Pension initiative cuts city workers’ rights

by Leonardo Castaneda

Artwork courtesy of Lidya Toscani
Artwork courtesy of Lidya Toscani

Once more, the stage is set for a monumental battle over pension reform, and Mayor Jerry Sanders and Councilman Carl DeMaio think they’ve got a winning strategy. They are teaming up to sell us a snake oil 2012 ballot initiative they claim will cure San Diego’s pension cancer. But instead of addressing the root cause of the current pension crisis, the proposed reform simply shifts the blame to the shoulders of embattled city workers.

The clock is ticking for pension reform, with $250 million of pension payments looming in the city’s not-too-distant future. The urgency is clear, but to understand how the pension fund fell into a $2 billion hole, you’re going to have to bear with me through some pension history.

Basically, the pension fund is a savings account for city employees’ retirement. It’s a key component of public employee compensation because local public workers tend to back-load their compensation. They make 12 percent less in wages than comparable private sector workers, but in exchange get better benefits. The employer and the employees both contribute to create this huge money reservoir. Originally, the pension money was invested in a variety of safe, interest-earning assets. But thanks to the deregulation craze of the 1980s, restrictions on where the money could be invested were lifted. Soon the city began investing in high-risk stocks.

During the good ol’ days of economic growth, the pension’s assets swelled and the city was able to cash in on “surplus revenue.” That money was used to pay for popular projects such as Petco Park, the convention center expansion and the 1996 Republican National Convention. Meanwhile, the city agreed to improve retirement benefits in exchange for not having to meet its required pension contributions.

Unfortunately, the pension party couldn’t last forever, and in 2008 the stock market crashed. Sixty percent of the pension’s worth was lost because of the volatile stock market. Virtually overnight, more than $1.1 billion vanished from the fund and the city was left with unbearable pension liabilities.

Yes, increased employee benefits did contribute, but at the heart of the pension quagmire lies the reckless mismanagement of employee savings by city officials.

Sanders and DeMaio each promised to deliver us from this financial labyrinth with their own sweeping pension reform. Now their competing proposals have been reconciled by overly influential pro-business groups such as the Lincoln Club. The key to their palm-rubbing plan is to shift virtually all city employees to 401(k) retirement savings accounts. Excepted, of course, are law enforcement, whom former police chief Sanders managed to spare from what he knew was an unfair deal. And here’s the kicker: Passing this plan would eliminate city workers’ right to vote on changes to their own benefits. This isn’t a step intended to save the city money. Rather, it is a huge ideological step toward eliminating workers’ rights to collective bargaining. If it rings familiar of the battles in America’s heartland, it’s because this is DeMaio’s wet dream of, in his own words, “making San Diego the Wisconsin of the west.”

For all its proposed changes, this plan fails to address the root causes of the crisis. The city is acting like a bully who steals a kid’s lunch, gets salmonella poisoning and then demands the kid pay his medical bill.

San Diego needs a truly comprehensive and fair reform package. First, we need to reinstate regulations limiting investments in the stock market to only 25 percent of the pension fund. The rest should be in safe, interest-earning assets such as bonds. This will allow for healthy growth while limiting the city’s exposure in case of an economic downturn. The interest revenue earned should then be kept in the fund, as a safety net for when the city can’t afford to meet its full pension contribution. Some benefits for newly hired employees need to be cut. Benefits should reflect economic reality, and should certainly be adjusted to correspond with the economy. But we must do so while remembering that city employees receive lower wages in return for those benefits. This can easily be accomplished within the current framework for collective bargaining.

This will save money now and prevent a future pension collapse, but to meet current pension responsibilities we need a new source of revenue. A small tax increase during a five year period would close this shameful chapter in city finance. Don’t think of it as a pension tax. Think of it as a tax to pay back city workers for the parks and toys we’ve bought with their money.

I know this plan isn’t perfect, but it is a step in the right direction. The pension deficit isn’t going away any time soon, and we can no longer afford Band-Aid solutions that unduly punish city employees.

— Leonardo Castaneda is an economics and journalism freshman.
— The views expressed in this column do not necessarily reflect the opinion of The Daily Aztec.