City Council favors cutting DROP costs

By James R. Riffel

City News Service

A majority of the City Council expressed support Monday for lowering the city's costs for a controversial deferred retirement program that a consultant said could cost the deficit-ridden municipality nearly $150 million in the coming years.

Most of the council members said they wanted bring into line the costs and savings of the program, referred to as DROP, instead of eliminating it outright.

DROP was adopted in 1997 to keep experienced employees on the job instead of retiring or taking work elsewhere.

The study by Buck Consultants presented to council members Monday concludes that the city will spend 1.6 percent more on retiree expenses than if

DROP did not exist, to the tune of $148.7 million.

"We have a fiduciary responsibility to make this cost-free," council President Tony Young said, adding that such an effort should not be used to "bludgeon" city employees.

The program allows employees to officially retire but remain on the payroll for up to five years while pension benefits accumulate in a special account.

The workers contribute 3 percent of their payroll to the account, which is matched by the city. The accounts are also guaranteed a 2.9 percent interest rate and 2 percent annual cost-of-living adjustment.

The workers cannot touch the retirement benefits until they leave city employment for good, and once they enroll their benefits no longer accrue.

The city is paying out less for retiree health under DROP, but those savings are more than offset by higher costs in pension payments, salaries and wages, and Medicare taxes. Those negative impacts happen because employees enrolled in DROP are generally older and higher-paid than their colleagues.

According to the city's Independent Budget Analyst, 89 percent of the additional costs are tied up in employee salaries.

About 6,800 city workers were eligible for DROP as of June 30, 2009. Employees hired after June 30, 2005, are ineligible for the program.

The report listed a number of options for making DROP cost-free to the city, including restricting eligibility, eliminating the matching contribution and ending the cost-of-living increases.

Councilmen Todd Gloria and David Alvarez defended the program.

"We benefit from institutionalized memory," said Gloria, who said that in his district, there are only a few workers who know how to perform certain maintenance functions in Balboa Park.

The city otherwise does not make a massive investment" in its employees, Gloria said.

A notable DROP opponent was Councilman Carl DeMaio.

"It boggles the mind that we're considering continuing this instead of eliminating it," DeMaio said.

Councilwoman Lorie Zapf said "ditto" to DeMaio's comments and called DROP "overly generous.''

City Attorney Jan Goldsmith said San Diego has already won some DROP- related court cases, so adjustments should be based on issues that have already been litigated.

Chief Operating Officer Jay Goldstone said Mayor Jerry Sanders will have Buck Consulting study alternatives for lowering the city's costs and bring them to the council in 30-45 days. Those proposals would then have to be presented to municipal labor unions for bargaining before they're adopted.

   
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