San Diego’s Pension Commission voted Friday to reject a proposal to reduce the city’s pension benefits by $352 million over the next four years, calling the proposal a threat to the city’s long-term financial stability. did.
In a 10-3 vote, the pension board instead chose a more conservative proposal that would reduce the city’s payments by $103 million over the next four years and make payments more stable after 10 years.
A more aggressive proposal would reduce payments significantly in the short term, followed by sharp increases, especially between 2035 and 2039.
Critics said the move would have been similar to the pension underfunding of 20 years ago that gave San Diego the nickname “Enron by the Sea.”
City finance officials lobbied hard Friday for a more aggressive proposal, calling it essential to eliminating a projected $221 million budget deficit next fiscal year. insisted.
They say the proposed payment schedule makes sense because city revenues would increase significantly over the next few years, especially if voters approve some tax increases that city officials are considering for the November ballot. He said it was appropriate.
Several board members questioned whether the city’s revenue would increase enough in the next few years to cover the payments, saying it was likely there would be at least one economic downturn by then. insisted.
“You’re a low credit risk,” board member Roberta Spoon said after showing city officials dozens of tables projecting large budget deficits.
Board members tentatively supported a more aggressive approach to lowering benefits at their January meeting, but on Friday pension system chief executives and trustees expressed serious concerns. , seemed upset.
“I think it’s important to reduce risk as much as possible,” CEO Greg Rademacher told the board. “It makes me anxious because I know something good or bad will happen.”
Rademacher emphasized that the more conservative payment schedule ultimately adopted by the board resulted in less volatility in the financial model created by the pension plan’s actuaries.
Pension scheme trustee Ashley Dunning expressed concern that the board would choose a more aggressive approach, primarily due to pressure from the city.
He said it would be in violation of the board’s fiduciary duty to the pension system’s retirees if it allowed a proposal that jeopardized the long-term stability of the pension system created by city order.
“From a fiduciary perspective, it’s not good to have interactions of this magnitude,” he said, noting that city officials are lobbying for more aggressive reductions in short-term payments. said.
Dunning also said there didn’t seem to be enough motivation, other than helping the city, to choose the more aggressive proposal over the more conservative approach the board ultimately approved.
He said such a big move without proper incentives could leave the pension system vulnerable to lawsuits.
“My recommendation is to make sure that any decisions are made for the right reasons, and the reason should not be to save the city money,” she says.
He said the more conservative approach taken by the board was more defensible because it brought the pension system in line with national best practice.
The $103 million in savings would come from changing the way the pension plan’s long-term obligations are calculated, basing them on a percentage of an employee’s salary rather than their actual salary.
The city switched to using actual salaries a decade ago after voters approved Proposition B, which eliminated pensions for most new employees. It is standard for pension schemes to use actual salaries to calculate liability when there are no new members.
But the court overturned Proposition B, forcing the city to create retroactive pensions for more than 5,000 workers. It is standard for pension schemes to use a percentage of an employee’s salary to calculate the liability of new members.
If the more conservative proposal were adopted, the city would be in an even more dire financial predicament than if the more aggressive approach had been approved.
The proposal adopted Friday would provide the city with $37 million in relief next year instead of $100 million.
But only 73 percent of the city’s payroll is in the general fund, so only 73 percent of that relief amount, or $27 million, will go to the general fund. The remaining 27% of salaries come from corporate funds, primarily from the city’s sewer and water departments.
The proposal adopted Friday would reduce the city’s pension payments next year from $526.6 million to $489.6 million. He will be paid $499.4 million in fiscal year 2026, $29.6 million less than the previous plan.
The new plan would delay repayment of the system’s $3.4 billion in pension obligations from 2040 to 2042. And by deferring higher payments, the total cost of servicing that debt increases by $406 million.
Two of the three board members who voted against the new plan said they preferred a proposal that more aggressively lowered payments. They said the plan would help the city avoid or reduce layoffs this spring.
“This is not only wise, it’s the wisest,” board member Brett Bartolotta said of the more aggressive plan.
Natasha Collura said it’s important for the pension board to help the city meet its annual pension payments without laying off employees or cutting services that taxpayers expect and need. Stated.
But others disagreed.
“We’re particularly concerned about the risks,” board member Clifford Silleson said. “My biggest concern is not just where we are going to be in 30 years, but where we are going to be over the next five to 10 years.”
Board member Lewis McGee called the city’s proposal irresponsible.
“If a family comes to me with credit card debt problems, I’ll tell them, ‘Cut your payments for a few years, and you might have more money in the future; , the pain of paying will be lessened,” McGee said.
Some citizens also voiced opposition to the more aggressive proposals.
Ron Surthoff, who served on Enron-by-the-Sea’s pension committee for 20 years, said, “It’s not appropriate to give financial assistance to the city, and it wouldn’t have happened without the city’s request.” said. scandal.
Former City Attorney Mike Aguirre threatened to sue if the board approved a more aggressive proposal. Aguirre said he has filed a public records request for recent communications between board members and city officials.
The San Diego County Taxpayers Association, which strongly supported Prop. B, said city leaders must demonstrate more effective fiscal management before receiving any pension deferrals.
