Jerry Sanders plopped himself down behind his big mayor's desk in 2005 after promising not only to straighten out the city of San Diego's finances but also to change the culture at City Hall. The culture that needed changing put the city's employee retirement fund so deep in debt that Sanders and the City Council have had to funnel mammoth amounts of taxpayer money into the fund just to stabilize it—money that otherwise would pay for citizen services.
“EEEK!” became the iconic exclamation that best represents the era that preceded Sanders' election. It's what one city finance official said in a 2001 e-mail signaling the alarm after the dot-com bust wreaked havoc on the stock market, where the retirement fund was heavily invested. “EEEK!” led to a disastrously short-sighted decision by the people who managed the fund to allow the city to shortchange the retirement system in order to relieve the city from having to make a huge contribution.
Where are we now? Despite the infusion of hundreds of millions of dollars, the system's in distress again, thanks to how the national recession has ravaged the stock market. There've been no repeat electronic expressions of horror—after the last five years, nothing would surprise City Hall that much. But that doesn't mean we're not feeling some déjà vu. Once again, the retirement-fund managers are considering allowing the city to shortchange the system, which would further destabilize it and require even larger payments down the road.
Structural conflict of interest was blamed in 2004, when City Hall was forced to face financial facts; too many fund managers were city employees who had something to gain personally from an agreement that got them increased benefits in exchange for lowered city payments into the system. City officials sung the praises of subsequent reforms that put conflicted fund managers in the minority on the governing board. Ironically, it may not matter; members of the board are saying future beneficiaries—city employees—might be better off if the city's allowed to lower its payments in order to avoid insolvency, which could lead to bankruptcy, which could imperil retirement benefits.
To be consistent with his stated mission, Sanders would have to take a stand against an accounting change that allows the city to pay less now in exchange for higher payments later. But he hasn't done so. The mayor has taken no position on the idea. Coupled with his decision to sack Bill Sheffler from the retirement-system board—Sheffler's an outspoken critic of the shortchange proposal—Sanders' silence speaks loudly: He must be in favor of it.
Why would he go along with such an irresponsible move? Our hunch can be boiled down to one word: Legacy. Sanders strode into office promising to get San Diego back on firm financial footing. If the city is forced to declare bankruptcy, some will see Sanders—likely himself included—as a failure.
But there's only so much he can do, given the circumstances. Had the economy not tanked last year, things would be very different. But the economy did tank, and as a result, revenues from property, sales and hotel taxes plummeted. Making matters worse, the governor and state legislative leaders on Monday agreed to a budget deal that will take billions of dollars away from local governments, adding, Sanders said Tuesday, up to $100 million to San Diego's problem. He said the city will likely have to start cutting public-safety funding. The city is drowning in red ink, and the only choices might be a massive—and massively unpopular—tax increase and bankruptcy.
If Sanders is pinning his hopes on this year being a nightmarish anomaly and predicting that a stock-market rebound will set things right in the retirement system, he's simply doing the same thing that got the city in trouble in the first place—the very thing he promised to put a stop to.
Sanders told CityBeat that the state budget deal doesn't have him thinking about bankruptcy, but where are we going to find another $100 million? Fee increases for trash pickup and water-pollution prevention worth roughly $80 million don't seem to be in the cards anytime soon. That's probably why Sanders refused to say Tuesday that under-funding the retirement system is a bad idea.
And to that, we say: “EEEK!”What do you think? Write to email@example.com.