Cash-strapped California city gears up for battle with unions over pension reform

Facing an ocean of debt, San Diego is offering voters in June a potential lifeboat: public employee pension reform.

“Taxpayers have had it,” former Mayor Roger Hedgecock said. “A huge portion of the city budget is going to fund these pensions far beyond anything in private sector.”

The initiative would force new city workers into private-sector style 401(k)s. Current employees would pay more, and their retirement payments would be based solely on base salary – not accrued sick leave and vacation time, often used to inflate pension pay.

“Labor unions used a lot of scare tactics to spike pensions over the past 15 years,” City Councilman Carl Demaio, a mayoral candidate, said. “They said, ‘If you don’t give employees these lavish pensions, then we can’t recruit and retain quality employees.’ Those arguments were false. They led us down the wrong path, and now we paying the price as taxpayers.”

San Diego faces a $2 billion pension shortfall, a deficit caused by elected officials who promised benefits the city could never afford and an under-performing stock market, Demaio said. Unions blame irresponsible city officials, who allegedly spent bond money earmarked for union pay on ego-driving projects like sports stadiums backed by the Chamber of Commerce.

“We are the ones being demonized by Carl Demaio every day, acting as if we are the ones with the six-figure pensions,” says Joan Raymond of the American Federation of State, County and Municipal Employees.

Average workers aren’t the issue, Raymond said. It's white-collar managers who draw the big pensions.

True, the city pays $2.4 million a year to cover the pensions of just 10 ex-city workers, most of whom are lawyers or former executives. However, the list also includes a retired librarian left her job here with a $234,000 annual pension.

“I want our taxpayers to know government employees are going to receive no better a retirement package than the hard-working families and taxpayers who pay the bill,” Demaio said.

The San Diego initiative is similar to one in San Jose, where officials blame soaring pensions for their inability to staff a new library and police station. Nearby Stockton is considering bankruptcy to void its pension obligations. But it’s San Diego where union forces are mobilizing.

“San Diego is going to be the next Wisconsin. I think you are going to see a national confrontation between these very powerful public employee unions, who have a hammer lock on the public sector against taxpayers who have to pay the bill.”

San Jose and San Diego say pension reform is the only way to avoid tax increases or cuts in personnel. The San Diego Taxpayers Association says their cites spends 44 cents of every payroll dollar not on current city worker salaries, but on retirees and pensions. San Jose officials peg their exposure at 55 cents a dollar.

Supporters believe the initiatives are fair. In San Diego, retirees would still receive about 65 percent of their final year’s salary, a figure comparable to the private sector but down from the 75 to 100 percent most retirees currently receive after 20 years or more on the job. The city would also limits its financial exposure to a Social Security contribution (6.2 percent) and a 401(k) match (3 to 4 percent).

Raymond says, however, just because that’s the norm in the private sector, that doesn’t mean its enough.

“401(k)s do not provide retirement security,” she says. “It is a gambling game. So San Diegans, whether they union or regular working folk, deserve better than that.”

California labor unions will fight the measures, as many believe other cities across the U.S. will try the same strategy if it succeeds here.