July 9 2004

Mayor’s Pension Proposal: Heavy on Debt, Short on Reform

The Performance Institute is greatly disappointed by the proposal released today by San Diego Mayor Dick Murphy containing his suggested changes to the City’s deficit-plagued pension fund. “The Mayor’s pension proposal fails to deliver the accountability reforms necessary to protect taxpayers and retirees and to prevent a crisis like this from happening again,” said Carl DeMaio, president of The Performance Institute and director of the San Diego Citizens’ Budget Project.

“The Mayor’s proposal is a huge concession to the city’s labor unions and forces the taxpayer to take a big hit through increased debt,” DeMaio commented. Among the problems cited by the Institute in the Mayor’s proposal:

No Reform of Pension Benefits: The Mayor’s proposal fails to address the huge benefit concessions made in 2002 that increased pension benefits by a whopping 20%. This enormous increase is a direct result of 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. “The Mayor’s proposal contains zero reform on the sweetheart benefits packages that were granted to city employees. In failing to reform benefits, the Mayor has side-stepped one of the key challenges plaguing the city’s pension fund,” DeMaio said.

Taxpayer Debt Without Labor Concessions: The Mayor’s proposal also calls for a $200 million bond to cover a portion of the pension liability. “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. Last month, the Performance Institute released the San Diego Citizens’ Budget Plan that contained a pension reform plan that would generate $40 million through any mix of the following four reforms: deferment of half of the FY05 salary increases; require City employees to make the employee portion of their pension contribution rather than the city picking up this expense; reduce existing personnel; implement a bi-weekly furlough program of one day for non-essential City employees.

Conflict of Interest Continues on the Retirement Board: Perhaps the most concerning element of the Mayor’s proposal is his rejection of reforms to the governance and composition of the Pension Board—namely removing city employees and labor representatives from retirement board. This key reform was recommended by the Pension Reform Committee and national pension experts as a way to eliminate any conflicts-of-interest in the system. “By leaving individuals with clear conflicts of interest on the pension board, the Mayor is essentially proposing that the same people who created this problem and stand to benefit from pension decisions should stay in charge,” DeMaio lamented.

Carl DeMaio is President of The Performance Institute, www.performanceweb.org

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