There's much to like about the financial recovery plan unveiled Monday by Mayor Jerry Sanders – but with two significant caveats.
Sanders wants the city to borrow $674 million to cover nearly half of San Diego's $1.4 billion pension deficit. The first $100 million would be borrowed before June 30, using the city's share of the national tobacco settlement as collateral. After three mandatory, long-pending audits are completed – Sanders thinks that will happen by this summer – the city would issue $300 million in pension obligation bonds in 2007 and $200 million in 2008. There would also be $74 million in bonds collateralized by incoming employee pension payments.
This is no easy fix for the city's vast financial mess. Basically, it involves swapping one type of debt for another, cheaper type of debt and moving that debt from the pension system's books to the city's. If interest rates go up, it wouldn't be worth pursuing.
But if interest rates continue to stay relatively low, the debt swap would save the city millions and help stabilize the pension system. This is what prompted similar proposals from the Pension Reform Committee, among others. The city also needs to add $600 million to pension accounts by 2008 or lose some concessions won from employees last year.
Sanders' plan also calls for eliminating 500 city jobs, building up reserve funds and increasing spending on deferred maintenance and infrastructure work.
All in all, the proposal is another solid move forward on the city's road to recovery, one in keeping with the focused, thoughtful approach the mayor has displayed in his four months on the job.
Still, we have two concerns. The first is legitimate questions raised about one of the basic assumptions underlying the mayor's debt-swap plan: that the city must contribute only $162 million to the pension fund for fiscal 2006-07. Former pension whistleblower Diann Shipione and others look at the same data and the same laws on fiduciary responsibility and conclude they require a much bigger contribution. The last thing the city needs is new allegations of underfunding of the pension system.
Our second concern deals not with the mayor but the City Council. It is entirely possible that the council will go along with the politically easy parts of the mayor's proposal – more borrowing – but balk at the tougher steps he envisions in coming years – eliminating hundreds of jobs; having a showdown with employee unions over present and future benefits; reducing some city services to make the books balance. As April Boling, the former chairwoman of the Pension Reform Committee, notes, a City Council that voted last year for a costly “living wage” law while blithely ignoring San Diego's vast municipal debt can hardly be trusted.
Boling suggests the mayor try to win public endorsements of his full plan from council members. But such statements, of course, would not be binding. Ultimately, a resolution of San Diego's problems will require both a mayor and a City Council with spine and determination. The jury is very much still out on whether this council is up to the test.
