San Diego city officials plan to file a lawsuit Friday seeking $352 million in pension pay cuts over the next four years, arguing that the moratorium is warranted given the city’s financial woes.
Such a reprieve would reduce the $526.6 million annual payments the City of San Diego plans to send to the pension system this summer by $100 million and help reduce the projected $221 million budget deficit for next fiscal year. This will contribute to the solution.
In January, the city’s Pension Commission said it was willing to support significant reductions in short-term payments, but only if city officials had a plan to resolve their financial problems and could prove they were not the result of mismanagement. He said that it is limited to.
The city of San Diego’s top two finance officials will tell the pension board on Friday that the city simply never collects enough tax revenue to cover all of its needs, including law enforcement, fire protection and infrastructure projects.
San Diego’s sales and hotel tax rates are lower than many other cities, and stormwater and business permit fees are also relatively low.
“While there have been impacts of mismanagement, the reality is that we have been able to perform miracles with the funds that we had,” City Comptroller Rolando Charbel told the San Diego Union-Tribune on Thursday.
And Matt Vespi, the city’s chief financial officer, said there is a plan to solve the problem in the long term by significantly increasing revenue.
The city expects to increase revenue by about $75 million a year when it begins charging trash pickup fees for single-family homes in 2026, made possible by a successful 2022 ballot measure.
A November ballot measure that would increase the city’s sales tax and stormwater fees could raise $500 million a year in revenue.
“We’ve already made progress on the revenue side, and we’re looking to make even more progress,” Vespi said.
Mr. Charbel and Mr. Vespi argue that it is prudent, not irresponsible, to reduce pension payments in the short term and increase pension payments in the years ahead, given the long-term revenue increases expected. There is.
“For us, it makes a lot of sense that as incomes and salaries increase, pension payments also increase,” Charbel said.
That’s the proposal the pension commission will consider Friday that would cut the city’s pension payments by a total of $352 million over the next four years, but significantly increase payments after that.
For example, the city’s annual payments would be $593.7 million in 2036, a record high, compared to $490.4 million in 2036 under the current payoff plan.
Payments in 2039 will amount to $653.2 million, $141.3 million more than the $511.9 million scheduled for the same year under the current payment plan.
Pension board members expressed concerns in January about whether the city would be able to cover these high payments, but Vespi said Thursday that inflation and tax revenue growth mean those numbers won’t be that high in 15 years. He said it seems unlikely.
Vespi said the proposed moratorium would make the city’s payments more stable, which is one of the pension system’s main goals. Under the plan, the city would pay nearly 15% of its revenue each year, based on projected revenue growth.
This is in stark contrast to the existing benefit plan, where pension payments currently account for about 19 percent of the city’s revenue, but that proportion will plummet to about 11 percent in the future.
“This notion that the city is trying to avoid responsibility for pension funding is not accurate and is downright unfair,” Vespi said.
Some critics say the city of San Diego was irresponsible last year when it gave most city employees raises totaling about 25% over three years. At the same time, pension payments increased and the city’s revenue to cover them decreased.
The increase would increase annual payments to $526.6 million, the highest amount on record unless the pension board agrees to Friday’s deferral.
The increase is also expected to push the city’s pension liability to a record $3.36 billion.
Charbel said these raises were necessary to counter a pay freeze that left city of San Diego employees significantly lower than other government employees from 2012 to 2018.
While the pay freeze allowed San Diego to balance its budget despite lower per capita revenue than most other cities, it also created major problems.
“We hire people, we train them, and six months later they leave for the county or Chula Vista or another city,” Charbel said, adding that customer service is compromised by inexperienced employees and vacant positions. He claimed that there was.
Vespi stressed that the big raises are far from making up for nearly a decade of flat pay. He also said vacancies and inexperienced workers make the city more vulnerable to lawsuits and costly mismanagement.
“Low staffing levels lead to other liabilities, which drive up other costs,” he said.
Charbel said another way the city hides its relative revenue shortfall is by underinvesting in infrastructure, a strategy that has left San Diego with $4.8 billion in infrastructure projects.
“Capital infrastructure was not well maintained due to lack of resources and salaries were stagnant for years and years,” he said. “In two ways, he was able to hide the fundamental problem of a mismatch between the costs he had to pay and the revenue he earned.”
Some critics worry that San Diego’s efforts to defer pension obligations into the future are similar to plans from two decades ago that gave the city the nickname “Enron-by-the-Sea.” are doing.
Vespi noted that this plan is quite different, as it would require the city to increase pension benefits for retirees and only require balloon payments if certain goals are not met.
He said the city’s current proposal does not depart from generally accepted actuarial principles and that San Diego has a strong track record of pension payments dating back to the Enron-by-the-Sea era.
In recent years, pension systems have lowered expectations for investment returns, increased expectations for retirees’ life expectancies, and raised expectations for workers’ pay increases.
“The aggressive nature of the assumptions set by the Pension Commission is driving up our pension payments,” he said. “The pension board has basically moved the goalposts back for us, but we have continued to contribute.”
Vespi also said the topic of revising the city’s pension payment schedule first arose when the court overturned 2012’s Ballot Proposition B, which eliminated pensions for most new employees. He also said that he had to make some important decisions.
He said this had forced the Pensions Commission to create retroactive pensions for thousands of workers, raising questions about how the pension system should move forward.
The $221 million deficit expected for the new fiscal year, which begins July 1, is the first new figure released this week and is more than $50 million higher than previously expected.
Vespi said sales tax and hotel tax revenue estimates for the new fiscal year were reduced based on the fact that these revenues were lower than expected for the current fiscal year. Additionally, more city vacancies have been filled this year than expected, increasing estimated expenses for the new fiscal year.
Friday’s pension committee meeting is scheduled to begin at 9 a.m. at the San Diego City Employees’ Retirement System’s downtown headquarters. The address is 401 West A Street.
