The Morning Report
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As you might have heard, city leaders might actually put two rival pension reform proposals on the June 2012 ballot.
They say they don’t want to do that. Thursday morning, Councilman Kevin Faulconer and Mayor Jerry Sanders released a statement (they are refusing to talk to the media):
“We are continuing to negotiate in good faith with representatives of the Lincoln Club and Taxpayers Association in an attempt to agree on a single pension reform initiative that all interested parties can support,” they wrote.
Note that they’re not actually negotiating with the rest of the City Council — you know, the people who could actually just implement this sort of thing. It’s a product of Proposition D. Councilman Carl DeMaio, Faulconer, the Lincoln Club and Taxpayers Association crushed Proposition D. The mayor wants to get them to buy into his plan.
They’re also, though, deliberately excluding DeMaio, the champion of an alternative proposal that the Lincoln Club and Taxpayers Association endorsed.
DeMaio maintains his right to take it to voters as well.
“I’m not going to back down until we get a comprehensive solution to the pension crisis. I believe San Diegans want that and I’m going to continue to work to provide that,” he told me.
It’s the latest in the internal Republican war being fought in San Diego. Without a commanding alternative emerging from the left, it’s defining the discussion.
I thought I would take a stab at explaining what’s going on.
Here were my questions and the best I could answer them.
So, what’s going on?
The mayor has made national news with a proposal he and Faulconer are touting to move new employees to a 401(k)-style pension plan.
It sounds harsh but remember it’s for new employees — people who don’t yet exist. And it wouldn’t affect new police, firefighters and lifeguards.
DeMaio, a mayoral contender, wants to do that as well, but he wants it to affect all types of new employees. Police and fire make up too much of the costs not to address with reforms like this, he says.
DeMaio joined with the San Diego County Taxpayers Association and the Lincoln Club to form what they’re calling a coalition. The coalition morphed DeMaio’s plan a bit with his approval and now the coalition is negotiating with the mayor and Faulconer. Though they refuse to include DeMaio.
But here’s the thing, this 401(k) idea would actually increase the city’s costs in the short term — not exactly what a struggling city wants to hear.
So both sides believe there has to be another component. Some kind of cap.
A cap? Like a baseball cap? Or a Spanish tapa? Yummy.
No, I’m a big fan of tapas too, but this is not so delicious. Both sides have come up with an idea for capping the city’s salaries. But in very different ways.
It’s best to start with a bit of context and history. The city promised its employees a certain level of pension benefits. It never raised taxes to pay for them. Now, the bill from the pension system is enormous and growing. There’s no money to pay it without cutting services, employees or somehow trimming the employees’ compensation.
City leaders tried all kinds of routes to roll back those benefits and it just isn’t happening. They tried raising taxes with some level of reforms attached to the proposal. It bombed.
Pensions, though, are determined by three main factors: How long a person works. What formula applies to their pension. And their highest salary.
The city can’t touch the first two. The third, though, the city can touch. We can pay city employees whatever we want. We’re required to collectively bargain with the workers. But if no agreement is reached, the City Council and mayor can impose a contract on them for one year.
So, reformers’ attention is settling on salaries. If you control or lower salaries, you can contain pension costs.
DeMaio and the coalition want a cap on pensionable pay. Sanders and Faulconer claim that’d be illegal and offer an alternative: capping the payroll entirely.
What’s the difference?
Great question. (Yes, I often compliment myself. Someone has to.)
Things are changing and the two sides are trying to see if they can compromise. Faulconer’s spokesman, Tony Manolatos, said he was prohibited from speaking about what the mayor and Faulconer are now proposing. So we’ll have to go with the way it was.
Here are the two ideas: We’ve talked a lot about DeMaio’s. His idea is to look at each individual employee. If you are an employee, and you make $50,000, he would cap your “pensionable pay” at that for five years.
The Taxpayers Association and Lincoln Club embraced that position. They believe that you could still pay employees more from that point forward, in the form of specialty pay — like a bonus for having a law degree or being bilingual. Even if those bonuses previously counted toward their pensions, from this point forward, they would not.
The city attorney recently declared that legal. But he said it would be subject to collective bargaining. In other words, you’d have to get the city’s unions to agree to it. If they didn’t, you could impose it on them but only for one year.
And one year doesn’t produce the kind of savings they want.
What, exactly, are the legal concerns?
In this town, if you like something, the law isn’t a problem. They can figure out all sorts of ways around it. If you don’t like a proposal, though, the law is an impenetrable barrier.
The mayor claims DeMaio and the coalition’s plan is illegal.
“We also want to make sure that the reforms placed before voters are legal and defensible, so the city doesn’t end up wasting millions of dollars losing lawsuits that invalidate voter-approved provisions and put us back to square one on pension reform,” Sanders and Faulconer wrote.
But if you didn’t do anything out of fear of being sued, the city’d never do anything.
DeMaio, of course, thinks it’s legal.
Where does that leave you and me?
“I’m a skeptic when someone has unbelievable confidence that something is legal or illegal,” Vince Mudd, a local businessman and chair of a task force that looked into city finances, told me the other day.
Basically, the mayor claims his plan is legal because instead of actually setting compensation levels for employees, it just sets an overall cap. In other words, it puts pressure on the whole system. And that pressure would find its way onto the collective bargaining table.
In other words, it doesn’t actually change anyone’s benefit or salary. It just will tie the City Council’s hands. By not letting the overall payroll grow, the pension payment the city has to make will be constrained if not reduced.
What’s interesting about it, though, is that it won’t necessarily mean that people’s pensions will change. The City Council could simply cut services or lay off workers to conform to it. It doesn’t mean the city will get more efficient.
Employee unions have been quite clear through history that they’re often much more inclined to accept layoffs than to see benefits or compensation cut.
Here’s how April Boling, one of the representatives of the Taxpayers Association put it:
“Nothing in the mayor’s alternative ever has anyone getting a decreased pension. Whereas in the coalition’s plan, if someone, even if an employee receives bonuses, add-ons or other increases over the next five years, their pensionable pay freezes,” she said. They maintain voters can implement such a plan.
Again, though, that is dependent on the employees not successfully suing to stop it. Taxpayers can vote to lock all employees in the Cabrillo Monument. But does that mean it’s legal and will actually happen?
Right, these initiatives would go on the ballot in June 2012 and savings wouldn’t occur until the fiscal year 2013.
So what about my library (rec center, street, neighborhood police, fire station … insert favorite city service)?
If you think the city should fully fund its health care obligations to retired workers — rather than pass that along to the next generation — the deficit is bigger than $56.7. If you think the city should end the rolling brownouts of fire engines, then the deficit is even bigger. If you think the city should start to reverse the trend of its deteriorating infrastructure, well, you get the idea.
Faulconer and his staff have been trumpeting that they’re involved in awesome discussions with City Council President Tony Young to produce a bipartisan solution to the city’s current budget deficit.
Meanwhile, though, Young and Councilman David Alvarez just came strong with $47 million in cost-savings ideas. It was fantastic to see council members offer up cost-savings ideas that weren’t just red meat to their constituencies.
They include offering up city services for bid, like fleet maintenance and publishing. They even suggest selling the city’s street lights. Long Beach does it, they say.
I’m not sure who would want to buy a street light. But I will find out.
The point is, it was refreshing. But it’s still not enough. The house is burning. We’re arguing over not even plans to put it out — but ideas to put it out someday.
Let’s go ahead and get some water, soon.