Facing 10 lawsuits, ballooning debts, dozens of potential solutions and a decade of financial turmoil, city of San Diego leaders proposed Friday what they called a “global settlement” to the pension problem.
The proposal, spearheaded by City Attorney Jan Goldsmith, asks city officials and union leaders to agree to negotiations to resolve all pension-related issues before legal rulings and increased retirement payments overwhelm city workers and taxpayers.
“This tsunami will be devastating not only to taxpayers, but to the city and its employees if we do not deal with it today,” Goldsmith said at a Friday press conference flanked by Mayor Jerry Sanders and Councilman Kevin Faulconer.
In a letter to labor and retirement system attorneys dated Thursday, Goldsmith said negotiations would revolve around capping or decreasing the city’s current pension obligations, settling all major litigation and creating a new voluntary 401(k)-style retirement plan for existing employees.
Goldsmith said Friday he believed the plan could stabilize the city’s ever-inflating pension payments, which continue to chew up the city’s ability to pay for services. He hoped to have agreement from labor groups to enter talks by the end of the month.
Currently, the city has more than $2.1 billion in pension debt and next year’s citywide payment to the fund will be $231.2 million.
If labor doesn’t engage, Goldsmith said coming hearings in lawsuits could mean worse results for employees.
“Right now we have a key opportunity,” Goldsmith said. “It really is one of those forks in the road.”
For now, labor leaders reacted with confusion and anger. They aren’t sure how Goldsmith’s proposal fits into all the other negotiations they’re involved in.
Labor groups either have contracts with the city already or are about to enter talks. They’re also planning to enter substantive discussions over reforming the city’s retiree health care plan. Sanders is leading these negotiations. But Goldsmith will be leading global settlement talks at the same time.
Lorena Gonzalez, head of labor umbrella group the San Diego-Imperial Counties Labor Council, said Goldsmith and Sanders should have spoken with employees before dropping a major unexpected proposal on them.
“The mayor and the city attorney should both know by now that press conferences like these usually lead to more turmoil and distrust instead of solutions,” Gonzalez said in a statement.
Pensions have politically and financially crippled San Diego since 2002. Massive benefit increases granted that year led to a mayoral resignation, numerous criminal investigations and civil lawsuits and constant pressure to reduce city services. A similar increase in 1996 began the city’s pension woes.
Voters elected Sanders in 2005 to put the city’s finances on sound footing. The pension solutions he’s achieved primarily affect San Diego’s bottom line decades from now, not the ongoing problems.
The city’s day-to-day operating budget, which funds general city services, is expected to pay $180 million next year for pensions, or 16 percent of the budget. Pension payments are expected to grow through 2025.
The city attorney’s offer grew out of a plan developed by City Councilman Carl DeMaio to cap or eliminate certain extra pays, such as pay for speaking more than one language, from current employee’s pension calculations. Goldsmith blessed this approach earlier this week and the city attorney said he secured unanimous approval of the City Council and Sanders to pursue the talks.
The lawsuits Goldsmith is proposing to settle have been some of the most high-profile efforts taken by the city or its unions to reduce or affirm ballooning pension payments due in part to the 1996 and 2002 benefit increases, known as Manager’s Proposal 1 and Manager’s Proposal 2. The talks could resolve action initiated by former City Attorney Mike Aguirre to rollback benefits that remains on appeal and Goldsmith’s recent suit to force employees to bear half the pension system’s investment risk.
The settlement also would include an agreement to pursue a voluntary 401(k)-style retirement plan for current employees, which was one of 10 fiscal reforms included in the failed Proposition D sales tax hike. This idea complements a proposed ballot measure discussed prominently by Sanders in his State of the City speech this week that would replace pensions with 401(k)-style plans for most new city employees.
Sanders endorsed the global settlement talks, saying it was a legal way to greatly reduce pension costs and free up more money for essential services.
But union leaders aren’t sure if they can believe what’s coming out of City Hall.
Police union president Brian Marvel considered Goldsmith’s proposal an affront to the two-year contract the union agreed to last April that contained already concessions to officers’ pay and retirement benefits.
“For mediation to be successful, an environment of trust between the parties and a spirit of cooperation must exist,” Marvel said. “Unfortunately, the city attorney continually advises the city to break promise after promise, including potentially a two-year contract the city just signed with the (union).”
Alan Arrollado, an official with the city’s fire union, said his union was open to talks, but said he was having a hard time keeping track of what city leaders wanted the union to do.
“We’re confused by the whole process,” Arrollado said.
Goldsmith said he wasn’t sure how much a global settlement might save. But he referred to DeMaio’s plan for potentially capping pension costs. DeMaio estimated the city’s day-to-day budget could save $1 billion over the next 13 years.
Goldsmith, a former state assemblyman, said he welcomed labor organizations to bring their own ideas to settlement negotiations. Action, he said, was essential. He used a metaphor to make his point.
“When I was in Sacramento there was a term that I learned real quick,” Goldsmith said. “You’re either a player or you’re a potted plant. A player is somebody who rolls up his or her sleeves digs down into the policy, gets into the details and works for solutions and influences what the decisions are. Then there are the potted plants. The roots are deep in the soil, they don’t move except that they’re pushed by the wind or by other people. They just sit there and they don’t affect what’s going on around them. We want to have players.”