National Press Club

San Diego ballot could ignite shift in public employee pension plans

February 13, 2012 | By Terry Hill |

If San Diego voters approve a June ballot initiative to end guaranteed pension benefits for newly-hired city employees and offer a 401(k) type retirement plan instead, other cities may soon begin adopting similar approaches, Mayor Jerry Sanders predicted Feb. 13 during a National Press Club newsmaker conference.

The initiative, expected to draw strong labor union opposition, is being managed as a citizen-run project and funded through private contributions.

Defined benefit pension systems, Sanders said, “are a relic of the past” that cannot be fixed with the unfunded liability that comes with them. A pattern is emerging in other California cities that are seeking similar approaches, he noted, citing San Jose as a city facing a similar crisis. Its city council is also planning a similar ballot initiative.

Sanders, a former San Diego police chief who won his seat during a special election in 2005 after former Mayor Richard Murphy resigned under a cloud of fiscal mismanagement, said he inherited a budget that was $200 million short. He also learned that no one could tell him exactly how many people were employed by the city. After investigating, a collection of 500 unreported street repair workers, jokingly referred to as the “Lost Battalion,” was discovered, bringing the total workforce to 11,500.

“The city made bad decisions, probably over a 30-year period,” Sanders said. That led to underfunding which created a structural deficit. City leaders, he said, had cut deals with labor unions to increase pension benefits in return for not making the full pension payments.

Sanders said the city’s financial system crashed in 2004 when officials filed misleading bond disclosures. The Securities and Exchange Commission sanctioned the city for securities fraud; five council members were charged with civil securities fraud; the city lost its credit rating and was besieged by calls to file bankruptcy.

After conducting a three-year study, the city began implementing dozens of recommendations to return to solvency. In 2006, voters approved a plan requiring any increase in pension benefits to get their prior nod. Workers hired after mid-2009 were to be directed into a pension plan that required some employee contributions. Savings over the next decade are estimated at $36 million. In addition, the city could save more than $700 million over the next 25 years under a new retiree healthcare program that was also approved recently.

Sanders also implemented a managed-competition system allowing private vendors to bid on a number of services ranging from fleet management to street sweeping to landfill operations. Significant savings were found that allowed reductions in the number of city employees.