Can S.D. strike a pension deal while the stock market is hot?MICHAEL SMOLENS ColumnistWith an eye on the stock market, city and union negotiators might want to try to reach an employee retirement deal sooner than later. The market has been going up and up for pretty much the last decade, and it has got to tank some time.Whether San Diego’s legal dilemma over the retirement system will be resolved before that happens is anybody’s guess.Yet this is an important factor given that the 401(k)-style plans for newer municipal employees, like similar retirement accounts for private-sector workers, have grown tremendously over the years.Legal rulings have made clear those funds can be applied as compensation, or credit, for newer city employees who are at the center of a years-long legal battle over voter-approved Proposition B. The 2012 initiative required new employees to be given 401(k)-style plans instead of traditional pensions. Police officers were exempt and are enrolled in the city’s pension system.The U.S. Supreme Court on Monday declined to hear the city’s appeal on a lawsuit by municipal unions, letting stand a California Supreme Court ruling that San Diego illegally sidestepped a requirement in placing Proposition B on the ballot.
The next move will come from a state appellate court , which has been tasked with determining, or helping to shape, a remedy for the more than 4,000 employees who have been hired since Proposition B took effect July 1, 2012.The four unions that challenged Proposition B in court say the remedy should be to go back to what existed before the measure was approved, meaning that the new workers should be given pensions.Whether that ultimately happens, or some other remedy is found, the impact on city finances would be much more advantageous during the current hot market. Because surging stocks have boosted those newer retirement accounts, the bite on the city probably won’t be as bad as once thought.For some time, a guesstimate was floated that the cost to the city could be anywhere from $20 million to $100 million. Labor and City Hall officials now say the impact on municipal finances could be negligible. A big drop in the market likely would change those optimistic assessments.There are so many unknowns that it’s impossible to get a solid estimate. For one thing, there has been no public analysis of the current value of retirement plans for post-Proposition B employees. For context, the Dow Jones Industrial Average has doubled since the market closed on July 2, 2012, at 12,871.Then there’s uncertainty over interest, legal fees, tax issues and potential penalties that may be part of the eventual court-ordered remedy.Adding to the complexity, any such resolution apparently would have to be approved by San Diego voters, at least for now. The courts have not ruled on the merits of Proposition B, only that the process to put it on the ballot was illegal. So the law is still on the books and can only be changed by a vote of the public. That would not be the case if the courts invalidated the measure. It’s unclear when or if that would happen. That could take an entirely new legal proceeding, delaying matters for months, maybe years.What the California Supreme Court determined is the city erred because then-Mayor Jerry Sanders did not conduct meet-and-confer sessions with unions about Proposition B before it went to an election. Sanders used the powers of his office to help draft and promote Proposition B. The initiative, launched in response to the city’s growing pension shortfall, also was championed by then-City Councilman Carl DeMaio. A combination of underfunding of the pension system, increased benefits and market losses contributed to the gaping hole.The city’s pension debt currently stands at nearly $3 billion and is taking more and more budget dollars that could go to various services.The court said because Sanders was acting in his official capacity as mayor — who is responsible for negotiating labor contracts — he was legally required to discuss it with unions. The city appealed to the U.S. Supreme Court, contending Sanders was exercising his First Amendment right of free speech. The high court let the ruling stand without comment.Some backers of Proposition B have viewed the meet-and-confer challenge as seeking to get the measure thrown out on a technicality — a notion unions vehemently dispute. Even though the measure received 65 percent of the vote nearly seven years ago, the state Supreme Court said the city acted illegally by not going through the bargaining process.Unions were upset as the city moved forward with Proposition B, but not just because they opposed doing away with pensions. Labor and the city had negotiated changes that reduced pension costs a few years earlier, and union leaders were angered that the city skipped the process this time.Bringing the initiative to the negotiating table would not have prevented Proposition B from going on the ballot. A main idea behind the initiative was that 401(k) plans shift the burden of poor market performance to the employees, rather than the city, which has to make up losses in the pension system.Sanders and then-City Attorney Jan Goldsmith have been subject to second-guessing for the city taking that tack. The state Supreme Court ultimately upheld the initial ruling against the city by the state Public Employment Relations Board in 2015, which recommended the newer employees be made “whole.”The labor board said the workers should receive the equivalent value of a pension, plus 7 percent interest. The board also said the city could apply the value of the 401(k) plans to that compensation.The U.S. Supreme Court is often the final word on legal matters, but not in this case. The appellate court must issue its ruling on the remedy for the newer employees, unions and the city have to negotiate details, and proponents of Proposition B likely will have a chance to weigh in legally at some point.This is uncharted territory. San Diego is the only city in the state that does not provide traditional pensions for its employees.Nobody knows how and when this will end — or whether there will be a healthy stock market that might facilitate an agreement.michael.smolens@Twitter: @michaelsmolens(619) 293-1256
Not all deplorables are running for office. Today’s politicos covered in this column are not on the ballot this fall, but their influence has shaped local politics over the past decade. They’re really excited about an upcoming opportunity to sell the public on a rehashed version of what they call pension reform.
Faced with the prospect of burning, looting, and potholes, San Diego voters overwhelming approved Proposition B in 2012. This flavor of ‘pension reform’ was sold as the only possible solution to the city’s budget crisis. It was ‘vote for this, or your city will fail.’
The measure switched all new city hires, except police, from pensions to 401(k)-style individual investment plans. It hasn’t been a financial solution for the city’s money problems as much as it has changed the employee-employer relationship.
A government job-which foregoes participation in the Social Security system–no longer offers a defined retirement salary; the payout for those ‘golden years’ is now determined by the whims of the stock market.
The promise of financial redemption was the sweetener for voters; the real goals for Proposition B’s backers were undermining the benefits of collective bargaining and the power of government as an institution.
Career employees would eventually become contract workers, supervised by the entities profiting off what once had been the services and facilities once considered public.
Driving through the Faulconer FastPass Tollbooth on the Carl Demaio portion of Interstate 8 to the beach is all part of this Libertarian vision of paradise.
Last week the California State Supreme Court unanimously declared the process leading up this vote to have been a sham. It sent the case back down to the appellate court, saying it was up to those judges to figure out the details on how to resolve the two-tiered pension mess that simply undoing the measure would cause.
The two politicians originally in charge of selling this siren song are ready to put the band back together for a reunion tour, featuring a new (and probably more odious) version of their greatest hit, “I Got Mine, Screw the Rest of You.”
From the Union-Tribune:
It was as if they had seen the decision coming long ago.
Many people were discussing a new pension measure for the 2020 ballot well before the California Supreme Court ruled Thursday that San Diego did not follow the law when it placed a retirement system overhaul before voters six years ago.
Among them were former Mayor Jerry Sanders, currently president and CEO of the San Diego Regional Chamber of Commerce, and Carl DeMaio, a radio talk show host and former City Council member and mayoral candidate. The two spearheaded the Proposition B pension measure that was overwhelmingly approved by voters in 2012.
Former Mayor Jerry Sanders sees Proposition B as his legacy. Former City Councilman Carl Demaio sees it as the launchpad for his career goal to be the savior of the California Republican Party.
Any discussion of what the “Son of B” will look like needs to start with the things Republicans are most scared of–history and facts. While there can be no denying the need for changing the way the City of San Diego does business, it’s important to know just how we got here.
The primary selling point for Proposition B was that the City’s employee unions represented a threat to future financial stability.
Visions of greedy union bosses swilling cocktails at the 19th hole of a luxury golf course, and lowly librarians soaking the taxpayers were the basis for the “only” solution to the pension crisis.
Once upon a time, Carl DeMaio even rented a portable billboard touting the exorbitant pension of an ordinary librarian, who was actually a retired executive for the entire library system.
I owe Rachel Laing (ex-reporter, ex-city employee, currently pr maven) credit for the most of the words (via Twitter) in the following short, but necessary, history.
Our pension crisis first surfaced more than two decades ago, but its causes date back to the 1970s, as she and Larry Edwards explained in a 2005 San Diego Magazine article.
The seeds of today’s crisis, she [Diann Shipione, a former trustee of the San Diego City Employees’ Retirement System (SDCERS)] says, were sown during the taxpayer revolt of the late 1970s. That populist uprising culminated in the passage of Proposition 13 in 1978 and was later topped off with Proposition 218 in 1996. Together, they limit elected officials’ ability to increase taxes.
With that factor combined with raids on local revenue by the cash-strapped state legislature—as well as the city’s below-average tax and fee structure and its reluctance to cut back during economic downturns—revenue did not keep pace with expenses. By 1996, the city could not meet its minimal pension obligation, and a deal was struck with the labor unions to increase benefits while purposely withholding money from the pension fund. Following the stock market bubble-burst in 2000, the terrorist attacks in 2001 and the subsequent recession, this insidious arrangement was renewed in 2002.
[City politicians] looked at the retirement system as a piggy bank,” says Joan Raymond, president of the American Federation of State, County & Municipal Employees (AFSCME) Local 127 in San Diego. “They needed that money for the Republican National Convention, Qualcomm Stadium, Petco Park and other things.”
In the 1990s, the (Republican) mayor and city manager wanted to spend money but didn’t want to ask citizens for more. They stopped making payments needed to pay the city’s portion of the full actuarially prescribed amount into the pension system to keep the fund growing at a pace that would enable it to meet its obligations.
The employees signed off on this thanks to promises of increased benefits when they retired. This was a deal negotiated at the highest levels, by people who should have known this was a foolish and dangerous bargain. The mayor, city manager, and City Council assured everyone things would be fine.
A booming stock market made it possible for the pension fund’s return on investments to mask the impact of the deliberate underfunding.
It was NOT the employees who weren’t paying. They faithfully turned over their portion of the obligation, paycheck after paycheck, year after year.
When–once again, that darned history thing–the stock market collapsed, the full impact of the underfunding became known. The ensuring political crisis re-shaped the city over the ensuing decade.
After all the investigations, resignations and recriminations it was the employees who bore the brunt of the various remedies through frozen pay, negative public sentiment, slashed benefits and more.
In 2008, employees and their unions agreed to a negotiated pension reform that substantially reduced benefits and costs. According to Assemblywoman Lorena Gonzalez-Fletcher, who was then heading the local labor council, the promises made by then-Mayor Jerry Sanders included not putting a pension killing measure on the ballot.
Fast forward to 2012, and a so-called citizen’s initiative is circulating, openly backed by Sanders. Testimony given before the Public Employment Relations Board indicates his office directed city resources behind the scenes in support of the measure.
Last week’s Supreme Court ruling came because Jerry Sanders was brazen enough to assume he could by-pass his obligation as the city’s chief negotiator to meet and confer with the unions. The Mayor didn’t have to agree to anything; he just had to pretend to make an effort.
Instead, Sanders bypassed union representatives’ demands to meet and confer over the measure. In 2015, a large public sector union filed unfair practice claims against the City of San Diego. The Public Employment Relations Board ruled in their favor, stating that Sanders’ failure to confer with unions was an unfair labor practice.
So now, having been rebuked by the court, Son of B is coming to the 2020 ballot.
Once again, the City–now with Mayor Kevin Faulconer as the chief negotiator–will have the opportunity to sit down and negotiate an agreement. It’s likely they won’t. Politics will take precedence over pragmatism.
If Faulconer wants to have any sort of future with the GOP, he’ll roll over and play dead
With Jerry Sanders now heading up the Chamber of Commerce, and Carl DeMaio cranking our ballot measures based on bullshit assumptions on a regular basis, there will be no legal requirement for negotiations.
The underlying political atmosphere is different this time around, however. A couple years of President ‘Me First’ may be enough to change the electoral dynamics.
Local institutions, like the Chamber of Commerce and the Lincoln Club, who foul public discourse with fear mongering and lies need to be confronted and condemned to allow a solution that’s fair to all to emerge.
Finally, a strong local voter turnout for better candidates who could use their platforms to make common sense arguments might be enough to stop Son of B in its tracks.