Councilmembers DeMaio, Gloria Debate Prop. D at Hillcrest Town Council

Audience Reaction Signals Trouble for Proposed City Sales Tax Increase

by MARK GABRISH CONLAN

Copyright © 2010 by Mark Gabrish Conlan for Zenger’s Newsmagazine • All rights reserved

PHOTO, L to R: Carl DeMaio, Todd Gloria

San Diego’s two openly Gay City Councilmembers, Carl DeMaio and Todd Gloria, debated the merits of Proposition D, a measure on the November 2 ballot to increase the sales tax in San Diego by one-half cent per dollar for five years once 10 budget reform conditions are met, before the Hillcrest Town Council at the Joyce Beers Community Center on Vermont Street September 14. Though Hillcrest is in the middle of Gloria’s district and is ordinarily considered one of the most liberal in the city, audience reaction was far more supportive of DeMaio’s than Gloria’s position and indicated the proposition faces tough sledding with city voters.

Besides DeMaio and Gloria, the meeting also included presentations by city attorney Jan Goldsmith and city auditor Eduardo Luna. Both stressed that there were there as objective sources and not advocates for either side on D. Goldsmith said the only person who knows how he’s going to vote on it is his wife and Luna said he hasn’t even told his wife how he’s going to vote. They were there because it was Goldsmith’s job to write the ballot measure once the San Diego City Council decided what it should contain — and it will be Luna’s to decide when the reforms called for in the proposition have taken effect and the city can go ahead and start the tax.

“I believe initiatives are a contract,” DeMaio said in his opening statement. “Read the contract and ask if you would be satisfied with the accountability provisions. What are we getting out of it? A lot of reasonable people might be willing to pay more [in taxes] to save the city, but I’m opposed to this because it will not achieve our goal of a city government that’s more accountable and reliable.” DeMaio called the measure “a blank check for politicians and labor unions,” and criticized the City Council majority that passed the measure (on a straight party-line vote, with all six Council Democrats in favor and DeMaio and fellow Republican Kevin Faulconer opposed) for not guaranteeing that the additional tax money would go only to the police and fire departments.

Though Proposition D lists 10 “reforms” the city must enact before it can start collecting the additional taxes, they deal with just two issues. Seven address the pension issues that have long bedeviled San Diego, and are aimed mainly at making city workers pay more for their pensions and health care once they retire. Two of them would set up “second-tier” pensions for newly hired firefighters — so their pensions would be lower than those of people currently on the fire department payroll — and allow city workers to take a 401(k) plan instead of a traditional defined-benefit pension. The other three attempt to speed up the transfer of city services to private companies according to the so-called “managed competition” initiative passed by San Diego’s voters in June 2006.

Just how much money the city would save as a result of these reforms is unknown. An analysis of nine of them published by the Voice of San Diego Web site said that only two of the proposals — an end to so-called “retirement offsets” (the city agreeing to pay part of an employee’s contribution to the pension system as well as the city’s own share) and the second-tier pension for new hires in the fire department — actually generated savings that could be estimated with confidence. The economic impact of the others, said Voice of San Diego’s analysis, was “unknown” since they depend on the outcome of negotiations with the city’s labor unions. As for the privatization measures, the savings they would generate are based on which departments are privatized and how much the private companies bid.

Councilmember Gloria, making the argument for the tax increase, focused on the $72 million budget deficit he, DeMaio and the other Councilmembers in office on July 1, 2011 are going to face if it doesn’t pass. “You’ve never once told me your libraries are open too long or the police are answering your calls too fast,” Gloria said. “We have a $72 million budget gap we have to fill after making $300 million in savings in the past five years, including eliminating DROP” — the city’s controversial Deferred Retirement Option Plan, which is actually the subject of one of the 10 “reform” proposals in the proposition. Gloria said that the city is in trouble because of the overall economic recession, not because of what he ruefully called “our colorful past” in which the city promised its workers and their unions pensions they couldn’t afford.

“Nine out of 10 American cities are in the same boat,” he said. “Our economy is the worst it’s been in seven years, and the state of California has taken over $300 million from San Diego in the last seven years. Our situation has already led to severe cutbacks, including fire-station brownouts … [which] saved $11.2 million. The Mayor is asking the fire department to cut $7 million more if D doesn’t pass. Without D, we’ll see the brownouts expand and become permanent. The Police Department will shrink permanently. The improvements in our roads will stop. … District 3 has the lowest per capita income of any in San Diego. We have the worst roads in San Diego. I’m asking you to sacrifice to get 10 reforms that will save the city money.”

Asked just why both sides in the Proposition D debate are presenting privatization — “outsourcing” — of city services as a financial panacea when the experience of other cities that have privatized indicates that the savings have come either from lower worker salaries, inferior quality of service, or both, DeMaio said, “I want to make sure we pressure all service providers to provide services at the lowest cost possible. I believe competition needs to be part of our business ethic at city government. City government should not be excused from these reforms. City voters approved managed competition by a 60 percent margin, and we need to respect the will of the voters.”

Gloria, who portrayed himself as a reluctant privatizer — he opposed the “managed competition” initiative when it was on the ballot but agreed with DeMaio that the Council is duty-bound to implement it — used the question to address the criticism that point two of the 10 “reforms” in Proposition D only obligates the city to “complete [a] managed competition guide” rather than actually to privatize anything. “The guide is important to provide a framework,” Gloria said. “It’s a pretty seminal document. In San Diego we had a debris-cleaning contract after the 2007 wildfires where the city got taken for a ride. We will make sure all your money is well spent.”

Asked who he represents besides city workers and labor unions, and whether anybody in the “free market” has told him they support increased taxes, Gloria said, “I won the support of 55 percent of the voters [in my district] but I represent all of them. All employees rely on police and fire, libraries and roads. We are all dependent on city services. The No on D side has no plan for solving the budget deficits. We’re down from 48 hours of library services citywide in 2001 to just 36 now.” Responding to another question about the potential savings from privatizing the Miramar landfill — listed as unknown in the Voice of San Diego analysis — Gloria said that information from the Mayor’s office and the city’s independent budget analyst indicated it could be up to $800 million.

“Over 10 years,” DeMaio responded.

Gloria then returned to the pension issues and said that many of the savings were uncertain because “we have to negotiate some of it with our employees. Increasing the cost of my pension is certain. Reducing retiree health care is a question. Proposition D expedites these reforms. We have certain time frames, and all of us are incentivized to do that. The employee unions’ endorsement is an indication that we’re on the same page.” He pointed out that, contrary to arguments made by DeMaio and other Proposition D opponents, city workers already have taken salary hits. “Last year we imposed 6 percent salary reductions on the police and blue-collar city workers, and we did outsource IT [information technology] services,” Gloria said. “When this City Council has been given the opportunity to save money, we’ve done it.”

But DeMaio said the current City Council is only interested in making it look like they’re saving money so they can get their hands on the additional taxes Proposition D would generate. “They wrote the standards like a little checklist,” he said. “A lot of us are good-natured people, but I want you to check your gut. If they wanted to do it [privatize city services and reduce the city’s pension costs], they would have put it in the measure.” Pointing out that Gloria had said the cost of his pension was going up, DeMaio boasted that his pension won’t cost the city anything because he renounced it on the day he took office. “Politicians get the sweetest, highest formula for their pensions,” DeMaio said, ridiculing Gloria for saying that he wouldn’t be able to meet the City Charter requirement that the employee and city contributions to a pension be “substantially equal” because “he said he couldn’t afford it. If you’re not willing to lead by example, you don’t have credibility.”

“Leading by example can take different forms,” Gloria replied. “I took the 6 percent pay cut; DeMaio did not. I’m doing this job for substantially less than Toni Atkins [his immediate predecessor].” He also pointed out that under state law, existing pension agreements are “vested” — meaning they can’t be changed unilaterally but can be reduced only if the people receiving the pensions agree. According to Gloria, the only way employees can be persuaded to give up their vested pension rights and switch to a 401(k) is “if it’s going to be in their interest” — either because a 401(k) would give them more money in their pockets now or if the city enforced the “substantially equal” contribution requirement so stringently many workers found the traditional defined-benefit pension unaffordable.

Goldsmith, who’d begun the meeting by stressing his objectivity and mostly talking about the technical difficulty of drafting a sales-tax measure with 10 “triggers” that had to be met before the tax could be collected, chimed in at this point. “A lot of people urge the city to file for bankruptcy and throw out the pensions,” he said. “That’s not an option.” He said even a city bankruptcy wouldn’t break the contract with the workers the city made when it offered the pensions on a “vested” basis in the first place, and conceded that Proposition D wouldn’t solve the pension problem and its drain on city finances.” Our annual payments are increasing every year,” he said. “Even though the benefits are vested, contributions are not.” Goldsmith conceded that the charter’s “substantially equal” requirement has never been enforced, and “it will be substantially hard on our employees” if it’s implemented now.

“What’s wrong with that?” said a woman from the audience.

Another audience member, Allan Arulato, introduced himself as a 20-year veteran of the San Diego Fire Department and said, “I have never missed a payment to the pension system. In the last few years, the city did not make its contributions, and now the city is trying to make up.” Arulato said that if the city had kept up with its obligations to the pension system, the annual contribution would be about $60 million. Instead, it’s about 3 1/2 times that — which, according to DeMaio, represents 69 percent of the city’s total payroll cost — due to the need to make the pension system whole for all the years the city didn’t fund it. “The question then becomes what do we do on July 1, 2011,” Arulato said. “The question is, if Proposition D passes, will you use the money to add more engines and stop closing fire stations?”

“Employees have not made their fair share of contributions, because of offsets,” replied DeMaio — referring to various ways in which the city has agreed to fund the employees’ share of their pensions, some of which are addressed in the 10 “reform” proposals listed in Proposition D. “The city didn’t fund the pension system, but in order to get the support of the labor unions, they increased pensions 20 percent. These are the costs of the decisions you and your unions made — and your union president, Ron Saathof, led the way.” He called on city employees to “be part of the solution” by voluntarily negotiating their vested pensions downward, and said that should happen before city government “asks hard-working families” to pay more in taxes.

“This is a tall ask for the voters,” Gloria conceded, “but I’m committed that this money will go first for public safety.” (One point he didn’t make is that, due to a quirk in the state constitution, the reason Proposition D doesn’t guarantee that the extra tax money would go to police and fire is that if it were written that way it would require a two-thirds vote to pass, while a general tax increase not specifically earmarked for any program only needs a simple majority.) Gloria said the city’s budget crisis “has already hurt people and jeopardized family safety by lengthening response time,” and criticized DeMaio for saying that city workers haven’t already made sacrifices.

“He said the employees haven’t done their part,” Gloria said. “They’ve given up 6 percent [of their pay], the DROP program and a lot of things they shouldn’t have had in the first place. But what we haven’t talked about is that nine out of 10 American cities are having the same problems we have. I was in Phoenix a little less than a year ago. Their budget deficit is the same size as ours. The Philadelphia City Council voted to close all of their libraries. The city of Colorado Springs has turned off their streetlights. Other cities are in the exact same position. And what have those other cities done? National City, El Cajon, La Mesa and the state of Arizona have raised their sales taxes in response to the environment we find ourselves in, because they’re not willing to go as low as some would like us to go.”

For the full text of Proposition D: http://www.sandiego.gov/city-clerk/elections/city/propd101102.shtml