A Mayor’s Roadmap for Reforming Pensions

San Diego’s mayor explains how financial catastrophe provided the seeds for major structural changes that the city needed to continue providing services.
by | July 16, 2012
 

Elected officials, especially those holding high-profile executive offices, face daily tradeoffs in which the necessary pragmatic compromises of daily performance — how to pick up the trash, police the streets, staff the hospital — crowd out attention to big structural changes that are needed. Every day is a negotiation with some group from labor, business, the city council or state government in which the executive uses political capital to keep the trains running on time. What interested me about San Diego Mayor Jerry Sanders was the way he thought about and accomplished big, bold pension changes while getting the city's trains, which had been derailed by fiscal crises, back on the tracks.

In this series of columns, including my look at the political lessons of the pension-reform votes in San Jose and San Diego and my interview with San Jose Mayor Chuck Reed, I'm not taking a position on what in absolute terms is a fair public pension, for obviously hard-working public employees deserve such. Rather, these columns focus on the question of what leaders can do when budgets are so badly out of balance that very large, uncomfortable action is required.

From Mayor Reed, we heard about the role that pension reform must play in strengthening a city's ability to deliver services — as well as in increasing the integrity of the benefits that have been legitimately accrued by government workers and retirees. Though the case for reform in cities and states will increase under economic stagnation and fiscal constraint, mayors and governors will continue to face delicate tradeoffs between political momentum and policy innovation. Mayor Sanders represents those officials who take really tough jobs in order to bring about important and critical reforms for their communities. The background of his handling of the recent pension reforms in his city should provide both political courage and a roadmap for newer elected officials making what seem to be difficult political decisions concerning just how much risk should they take and how much in-your-face fury they can endure.

In this edited interview with Mayor Sanders, we take a deeper look at the way he identified and executed his strategy:

San Diego Mayor Jerry Sanders  
San Diego Mayor Jerry Sanders

The reforms passed by a two-thirds vote in San Diego are impressive and important, but our readers will be just as interested in your courage, message and motivation. Especially having taken office shortly after San Diego's pension-management scandals a decade ago, how did you rally citizens to support reform? Was it easier or harder given the fact that you came in following this disaster?

First of all, I think having pensions in the headlines for six or seven years has been a help overall. I came in after the problems occurred, which allowed me to take the issue in a different direction and talk to the public in a different way. The first thing we did was a ballot initiative in 2006 to require that increases in public-sector pensions and benefits would be subject to a public vote. San Diego voters approved that change by almost 70 percent. Our ballot initiative institutionalizing managed competition for basic city services also passed by a two-thirds margin, so we knew that we had the attention of the public. Voters wanted to see services like parks and libraries and police maintained, and wanted to have government pensions that are reasonable, but fair.

Its notable you built the public's commitment to reasonable pensions into a case for a full-fledged 401(k) for public employees. Usually, progress in this area ends up being much more incremental. How did you successfully take that extra step?

In 2008 and 2009, we worked with the city council on a hybrid pension plan that ends up costing the city about half as much for all new employees. All employees after July of 2009 have gone into that hybrid plan. But with those changes alone, we were just not seeing sufficient reductions to the pensions' unfunded liabilities. The city's payments into the funds were escalating too rapidly alongside investment losses. This meant continued cuts to public services. We needed to do more. As a private citizen, I began working with a group of people in November of 2010 on a plan to set the city on a path to fiscal sustainability. One key goal of that plan was to create a whole new pension system like those enjoyed by private-sector workers almost everyone else in America. We rallied a wide group of people in city politics and leadership who were interested in that kind of fundamental reform and got them all on the same page.

How did you use your platform as mayor to rally citizens behind your plan? You mention how cuts to city services and inequity between public and private pensions played a role. Was that all about service quality, or was it about equity between public and private workers? How did you think about the priorities of those two messages?

I think the priority is to focus the message on service and sustainability. If we continued to have hugely escalating pension costs every year, we simply could not sustain any level of service in the city of San Diego. The public understood that a sustainable pension plan that was fair to employees wouldn't also drain the city's coffers.

How did you work with labor unions and your employees on this? On top of pension reform, you're pursuing policy innovations, productivity increases, managed competition and all the rest. Did your aggressive approach to pensions shut down the rest of your reform discussions with the unions?

On one hand, there was a large and costly confrontation with unions just to get the needed signatures to get Proposition B on the ballot. Union leaders and members actually physically blocked citizens from signing the ballot measure, driving the cost of getting the measure on the ballot up to nearly a million dollars. Certainly parts of these efforts have been quite difficult. On the other hand, because the public is so clearly behind us, we have been able to continue to work productively with the unions and city council on a wide array of issues, despite differences on pensions.

Pension reform presents special challenges caused by the particularly high contrast between the intensity of the opposition and the relatively diffuse interest of the average citizen who benefits from the reforms. For newer mayors just coming into office or starting to grapple with these longer-term issues, how should a leader develop a vision and use political capital when the opposition to reform is really intense and those would benefit most from reform are relatively quiet?

When I became mayor, San Diego had been through such a financial catastrophe. We were being investigated by the Securities and Exchange Commission and the U.S. attorney. Our bond ratings had been suspended. We couldn't borrow money on the public markets. My platform as a candidate and my program as mayor both focused on stabilizing the city's finances so that we could provide the basic services that people need.

When you go out and talk to the public, there's real anger about the differences between public and private retirement systems. With people living longer and retirement ages declining, there's just no sustainability in a defined-benefit system. This is something the private sector learned a long time ago. The issue of fiscal sustainability is what we really talked to the public about. I think that any mayor, Republican or Democrat, can say that if people want services, if they want police officers and firefighters and parks and recreation and libraries, if they want infrastructure strengthened and roads repaved, that they're going to have to take some tough positions on pension and budget reform as well. If new mayors do these things, they're going to find the public is overwhelmingly in support of this in any city you go to.

Well, that's a hopeful message.

Now, the other part of it is that I also have the benefit of being mayor at the end of a career, rather than planning on a political career. I didn't come into this thinking I was going to run for some other office. I came into it thinking I'm going to fix the city's financial problems and then move on in my life. This is not a political set of issues. Because I have no political aspirations after my time as mayor, I think things are put in a much different perspective.

Even so, you have an enormous agenda for your last year in office. There are still trade-offs and risks. How do you keep up the political will to run up against all these conventions and continue to win victories for San Diego's voters and taxpayers?

When I was elected, San Diego was at a point in its history where its residents didn't really want a politician for mayor. I think that helped. I also made decisions that probably weren't popular with the traditional power brokers. But everybody in the administration has really tried to do what's right on all the issues as we move this city forward. I just think we've had the benefit, respect and support of a public that wanted to be part of putting our city back on track.

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