Murphy’s program features a portion of the early recommendations of his Pension Reform Committee, according to a San Diego Union Tribune report.
The pension system has a $1.15-billion deficit and unfunded retiree health-care costs estimated at between $600 million and $938 million. The deficit is the result of benefit hikes, the 2000-2002 stock market decline and eight years of underfunding by City Hall, including in a 2002 deal approved by Murphy and the City Council, according to the newspaper (See San Diego Approves Pension Reform Committee ).
The mayor said his goal is to have the $3.2 billion San Diego City Employees Retirement System “operating in a financially sound manner” by 2008. The mayor’s proposal included:
- Adopting a repayment schedule to close the pension shortfall within 15 yearsbeginning in July 2008. Currently, the pension deficit is on a 30-year amortization schedule.
- As part of that effort, selling $200 million or more in pension obligation bonds within the next year. The city reform committee had called for borrowing $600 million over three years, but a pending audit and ongoing investigation of city finances is keeping the City Council from selling bonds. Murphy said the pension bond issue will take six months to prepare, and hopes the city can re-enter the bond market by then.
- Reducing the retirement board to 11 members from 13, while making trustees with a direct stake in pension finances a minority of the panel. Most of the trustees are now in that position.
- City Council approval of a settlement of a lawsuit by retirees who allege the 2002 underfunding deal was illegal.
“This may not be the last thing we suggest, but I think it’s a good beginning at protecting the financial stability of the city’s pension system,” Murphy said in presenting his plan. “These proposals address problems of the past, the present and the future.”
Pension trustee Diann Shipione was sharply critical of Murphy’s plan. “Nobody ever wants to talk about the money. Where’s the $1 billion going to come from to pay off the deficit, much less the huge annual contributions thereafter?” asked Shipione, an investment adviser.
The city is now unable to raise cash by issuing bonds because of an ongoing audit of city books, plus a probe of city finances by the FBI and Securities and Exchange Commission. Federal investigators are looking into errors and omissions including less-than-full portrayals of the city’s pension troubles in financial statements provided to bond investors.
Regarding makeup of the pension board, the Pension Reform Committee had recommended a seven-member panel of financial professionals appointed by the mayor and council. Today, nine of the board’s 13 members are employees, managers, union representatives and a retiree – all with a stake in pension benefits and finances.
Murphy’s compromise: A board of six independent professionals, with the five remaining slots divvied up among employees, union representatives, a manager and a retiree.