Sanders announces to negotiate city employees retiree benefits

By Joe Britton

City News Service

Mayor Jerry Sanders told the City Council on Tuesday that San Diego’s $1.36 billion unfunded retiree health care obligation is unsustainable, and announced that negotiations with employee labor groups over the benefit are pending.

Sanders’ testimony came during a hearing on a 40-page study on San Diego’s massive retiree health care liability.

“We believe what this report shows is that the current benefit levels are not sustainable,” Sanders said. “This report also shows the great opportunity we have for cost savings by implementing reforms.”

Ann Smith, an attorney for the San Diego Municipal Employees Association, said city workers were promised health care when they retire, but said the unions are willing to come to the negotiating table with ideas to reduce the liability.

“You have a contractual commitment to your employees,” Smith said.

Sanders said negotiations with employee labor unions will begin in two weeks, with the goal of reaching a deal by April 1.

The report - prepared by a committee comprised of city officials and representatives of employee labor unions - analyzed 18 options the city could take for dealing with its mounting retiree health care obligations, ranging from eliminating the benefit altogether for current city workers to doing nothing.

The committee found that if the benefit is cut off for existing city employees, San Diego’s retiree health care shortfall would decrease from $1.36 billion to $442 million. If the benefit is frozen at $8,880 annually, the unfunded retiree health care liability would drop to $969 million, according to the study.

The study was based on figures compiled by Buck Consultants.

The benefit was created in 1981 under former Republican Mayor Pete Wilson in exchange for municipal employees agreeing to opt out of Social Security in an effort to save the city money.

As it stands now, the shortfall for retiree health care costs is greater than San Diego’s annual general fund budget.

Lowering retiree health care costs is one of the 10 financial reform measures that must be achieved before a proposed half-cent sales tax hike - if approved by voters in November - could take effect.

Last year, San Diego’s employee labor unions agreed to the study on retiree health care. The benefit has largely gone unfunded, resulting in the huge potential obligation to the city and taxpayers.

Employee groups argue that retiree health care is a vested benefit and cannot be modified or eliminated.

“It is my professional opinion that the retiree health benefit, as created and established in the city over the last nearly 30 years, is a vested pension benefit,” Smith testified.

City Attorney Jan Goldsmith told the City Council that retiree health care is not a vested benefit and said a decision by the Ninth Circuit Court of Appeals backs up his opinion.

“We have a $1.4 billion shortfall,” Goldsmith said. “If the city’s goal is to cut this down to size, and the position of our negotiating partners is that it is not a legitimate concern because that is vested, then we’ve got trouble.”

Councilman Carl DeMaio also said the retiree health care obligation is unsustainable and called for reform.

“This study is, really I think, the only proof that taxpayers need to understand that the current benefit package given to city employees is unsustainable,” DeMaio said.

Councilman Todd Gloria said the city should uphold the agreements it has made to its employees.

“As an employer, the city should be held accountable for the promises it makes and the ones that it has made,” he said.