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City Attorney’s Battle Over Pension Benefits Foreshadows National Crisis Looming on the Horizon




Editor’s Notebook , Thomas York

In a San Diego courtroom, City Attorney Mike Aguirre is squaring off against municipal employees arguing whether or not two boosts in pension and benefits, one in 1996 and one in 2002, were legal.

The ever irascible Aguirre believes that since most everyone in positions of power at the time knew the funds wouldn’t be there to cover the increases in future years, the increases should be rescinded.

The lawyers for the unions respectfully disagree.

The legal brawl strikes at the core of the city’s $1.43 billion pension deficit, and how the deficit will be closed.

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If Aguirre prevails, the city will be able to reduce the deficit by as much as $700 million. If he fails, then we taxpayers will have to dig deeper into our pockets.

Aguirre is tilting at one huge windmill, to steal a metaphor from Don Quixote. The state and federal courts have been sympathetic to workers on questions revolving around retirement benefits. Once a public worker earns a pension, no one can take it away.

But win or lose, Aguirre’s trial foreshadows the growing conflict between wages and benefits in the public sector compared with the private.

Government workers are among the privileged few who still enjoy defined benefit plans, that is plans that pay monthly paychecks to retired workers.

Defined benefit plans have largely disappeared among private employers. Business has replaced them with defined contribution plans, such as the 401(k), in which the burden of retirement falls on the worker, not the employer.

To curry favor with labor in his waning days of office, Gray Davis signed legislation allowing cops and prison guards to retire at age 50 with nearly full benefits. There are few, if any, workers in the private sector who can retire at age 60, let alone age 50. But that didn’t stop Davis from larding out favors in his bid to stop the recall.

During the dot-com boom of the late ’90s when returns on pension assets were eye-popping, the Legislature increased benefits, thinking that when stocks go up, they stay up.

One result: It is now possible for firefighters, police, court and other select public workers to retire (in their early 50s) with pensions higher than their current salaries.

Compare this with the private sector, where tens of thousands of well-paying white-collar and blue-collar jobs have disappeared, along with pension checks. The costs have become just too high for business to carry, in large part due to the burden of taxes.

The cost of hiring full-time workers has become so prohibitive that the private work force is degenerating into one of temporary, part-time workers with few benefits.

In California, special interests, including organized labor, control the public agenda, without regard for taxpayers, which includes individuals as well as business. What’s more, public employee unions have the upper hand in the triangle among public leaders, public employees and taxpayers.

Elected leaders tend to give public workers whatever they want when negotiations roll around.

Taxpayers have been rendered powerless, though we are expected to pay for whatever elected officials drum up in terms of increases.

And keep in mind that the advantage that public employees have over private employees doesn’t stop with pension benefits.

In general, public workers enjoy greater health care coverage at lower premiums than the private sector, which has been squeezed by the spiraling cost of providing basic health care.

Unlike business, bureaucrats don’t have to worry as much about increases , they just raise taxes, as the city of San Diego will have to do sooner or later to cover that enormous pension plan deficit.

The New York Times reported recently that the nation’s states, counties and cities collectively owe $1.4 trillion in benefits, with nowhere near the means to cover those obligations.

Aguirre has indicated that if he fails in court, the city may have to declare bankruptcy, and let a trustee sort it all out.

Thus, San Diego represents the first of many battlegrounds in the pension benefit wars to be fought between organized labor in the public sector, and the folks who supply the largesse: you and me.


Thomas York is editor of the San Diego Business Journal.

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