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Analysis: This week, the city of San Diego released its official financial analysis on Proposition B, the hotly contested pension reform initiative on the June ballot. The measure’s main feature is to give most new city employees 401(k)s instead of guaranteed pensions
The fiscal analysis was supposed to answer the all-important question about the measure: How much money does it save? Instead, it reinforced a larger and more significant point about Prop. B’s financial effects. What happens after the initiative passes matters just as much, if not more, than the result at the ballot box.
After the analysis was released, supporters and opponents made the rounds in local media touting how it bolstered their arguments. Mayoral candidate Carl DeMaio, one of the initiative’s authors, told KPBS the measure saves “roughly $1 billion.” Mayoral candidate Bob Filner, a high-profile opponent, told KPBS the measure didn’t even save “a nickel.”
They’re both right.
This is how complicated Prop. B is. Based on the same financial analysis, both sides of the initiative can credibly defend savings estimates that are $1 billion apart.
Let’s break down how this is possible, starting with DeMaio’s statement that the measure saves “roughly $1 billion.”
Prop. B has many parts. Most notable is the 401(k) portion. The measure switches all new city employees except police officers to 401(k)s instead of guaranteed pensions.
The financial analysis concluded that this switch to 401(k)s and other changes to the pension system will cost the city $13 million over the next three decades.
That’s in large part because the city already has reformed pensions for new employees in 2008. The new 401(k) plan is more costly over the next 30 years than the current reduced pension plan, according to the analysis.
But there’s another part of the measure that saves a lot of money if everything goes according to plan.
The measure attempts to freeze how much of city employees’ pay will count toward their pensions, known as their “pensionable pay,” for five years. We have described how the pay freeze works before:
The concept is breathtakingly simple: Pay people less when they’re working and you pay them less in retirement.
Here’s a slightly more complicated explanation: Keeping salaries steady saves on pensions because the retirement system’s projections assume pay will increase every year. If pay doesn’t go up, the city’s forecasted costs aren’t as high.
If the pay freeze happens as proposed, the financial analysis says the city will save $963 million over the next 30 years.
Subtract the 401(k) costs and you get $950 million in savings for city coffers. That’s a fair enough figure for DeMaio to accurately claim the measure as a whole saves “roughly $1 billion.”
Now let’s turn to Filner’s comments. He says the referendum by itself doesn’t save any money. How can he be correct, too?
It goes back to the pay freeze. It’s not guaranteed to happen. Here’s how we’ve described it before:
California law prohibits voters from imposing city worker salaries at the ballot box. The initiative, then, merely requires the city’s opening negotiating position with labor unions include the freeze. The city can change that negotiating position with a two-thirds majority of City Council.
The broader context of Filner’s statement to KPBS made this exact point.
To recap, what happens after the initiative passes matters a great deal in how much money it will save.
If the pay freeze doesn’t occur — or is ruled illegal in court — the initiative could wind up costing the cash-strapped city some money. That’s Filner’s point.
But supporters of the initiative have said that political pressure from the ballot measure’s success will ensure that council members enact the pay freeze. DeMaio alluded to this issue when he told KPBS that the savings would come if the measure is “fully and faithfully implemented.” If that happens, the city would save money. When we Fact Checked an issue related to the pay freeze last summer we decided it was fair for supporters to claim savings from the freeze in financial analyses provided they don’t contend these savings are guaranteed. At the least, the measure provides strong direction to freeze pay.
To know more about the pay freeze, which is the linchpin of Prop. B’s cost savings, check out this recent video we did with did with NBC 7 San Diego for our San Diego Explained series. The segment aired prior to the release of the financial analysis so the savings estimates we use in the video are different than the ones in this story.
If you disagree with our determination or analysis, please express your thoughts in the comments section of this blog post. Explain your reasoning.
You can also e-mail new Fact Check suggestions to firstname.lastname@example.org. What claim should we explore next?
Liam Dillon is a news reporter for voiceofsandiego.org. He covers San Diego City Hall, the 2012 mayor’s race and big building projects.
Please contact him directly at email@example.com or 619.550.5663.
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