No Easy Fix for San Diego’s Pension Woes

A pension-reform committee looking for ways to fix the city’s billion-dollar pension problem on Wednesday issued its final report, which includes what Mayor Dick Murphy calls 17 “tough-love” proposals requiring sacrifice by employees, retirees and residents.

Murphy, in releasing the report, said, “Every one of these recommendations merits serious consideration.”

The recommendations include items that have been discussed for weeks as San Diego officials and fiscal watchdogs have grappled with how to deal with an unfunded liability for the pension system that tops $1.16 billion and upward of an additional $1 billion for health benefits.

The committee recommends raising the retirement age for employees, increasing employees’ contribution to the system and a legally binding promise by the City Council to increase the city’s payments into the system. Another suggestion calls for the city to issue hundreds of millions of dollars in bonds, thus spreading the cost of the pension bailout over several decades.

The system is funded by an annual budget allocation and by interest on stock-market investments. The pension program’s deficit stems from a dip in the stock market, an increase in pension benefits granted by the City Council and a decision by the council not to increase the city’s allocation.

Dick Vortmann, a reform panel member and president of a local shipbuilding firm, said the pension plan, if not fixed, threatens to gobble up one-fourth of the annual general fund budget in five years. “The solutions are going to be painful,” he said.

They will also be politically difficult, beginning with the official presentation of the report to the City Council next week.

Reform panel member Judith Italiano, president and general manager of the Municipal Employees Assn., said she is planning a minority report for the council’s consideration. Still, she said she was pleased the reform committee did not recommend large-scale reductions in pension benefits for current workers.

“They’re not looking at attacking current city employees,” she said.

Instead, the city, she said, is considering a two-tier payroll, with newer employees receiving less pay and fewer retirement benefits. “It’s going to be a nightmare,” she said.

The changes recommended by the reform committee would affect employees hired after the council adopts the proposals.

The committee’s report does not include the type of items that pension program critics have suggested, such as freezing salaries, reducing the number of city employees, privatizing some city services, or reducing benefits for current employees.

Nor does the report suggest reinstituting a property tax to fund the pension program. The city had such a tax until the late 1970s. In 1990, the City Council looked at renewing the tax but quickly retreated in the face of taxpayers’ ire.

Asked about a property tax, Murphy said it is not an option. “I oppose raising taxes to fund the retirement program,” he said. Murphy, however, does favor sharply increasing the city’s contribution to the pension system to eliminate the unfunded liability within 15 years. Neither Murphy nor the pension-reform committee, however, has suggestions on what city services should be trimmed as a result.