Tuesday, June 2, 2009 | City Attorney Jan Goldsmith’s opinion that a controversial deferred retirement program was never properly implemented received the scorn of labor union lawyers who called his analysis flawed and preposterous Tuesday.
But the argument received the support of the man Goldsmith unseated, Mike Aguirre, whose lawsuits challenging pension benefits were a hallmark of his tenure and a fulcrum of the campaign attacks by Goldsmith and Aguirre’s numerous City Hall foes.
“I personally think the argument is a viable one,” Aguirre said.
Released on Tuesday, Goldsmith’s opinion that the ordinance implementing the Deferred Retirement Option Plan never took effect raised the specter that challenges could be mounted to other aspects of the controversial plan, as well as to other retirement benefits. It came in the wake of a potentially embarrassing disagreement between the Mayor’s Office and the man the mayor worked hard to elect, Goldsmith, over whether the mayor was ever advised that employees had to approve a key piece of the labor concessions he used to close the coming year’s budget deficit.
Goldsmith took pains to say his opinion was limited in scope to the issues raised in a lawsuit between the city and the police union. Indeed, late Tuesday, Goldsmith and the city’s outside labor counsel, William Kay, sent a letter to retirement system officials saying they “would not object” if the retirement system continued to process employees’ applications to enter DROP, as long as it’s made clear there are unresolved legal issues.
At issue is a provision in the city charter stating an ordinance that changes the benefits of any employee in the retirement system requires “the approval of a majority vote of the members of said system.”
The San Diego City Employees’ Retirement System had previously said the charter provision meant changes the mayor and City Council were seeking to make to DROP required a vote of all city employees. That put into question measures Mayor Jerry Sanders had touted as potential long-term cost savers for the city.
In a memo released today, Goldsmith interpreted that same provision to mean that a majority of eligible voters — not simply a majority of the members who actually vote — must approve the change. When DROP was put to a vote in more than a decade ago, 3,181 employees voted in favor and only 88 voted against it.
But Goldsmith said that doesn’t meet the majority vote rule and therefore, the DROP ordinance never took effect. To do so, he said, a majority of the 9,206 eligible voters would have to sign off on the change.
“Simply stated, in 1997, the labor unions did not get enough of their members to vote for approval of the ordinance,” Goldsmith wrote in the memo.
Michael Conger, an attorney representing the Police Officers Association in its lawsuit with the city over DROP, called that interpretation flawed.
“We elect presidents, we elect congressmen by a majority vote,” Conger said. “It’s a tenet of democracy.”
He added: “I can’t think of any other election where you’re taking a vote of this many people where it says you have 50 percent of all the possible votes. It should say that expressly.”
Ann Smith, an attorney for the city’s white-collar union, said the numerous lawyers who’ve considered the issue have never come to a similar conclusion. “Clearly, no one that’s come before us interpreted it this way,” Smith said.
DROP allows city employees who are eligible for retirement to continue to work and receive a salary for up to five years and bank the pension payments they would have received in an account paying a guaranteed interest rate.
Goldsmith’s memo said the ordinance that put DROP into place was dependent upon two things: a majority vote, and the retirement administrator notifying the city clerk that the members of the retirement system approved the increase in benefits.
He said neither condition was met. The retirement system administrator notified the city clerk of the total ballots cast, the number of yes and no votes, and the number of eligible voters. But the memo says that doesn’t constitute a notification that the employees approved the benefit increase.
“There is a good reason why the Retirement Administrator did not notify the City Clerk that the members of the Retirement System approved DROP — it did not occur,” Goldsmith’s memo states.
Goldsmith acknowledged that his opinion isn’t the last word. SDCERS officials have said a vote is needed to increase in the age police and blue-collar workers must reach to enter DROP, eliminate an option to convert DROP balances into annuities for those workers, and end the program for management employees, as the city’s elected officials approved.
The retirement’s system’s chief of staff, Rebecca Wilson, said officials were still reviewing Goldsmith’s opinion Tuesday.
Goldsmith said he would “not be offended” if SDCERS disagreed with him and wouldn’t elaborate on the city’s options if the retirement system doesn’t agree or if the city could sue.
Previously, the mayor’s chief operating officer, Jay Goldstone, said the Mayor’s Office was caught off guard by the vote requirement. He later said the city’s outside legal counsel had advised the city had a strong case that no vote was required but that Goldsmith hadn’t weighed in on the issue. The city attorney on Tuesday said the majority vote issue only came to light after the bargaining process was complete.
The courts are also expected to weigh in on Goldsmith’s opinion. The police union has asked a judge to issue an order preventing the city from implementing two changes to DROP: the lowering of the rate of return paid in DROP accounts, and the increase in the eligibility age. Goldsmith said Tuesday’s memo spells out arguments the city will use to oppose such a move.
Aguirre wouldn’t say whether he agreed with his successor’s definition of a majority vote but thought Goldsmith was right to make such an argument.
“I think that’s going to be something for the courts to decide,” Aguirre said, “but I think there’s a reasonable argument that the city attorney’s making. I support the city attorney’s argument.”
During his tenure, Aguirre was a vocal critic of DROP and staked his tenure to a large degree on lawsuits challenging pension benefits.
Asked why he hadn’t raised the issue of the majority vote during his own litigation, Aguirre noted that attorneys who worked on his flagship pension litigation now worked for Goldsmith.
“One of the things they did a great job of is the longer they studied the issue, they came up with better and better and more creative ways to grapple with that problem,” Aguirre said.
Goldsmith, a critic of Aguirre’s pension lawsuits and of his efforts to insert himself into major policy decisions, on Tuesday repeatedly stressed the narrowness of his opinion and said he didn’t even know if ending the deferred retirement program would save or cost the city money.
“This is not a crusade to eliminate DROP,” he said.
But the potential implications of his opinion were impossible to ignore, raising questions about how employees who had already received DROP benefits, were enrolled in the program or were planning to enter the program would be affected. Smith demanded the city clarify that it was not asking SDCERS to stop processing DROP applications, which Goldsmith did. He also told reporters the city was “not focused on getting money back from people” who received payments under DROP.
Shortly after the opinion was released, Councilman Carl DeMaio issued a memo asking Goldsmith to study whether other pension benefits had complied with the ratification process.
Specifically, DeMaio asked about the notorious pension underfunding deals approved in 1996 and 2002, as well as a program allowing city employees to purchase credit for time they never worked.
Goldsmith said he hadn’t studied those issues, but acknowledged those were valid questions. He noted, however, that his opinion in this case didn’t necessarily mean that other pension benefits were invalid or DROP didn’t exist. He noted that the city was still subject to labor laws and legal settlements, among other requirements.
He said his opinion only looked at whether the changes to DROP recently approved by the City Council required a vote to implement, as SDCERS has maintained.
“That’s the very limited legal issue,” he said.