Statement: “The CPR initiative imposes a strict cap for five years on individual pensionable compensation,” a fact sheet from supporters of a 401(k) ballot measure released June 30.
Analysis: All the headlines about the June 2012 ballot measure that would give most new city of San Diego employees 401(k)s instead of the guaranteed pensions current employees will receive are about, well, 401(k)s.
But the major savings estimated by backers of the measure come from something else. A five-year freeze on city workers’ base salary accounts for 87 percent of the $1.3 billion that supporters expect the measure will save on the low end over the next 27 years.
The idea behind the freeze is simple. Pay people less and the city not only saves money in its budget now, but also when its employees retire. Currently, the city’s pension system assumes worker salaries will increase by 4 percent annually. If salaries don’t go up over the next five years, the city saves significantly in projected pension costs.
Supporters of the measure are calling their pay freeze plan a “strict cap” on employees’ base salary over the next five years.
The problem is the measure doesn’t cap pay, let alone do it strictly.
As written, the measure calls for:
• The city’s beginning position in contract talks with labor groups to not include an increase in base salaries for the next five years.
• That negotiating stance only to be changed by a supermajority of the City Council. (That would make it necessary to get six votes rather than just five on a nine-member council. The council will grow to nine members starting in January 2013.) Also, the retirement system has to produce an actuarial study showing the effects of the pay increase on the city’s pension payment.
Supporters say the measure comes along with a third, and important, motivator: the will of the voters.
If the initiative passes and the City Council doesn’t implement the pay freeze, voters will remember.
“If the voters approve this, and I think they will, and the council decides to go in a completely different direction, there’s real ramifications for that kind of thing,” April Boling, a local accountant and supporter of the measure, said when the initiative was unveiled.
Supporters could simply have written the measure to cap employee pay for five years without leaving anything to chance. The problem is that would be illegal.
California labor law requires cities to collectively bargain workers’ pay and benefits with its unions. That means voters can’t decree worker pay and benefits. Cities and unions have to hash out them out at the negotiating table.
The measure is written to avoid that problem. The language attempts to create a cap, but the result is far from a guarantee.
To recap, a “strict cap” on employee base salary has legal problems because voters can’t decree city worker pay and benefits. To avoid that legal problem, the measure was set up as it is now. It doesn’t set a cap, let alone a strict one. Instead, it sets a voter-mandated opening negotiating position that six council members can change.
Lani Lutar, head of the San Diego County Taxpayers Association and a measure supporter, said the campaign would stop using the word “strict.” But she maintained the ballot language and voter mandate were enough to continue calling the pay freeze a “cap.”
“In our view, politically it is a cap,” Lutar said.
While supporters can argue that the conditions they’ve created establish a cap, the statement gives the impression that the measure guarantees the five-year pay freeze. That’s especially important because the pay freeze is the piece of the initiative counted on to reap the most savings.
Because the measure doesn’t create a strict cap on employee base pay, we’re calling the statement False.
Three other points on the cap are worth noting:
• Local labor leaders are taking ballot measure supporters’ claim of a “strict cap” at their word. They are arguing that the initiative would violate labor law by binding the city to salary freezes outside of labor negotiations. They’ve all but guaranteed lawsuits.
• It’s fair for supporters of the measure to claim savings from the pay freeze in their financial analyses. The measure, at the least, provides strong direction to freeze base salaries for five years. If that happens, the resulting savings are significant.
• You don’t need a ballot measure to not pay people more. In years where the city doesn’t give raises, like this past year, it saves on pension costs without a formal pay freeze. The city’s retirement system already is considering building a two-year pay freeze into its next actuarial assumptions.
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