MAYOR RESPONSE TO PENSION 8/27/06 EDITORIAL
September 2006
Viewpoint
by Mayor Dave Romero
We commend The Tribune for its August 27, 2006 editorial highlighting the public employee pension issue. We agree that reform is needed; in fact, the City Council adopted a resolution more than a year ago supporting pension reform. However, we can’t institute reform by ourselves. This is a statewide issue, and we have to work through the League of California Cities and others in negotiating with the Governor, State Legislature and unions.
Like most complex things, there is more to the story, and we would like to add several facts related to our City’s history with the pension issue.
SLO has very openly addressed the pension issue, making every effort to inform the public through staff reports, long range fiscal forecasts, budget messages (dating back to 2002), numerous public presentations and a special “white paper” on this topic. All of this information was extensively distributed publicly, including to The Tribune, and has been posted on our website for a very long time ( www.slocity.org). We encourage readers to review these detailed reports, including the Council’s resolution supporting reform. Here is the short story:
1. The City contracts for its pension plan with an independent fiduciary agency, the California Public Employees Retirement System (PERS).
2. PERS investment losses, not enhanced benefits, have had – by far – the greatest impact on higher retirement costs for public safety employees, accounting for over 4/5’s of the reason. None of the cost increases for non-public safety employees can be attributed to benefit enhancements: these enhancements were paid for by employees by waiving already agreed upon pay increases.
3. When the City entered into contracts with our public safety unions to enhance retirement benefits, three factors were in place:
- Because of high investment returns, there were significant excess assets in our retirement program, and PERS informed us that future employer contributions were unlikely as far as the eye could see. Of course, PERS did not anticipate the “perfect storm” impact on the stock market of “9-11,” the dot.com meltdown and corporate scandals like Enron and WorldCom, which then unexpectedly drove investment earnings down, driving employer contributions rates up. (Reforms now in the works will guard against such “swings” in the future.)
- Many cities received the same message of no or low costs in the future. With the change in State law creating the enhanced retirement programs, these options quickly became the statewide public safety standard for cities.
- Binding arbitration for sworn police and fire employees – which was solidly approved by the voters of San Luis Obispo in November 2000 – ensured that the City would meet this statewide standard.
4. Our public safety retirement plan is the State-wide standard. Without it, we would not be able to attract and retain qualified police officers and firefighters to provide our most basic, essential services.
5. Our retirement rates are comparable to other cities; and since City employees are not covered by Social Security, the cost of the City’s retirement program compares favorably with many private sector programs. The City has also taken an extremely conservative approach to post-retirement health care support compared with many cities, resulting in a very minor annual cost (less than one-twentieth of one percent of our budget).
The Tribune mentioned the problems faced by the City of San Diego. It is important to stress that the problems faced in San Diego are unique to that community. It administers its own retirement plan, and made several bad decisions, such as knowingly under-funding their retirement fund in order to use the money for other things.
In contrast, PERS is among the most respected pension plan managers and investors in the country (if not the world). Even their post-911 investment losses were far lower than those experienced by comparable investors. In short, while there is legitimate concern about the future prospects of many other pension institutions, in both the private and public sector, this is simply not the case for PERS.
In summary, we believe that the City’s retirement plans in place today are appropriate, given the circumstances under which they came about. They are needed to attract and retain qualified employees, who are the foundation for the essential services that our community tells us they highly value. We also recognize that some changes are needed. For this reason, the City supports efforts by the League of California Cities and others for appropriate “course corrections.”
Dave Romero, Mayor
City of San Luis Obispo
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