before, writing about WorldCom, Enron and those things … and after that I started looking around to write about something else, and I became interested in economic stories that had a more social or more immediate impact on people.

I wrote about Social Security, I did a piece on health care and I wrote about the economics of immigration. Then I did a cover on pensions for the (New York) Times magazine. It was the type of financial problem that I like writing about, and I thought it had an element of moral hazard, this idea that legislators or corporate executives can be lured into making future promises, and I thought because of the looming baby-boomer retirements this is an issue that is only going to become more important. And lastly, I stumbled upon the agony that your fair city was going through. … San Diego was such a dramatic case, I said “Wow, this would be fun for ordinary people to read about.”

What surprised you most about the San Diego situation in your reporting?

I was surprised at how brazen and conspiratorial the culture was. There was so many things … the now-famous “eek” memos and “Sleepless in San Diego,” the focus of elected and hired officials was how to keep things quiet rather than how do we deal with this issue? We don’t have the resources to cover our promises to retired workers. The other thing that surprised me was how fervent the anti-tax culture is in San Diego. … [The city] is teetering on the edge of fiscal ruin, no credit rating, yet the smallest of hotel taxes could get defeated, that surprised me.

The subtitle title of your book reads: “How Pension Debts Ruined General Motors, Stopped the NYC Subways, Bankrupted San Diego … in what context are you using the term “bankrupt?”

Well that is poetic license, and I plead guilty; obviously the city didn’t file Chapter 9.

But when you lose your credit rating for four years, you are clearly on the brink. I’m saying they went to the edge … and I think there is a larger sense of the word bankrupt, I think the body politic was bankrupt of integrity, bankrupt of leadership. …You can think that a fireman should retire on $300,000 a year, you can think that he should wander through the woods naked. The point I just keep hitting home in the book is whatever retirement you think they should have, it should be funded. And the failure to do that reflected a certain bankruptcy of moral leadership.

Quoting from your book: “Real power (in San Diego) was vested in local business interests, of which the San Diego Union-Tribune has been paramount.” What do you see as the Union-Tribune‘s role in all of this?

I don’t want to rate the paper’s coverage of this, one journalist calling another out or something. It’s very easy for someone who comes along two years later to be a know-it-all. But in terms of the power of the paper, I’ll talk about.

When Donna Frye runs, she says “I don’t want to raise taxes, but if the Aguirre suit fails, and only if, I will consider a half-cent increase in the [sales] tax…” and [the Union-Tribune editorial board] just ran her out of town, and they said it was a phony solution. It was a real solution. … [The Union-Tribune] had a tremendous impact on the inability of San Diego to raise revenues … where was the editorial that said the City Council is going to deliberately underfund for 10 years — that’s not a healthy way to run a city? The editorial page of the hometown paper is sort of the conscience of the town, they should have been out there.

San Diego City Council President Scott Peters wrote a letter to the editor of The New York Times that ran last Sunday in response to a review of your book. In it he says your depiction of San Diego is “outdated and inaccurate.” What is your response?

Scott Peters approved [the second pension underfunding]. That’s accurate and will never be outdated. The events of my book run up to basically the end of 2005.

He didn’t mention anything that was inaccurate through 2005. I think Mayor Sanders has done a good job. From what I gather, the city is climbing back, it’s a slow climb, it’s a long climb, I wish them the best. I talked to Scott, we had a good interview.

In your book, you talk a lot of Prop. 13, and the effect it has on municipal finances in California, and how it contributed to San Diego’s fiscal ruin. Do you think California cities will ever be able to fund their long-term obligations as long as Prop. 13 is on the books?

Sure, it just makes things more difficult. The great thing about democracy and also the difficult thing about democracy is that elected leaders need to face the voters.

So it’s a good thing, we want them accountable. But obviously it makes it very difficult for elected officials to do anything where the benefits fall outside the tenure of their elected term. There was a reason why James Madison and those cats set up a republic rather than a pure democracy — they didn’t want everybody voting every time they wanted to build a mail route form Philadelphia to Scranton, wherever … if you believe officials should have some ability to make unpopular decision, or in other words courageous decisions, then you don’t want every decision on a ballot referendum.

And when you tax by referendum, you make it very difficult. [Anti-tax activist Howard Jarvis] didn’t have the goal of underfunding, his goal was starve the beast. What has happened instead, and not just in California, is we have this schizophrenia — when it comes time for taxing we act like Republicans, when it comes time for awarding programs and benefits, well then we are good liberals. And that is the part that really doesn’t fly.

A lot of people say San Diego wasn’t much different than many other cities, it just happened here first. What do you say to that?

Well, you know the old Mark Twain line: “history doesn’t repeat, it rhymes.” Are we going to have another situation with such brazen deal-making where the City Council offers higher benefits in return for underfunding? History doesn’t repeat.

But the city of Vallejo just filed for Chapter 9 — and that’s no poetic justice there, they are in court. And pensions helped take them under. And the whole state of Illinois is as badly underfunded as San Diego, or worse. New Jersey is woefully underfunded — Gov. Corzine trying to sell the New Jersey Turnpike, which is like hocking the Golden Gate Bridge. … West Virginia and Florida, and lots of localities and systems … all told about 40 percent of them are seriously underfunded. And they are underfunded by more than what San Diego was when it went below the infamous trigger. I think you can answer that question honestly both ways. Do we have the same characters and the same circumstances? Obviously every situation is different. But is the basic problem there? Yes, and it is there for the same reasons, that municipalities and the states want to fund other things that provide immediate benefits.

What do you think is going to happen?

In the period during which I was doing the reporting a lot of budgets were being saved, at least temporarily by rising real estate values, which is a big driver of state budgets.

Those days are gone, right? So I think there is going to be a period of retrenchment in city services, state services, new benefits awarded, and I think there is going to be pretty severe pressure [to raise] property taxes and other taxes around the country. There are going to be more situations like New York where there was a strike, and more civil discord. It will be more popular to stand up to public sector unions.

And the idea of retiring at 50 or 55 I think is going to come under pressure, for reasons of affordability and because of how long people are living on the other end. And because of the declining workforce, we will need more workers. If you look at the federal programs — Social Security and Medicare — I can tell you what is going to happen there. The government is either going to raise taxes or trim benefits, its just math. So Clinton/Obama/McCain and the Congress is going to have to make some hard choices, and those are going to be mirrored in a lot of the states.

— Interview by DAVID WASHBURN

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