In early June 2004, amidst a tough re-election campaign, a burgeoning financial disaster and daily criticisms for his responsibilities as captain of "Enron by the Sea," San Diego Mayor Dick Murphy returned fire on his main challenger, County Supervisor Ron Roberts. Claiming that the county’s pension problems were actually worse than the city’s, Murphy said that Roberts needed to "clean up his own house."
Murphy’s charge, in effect an "I may be bad, but so is he" defense, was viewed by most as an obvious attempt to grasp at straws. The City of San Diego, after all, was the daily headliner, having under-funded a huge retirement obligation, so as to pay ongoing costs and beef up employee salaries. Few watchers viewed the County as the problem, and if it was having some pension difficulties, it certainly hadn’t robbed Peter to pay Paul.
About one week after the Murphy claim, on June 15, 2004, county supervisors unanimously agreed to issue $450 million in pension obligation bonds to bolster a growing deficit in the county’s retirement system. According to county staff, the bond sale would reduce the pension deficit from $1.43 billion to $1.25 billion, while saving millions of future dollars, due to healthy interest rates in a positive financial market.
This was one of a number of steps the county was taking to strengthen a flagging retirement system, following the 2002 decision to increase pension benefits by 50 percent. In the middle of the City of San Diego’s crisis, the county’s most recent action was little-noticed, or viewed as a positive and aggressive step on the part of the supervisors to stabilize a major area of concern. "It means the county is built on a firm foundation," said Supervisor Bill Horn.
Not even a prescient Dick Murphy could know that a few years later, the financial world would be in free-fall, with nearly anyone who owned a dollar affected, but especially those who had issued long term debt to reduce or avoid risk. The simple fact is that all debt issuance includes unknown risks.
In this year’s State of the County address, a brutally honest Dianne Jacob, chairwoman of the county board of supervisors, laid out the results of those prior decisions. The projection is payments of hundreds of millions of dollars annually by the county to make up a now-$2.5 billion fund loss. Scott Lewis in voiceofsandiego.org on February 14 didn’t hold back in telling the entire story and providing an equally honest assessment. It’s worth the read.
Last week in the San Diego Reader, respected financial analyst and former Union-Trib writer Don Bauder digs deeper into the respective county and city pension situations:
"San Diego County citizens disgusted with massive potholes, deficient sewer and water systems, library closings, ad nauseam should scoff at politicians’ promises that things will get better. They won’t. Already-ruinous pension payments will eat up much more of future budgets — and actually, if the books were honest, those annual pension contributions would be larger still. That’s because both the County (San Diego County Employees Retirement Association) and the City (San Diego City Employees’ Retirement System) grossly overestimate their expected annual pension portfolio returns, thereby lowering governments’ annual contributions and passing the bill to future generations."
There’s no question that in San Diego (as well as many other areas of California and the nation), pension obligations have become one of the most significant issues governments must now address, perhaps the most significant. And, that will be the case for years to come.
Both the city and county have taken steps to address the ongoing problems, moving towards defined contribution systems and away from defined benefits, meaning that employees will burden more of the costs for their retirements, especially in the case of new hires. Positive results of those actions are years away, however, but crucial to ensuring that fiscal calamity isn’t continued for decades to come. Labor interests may scream aloud about such change, but the taxpayers will provide little sympathy. Labor would do best to wake up and smell the deficits. It’s called reality.
April 1st, 2009 at 12:00 am
Terrific piece, Barry.
As I recall, the total “pension obligation” bond amount is now over a billion dollars — all issued without a vote of the people, thanks to a compliant court decision. A good portion of that loan has now been lost, but we’ll still be paying the interest on those loans for decades to come.
The top priority of very government in the county — certainly INCLUDING county government — is to overcompensate “their” employees. And themselves. The County Sups get extremely generous pensions on their huge autopilot salaries.