Ghosts Haunt Health Care Deal

The ghosts of the city of San Diego’s notorious pension deals never miss important debates on the billions of dollars owed to city employees when they retire.

They haunted Friday’s City Council discussion on taking a major cut out of health care benefits for current employees once they retire. A city-hired actuary told the council this agreement between the city and its labor organizations would save hundreds of millions of dollars. But actuaries’ savings estimates tend to spook newer generations of city politicians. Councilman David Alvarez asked the actuary if he had worked on the city’s infamous pension packages first passed more than a decade ago.

“You were not involved with Manager’s Proposal 1 and providing any analysis of that?” Alvarez asked.

The actuary looked confused. He turned to city staffers for help.

“He doesn’t know what that is,” said Jay Goldstone, Mayor Jerry Sanders’ chief deputy.

The moment represented what city leaders want people to remember about Friday. The 15-year labor contract approved by City Council on Friday would cut, not boost, retirement payouts by an estimated $714 million over the next 25 years. It would tame a billion-dollar health care benefit the city had promised three decades ago, but had never before paid its full bill. It would point to a time when past pension deals become so much a specter of the past they wouldn’t have to haunt city-hired actuaries.

Ghosts hovered because the decision before the council wasn’t easy. Courts so far have said the city doesn’t have to provide retiree health care benefits for current workers and the deal still gives those employees moderate to generous benefits beyond what’s common in the private sector.

But council members repeatedly referred to Friday’s decision as a business decision, weighing the savings gained against an uncertain promise for more. More drastic changes to the benefit, such as eliminating altogether it for current workers, would spark lawsuits that could put those savings at risk, Sanders said.

“To make an analogy, that approach would be like taking $714 million of taxpayer money and letting every penny of it ride on the flip of a coin,” said Sanders, whose office negotiated the settlement.

The council voted 6-2 to back the package following a three-hour hearing. Republican Councilman Kevin Faulconer joined his five Democratic colleagues in favor, saying he wanted to lock in savings rather than face the risk and cost of lawsuits. The deal potentially affects about 7,500 workers hired before 2005, when the city eliminated the benefit for new hires.

Already retired workers make up about half the city’s $1.1 billion unfunded health care liability and the deal won’t touch their benefits. The package halves the unfunded liability attributed to current workers.

Older employees, including those potentially ineligible for Medicare, can choose an $8,800 annual health care allowance with a small cost of living increase. Younger employees can choose a smaller annual allowance with no cost of living increase or a lump sum for their health care. These benefits are substantial reductions from those offered now, and under two of the three options, city employees will contribute to their coverage for the first time.

Still, the deal does little for the city’s current budget problems that continue to pressure parks, library, fire and police services.

Critics seized on the city’s history when decrying the package’s terms. The city can’t afford these benefits because of past retirement promises, said Councilwoman Lorie Zapf, who voted against the deal. Despite the cut, the city still can’t pay for what it is now promising.

“We’re driving a Bentley, we couldn’t afford to downgrade to a Lexus and we should have had a Ford,” Zapf said.

Faulconer emphasized he trusted City Attorney Jan Goldsmith’s judgment that it was better to settle than risk failure in court. Though the city has won health care lawsuits before, Goldsmith couldn’t guarantee they’d win again.

Also, should the council determine it needs to squeeze more dollars from health care, Goldsmith said the deal allows the council to reopen health care discussions in three years.

“If you want capitulation send us to court and instruct us to play it out, win or lose, and we’ll do our best,” Goldsmith said. “But a settlement means you give something and you get something. That’s the difference. That’s where the business decision comes in.”

Sanders’ office didn’t make the business decision any easier this week with its unwillingness to release comprehensive and consistent financial data about the deal prior to the vote. Inconsistencies continued during Friday’s meeting. The city’s actuary provided the correct 25-year savings figure and an incorrect one that was $57 million higher in the same presentation. Alerted to the discrepancy, the actuary later fixed his presentation but didn’t offer an explanation for the mistake.

“When things are moving a mile a minute, there are a lot of different iterations,” Goldstone said.

Asked if his statement legitimized criticism the deal was approved too quickly, Goldstone said none of the information provided was wrong, but people needed to have faith in the numbers.

“Obviously, there’s elements of trust,” Goldstone said. “In this town, there’s not a lot of trust.”

Five of the city’s six labor unions have signed off on the package with the police union, which has filed suit over retire health care, still in limbo. City workers will vote on the changes as well in the coming weeks.

Please contact Liam Dillon directly at liam.dillon@voiceofsandiego.org or 619.550.5663 and follow him on Twitter: twitter.com/dillonliam.