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Council Mulls Menu of Pension Fixes

The San Diego City Council, in a 5-1 vote Sept. 12, approved a package of possible solutions proposed by the city manager to fix the city’s ailing pension system.

City Councilwoman Donna Frye, who is running for mayor in the Nov. 8 election, opposed the plan, requesting other options be put on the table.

City Manager Lamont Ewell’s recommendations include developing proposals to achieve an 80 percent to 85 percent funded ratio by fiscal year 2008. According to his report, a cash infusion of $600 million over three years is needed to reach that target.

Ewell’s solutions include use of increased employee contributions to the pension system, issuance of pension obligation bonds, sale of under-used city lands, and “securitization of general revenues.”

Securitization, in the words of Deputy City Manager Lisa Irvine, means that “We sell off a revenue stream over a certain number of years, and, for exchange, we receive a lump sum upfront payment. We then will use this upfront payment to infuse cash into the pension system.”

The possible sale of city lands has created ongoing controversy, even though the report pointed out that properties would not be part of the city’s core assets or public amenities, such as open space land or dedicated parkland, but investment property.

According to the report, this land could be sold and developed as affordable housing, recreational opportunities, and economic development, including job creation and business recruitment and retention.

The identified properties, which the city manager’s office declined to name, are estimated to be worth more than $250 million and, according to the report, “staff believes that it is reasonable to assume that $100 million in land sales could be consummated over a three-year period to achieve the goals stated in the report.”

The proposals stirred criticism on a number of fronts.

City Attorney Michael Aguirre slammed the plan for having a goal of 80 percent to 85 percent funding, saying that “anything less than 100 percent funding is both unlawful and incompatible with secure retirement systems.”

Instead, Aguirre, who earlier issued his own 15-point plan for recovery, wants the city manager to work with him to develop a plan that would remove “unlawful benefits and funds all lawful ones,” and report back to the City Council within 30 days.

Aguirre also said that he needed further time to review the legality of the manager’s proposed land sales.

Diann Shipione, a former member of the pension board and well-known as a whistle-blower over the city’s financial state, took note of two of the proposed solutions: a 15-year fixed pension deficit financing program that begins in 2009 and ends in 2025; and a 15-year rolling financing program, “in which each year is the first year of a new 15-year program that results in the deficit never being paid off, but just pushed in the future forever (more or less).”

“What’s interesting is that the projections for both ‘solutions’ only go out to 2014,” Shipione wrote in her response to the proposals. “There’s nothing particularly magic about 2014, except that if you look much beyond it (say from 2015 to 2025), the numbers become even more enormous.

“What’s also interesting is that both solutions really accomplish almost nothing with respect to lowering the deficit or the annual contributions to manageable amounts.”

Carl DeMaio, the president of the Performance Institute, a San Diego-based government reform think tank, commented, “It is outrageous to think that the same city officials who led the city into this enormous debt are even considering putting the burden of solving the financial crisis on the back of the taxpayer through increased taxes or auctioning off our city’s heritage.”

DeMaio also opposes pension obligation bonds “as they are not feasible given likely interest rates and inappropriate shifting of debt without true reform.”

“Without real reform in the pension benefits, obligation bonds are merely paying one credit card with another,” he added.

But the proposed solutions are only preliminary, according to Irvine.

“We will be returning to the City Council in the next few months with more detail to continue to move forward with pension solutions,” she said.

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