Pension Reform Package Incomplete and Leaves Taxpayers Holding the Bag

Institute Offers Additional Reforms to Reverse Benefit Spike from 2002

SAN DIEGO – The Performance Institute today offered a number of reforms to address the City’s pension crisis. In an appearance before City Council today, Institute President Carl DeMaio noted “The Pension Reform Package is woefully inadequate. The City is trying to gloss over the primary cause of the crisis: the huge benefit concessions to the politically powerful city labor unions. What’s worse, the City is leaving the taxpayer holding the bag and paying the cost for the City’s mistakes.”

The Institute addresses three flaws in the Pension Reform Committee’s package:

Heavy On Debt: The City’s proposal calls for a $200 million bond to cover a portion of the pension liability this year—with an additional financing of up to $600 million in bonded indebtedness. “This is paying one credit card with another,” DeMaio said. “Taxpayers should not have to shoulder the entire debt burden on this liability. Without fundamental reform in pension benefits, the taxpayer receives nothing from this deal.” The Institute called for labor union concessions to cover at least 20% of the bonds in year one ($40 million of the $200 million) and 30% of the bonds in years 2 and 3 ($60 million annually.) This would be accomplished by a wage freeze in the City and reform of “special pay” provisions.

Low on Benefits Reform: The City’s proposal only addresses benefits for NEW hires. It fails to address benefits to EXISTING city employees—which is a primary driver of the pension liability. In 2002, the City engaged in a “Quid-Pro-Quo” deal with unions to 1) intentionally underfund the pension plan and 2) increase city employee benefits to unsustainable levels. The huge benefit concessions made in 2002 increased pension benefits by a whopping 20% by lowering retirement ages, allowing city employees to purchase credits towards years of service in the city, providing a “double-dip” payout to city employees in the Deferred Retirement Option Program (DROP), and increasing the percentage of base salary paid to retirees in pension benefits.

No Exploration of Legal Flexibilities: The Pension Reform Committee sidestepped any analysis of other legal avenues for reversing the unsustainable benefit increases given in the “Quid-Pro-Quo” deal between the City and its unions. DeMaio laid out two legal options the City Council should consider, ranging from a Chapter 9 filing to seek arbitration by a federal judge as well as the possibility the City could invalidate the 2002 benefits package due to existing conflict of interest and conflict with the State Constitution and City Charter arising from the “Quid-Pro-Quo” deal. “The City is intentionally leaving several legal options off the table and out of the public’s light in their attempt to support the sweetheart pension deals it is giving city workers,” lamented DeMaio.

Based here in San Diego, the Institute is a national government reform think tank that promotes the principles of performance, transparency, competition and accountability in government.

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