San Diego Mayor Goes on the Offensive

Jerry Sanders spoke with Governing writer Ryan Holeywell about how he hopes to turn what's been called "Enron by the Sea" into "ground zero" for pension reform.
by | February 15, 2012
David Kidd

San Diego Mayor Jerry Sanders told Governing that he's confident his crusade for major pension reform in the city once dubbed "Enron by the Sea" will be successful, despite a new legal hurdle.

Sanders, who is term-limited, has been the major force pushing a city-wide vote scheduled for June that would transition the city's existing defined-benefit system to a defined-contribution plan for new workers, with the exception of cops. This week, he visited Washington, D.C. to help drum up support.

The plan would save at least $1.2 billion over the course of 27 years, according to Sanders. The city has gotten attention nationwide for the effort. While pension reform has been playing out at the state level, few if any cities of San Diego's size have proposed such a dramatic shift.

San Diego's reportedly faces a $2.1 billion unfunded pension liability.

On Monday, the California Public Employee Relations Board (PERB) ruled that the steps Sanders and others took to secure the upcoming vote were improper. Sanders had used some procedural maneuvering to put the plan on an accelerated timeline.

If the city government had proposed the June vote, it would have been required to conduct more labor negotiations first.

But Sanders contends that he -- along with other council members backing the effort -- put their weight behind the movement as individuals and not in their official capacity. Their effort resulted in the collection of nearly 116,000 signatures from voters who sought to see pension reform placed on the ballot.

The PERB, however, agreed with union leaders that as mayor, the distinction Sanders described doesn't really exist. Now, it will likely be the courts that decide whether the June vote can happen.

Sanders, who spoke with Governing on Tuesday, said he believes the courts will ultimately rule in his favor, and he expects voters will support the effort. He says it's unfair that taxpayers should have to fund generous defined-benefit plans for city workers when the outlook for their own retirements is so unclear.

The proposal would also end "spiking" -- the practice of using bonuses drive up the salaries used to calculation pension benefits -- and places a five-year cap on the salary levels the city uses to calculate how much it will pay each employee in retirement benefits.

Critics says Sanders has both overstated the seriousness of the pension crisis and the amount of savings his plan will achieve.

Still, San Diego is quickly gaining a reputation as ground zero for pension reform. In 2006, voters overwhelmingly supported a measure that prohibits the city council from increasing contributions to employees' retirements without putting the issue to a vote. The city's come a long way.

As Governing reported last year:

In 2005, San Diego Mayor Dick Murphy resigned after an investment adviser learned that the city had for years been shortchanging its public pension fund. Murphy’s was part of a raft of resignations at City Hall and did nothing to stem an endless spate of local and federal criminal investigations. Worse, the city was left with a $1.4 billion deficit, along with a ruined reputation as “Enron by the Sea.”

The city also has implemented an effort that creates "managed competition" in which some city departments must offer the lowest bid in order to continue their operations, lest they be replaced with a third-party contractor who can do the job cheaper.

So far, employees who sweep the streets, maintain the vehicle fleet and work in the city publishing shop have all won those bids by pitching proposals that reduced expenses for the city. The next competition will involve the city's landfill operations. "Employees know where the fat is," Sanders said.

Meanwhile, under Sanders' leadership, the city has shed about 1,800 positions, made pay cuts and freezes, and pushed huge reforms to the retiree health care system expected to save the city at least $700 million over 25 years.

It's a stance that has made him unpopular with some in the labor community, but Sanders said those steps have helped ensure the city will no longer have a structural deficit next fiscal year. It was nearly $200 million when he took office in 2005, he said.

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