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This week, San Diego Mayor Jerry Sanders and City Councilman Kevin Faulconer announced some details of a long-awaited ballot initiative to replace pensions with 401(k)-style plans for new, non-public safety employees.
“This initiative,” Sanders said, “is the answer to our pension challenges.”
Lots of folks have covered this so far, but here are three big questions that I’m trying to answer as this measure — and likely a competing one from Councilman Carl DeMaio — moves forward.
1. How much money does the mayor’s initiative save and where does the savings come from?
This question should be easy. Sanders and Faulconer presented charts arguing that the measure would save $8.3 million in 2013 and $141 million in the first five years. Total savings would be $1.6 billion by 2040, they said.
But any immediate savings won’t come from the 401(k) plan. That bears repeating. Immediate savings to the city’s deficit-ridden budget won’t come from the mayor’s 401(k) plan. Instead, they’ll come from a five-year cap on citywide payroll that’s also part of the measure.
In fact, Sanders agreed that closing the city’s pension system to new hires and going with a 401(k) system costs the city money.
“That is true,” Sanders said.
It’s part of the reason his measure is structured to allow police officers and firefighters to retain traditional pensions, he said, though he’s proposing to lower their benefits. Closing the pension system entirely would cost about $30 million a year, the mayor said, because you’d have to accelerate pension payments to make sure there’s enough money for current and retired workers.
After the press conference, I asked for any backup information for these cost-savings estimates. As of 5 p.m. Friday I hadn’t received any.
Meantime, DeMaio called shenanigans. His proposal calls for 401(k) plans for all new hires including public safety and said closing pension system won’t force the city to pay more because its repayment schedule already is considered aggressive.
2. Should fire and police be special?
Sanders and Faulconer say they are. Eliminating pensions for public safety, they argue, wouldn’t provide enough death and disability benefits for public safety members and would hurt recruitment.
Balderdash again, DeMaio says.
“These are the same arguments that the snake oil salesmen sold us to get into the pension problem,” DeMaio said.
Fire and police, he maintains, have the costliest pensions and comprise half the city’s pension liabilities therefore they need to be more dramatically reformed.
For what it’s worth, fire union head Frank De Clercq isn’t thrilled with the mayor’s measure either. That proposal caps public safety pension benefits at 80 percent of their three-highest consecutive years of salary, a level lower than other major cities in California.
3. Are there really going to be two ballot pension measures?
Representatives for Sanders and Faulconer were meeting with leaders of pro-business organizations, the San Diego County Taxpayers Association and the Lincoln Club, to try to reconcile their ideas and make one ballot measure. DeMaio has been working with the two business groups. On Wednesday, their talks broke down, and I’ve heard so many stories as to why I’m not even going to wade into it.
But as of now it looks likely that both groups will put initiatives on the street in an attempt to qualify for the ballot. That means that the June 2012 election could see an open mayoral primary, a major change to the city’s school system and potentially two pension ballot measures. It’ll be interesting to see how much campaign cash there is to go around.
Also, it’ll be interesting to see which pension measure can claim to fix the city’s budget problems. The key difference between the two, aside from public safety, is that DeMaio’s relies on capping employees’ base pay to reduce their pensions and give future pay hikes through non-pensionable bonuses. Sanders and Faulconer have a legal opinion they claim says DeMaio’s idea is illegal.
Tony Manolatos, Faulconer’s spokesman, said the mayor and Faulconer’s plan was the legal limit of what could be done to reduce retirement costs*. Faulconer and the mayor along with Council President Tony Young, Manolatos added, are working on budget solutions independently of the pension measure.
* Update: Manolatos now says he misspoke when he said the plan Faulconer and Mayor Jerry Sanders was proposing was the “legal limit” of what could be done to reduce retirement costs. He says he believes the measure is, but isn’t sure.