by MARK GABRISH CONLAN
Copyright © 2011 by Mark Gabrish Conlan for Zenger’s Newsmagazine • All rights reserved
One doesn’t usually go to a neighborhood association like the Hillcrest Town Council expecting to hear a book presentation. But that’s what happened on October 11, when UCSD graduate student and Ph.D. candidate Vladimir Kogan came to the Joyce Beers Community Center in Hillcrest to promote a new book on San Diego’s dysfunctional city government, Paradise Plundered. Co-authored by Kogan with his advisor Steven P. Erie, UCSD political science professor and director of the university’s urban studies and planning program, and Scott A. MacKenzie, assistant professor of political science at UC Davis, Paradise Plundered focuses on the last 20 years of San Diego’s political history and how a city government once hailed as a national model got such a reputation for economic fecklessness the New York Times nicknamed San Diego “Enron-by-the-Sea.”
Though the book covers a wide variety of topics — from San Diego’s chronic underfunding of public services to its leaders’ penchant for big-ticket construction projects (particularly the Convention Center, its expansion and the building of Petco Park) that benefit a handful of wealthy San Diegans at the expense of everyone else in the city, and the giveaways to the private construction business under the guise of “redevelopment” — Kogan knew what his audience wanted to hear. His presentation focused almost totally on chapter 3 of the book, “Paradise Insolvent: From Pension Scandal to Fiscal Crisis,” which basically argued that in order to cover the city’s budget shortfall and pay for the big projects, San Diego’s government used the city employees’ pension system as a piggy bank, paying the pension fund far less than what the city owed it and then blaming the city workers when the fraud could no longer be sustained.
Kogan began his presentation by noting that Paradise Plundered had recently received a review on Amazon.com by veteran San Diego anti-tax activist Richard Rider, “saying don’t buy the book because we’re liberals arguing for big government.” To the contrary, Kogan said, “Our argument is that in some cases the city’s government is too big and doesn’t always do what the people want. We’re cutting back the hours of branch libraries and recreation centers but we’re building a new downtown library. We won’t maintain Balboa Park and we’ve given over control of it to a private conservancy, but at the same time we’re talking about expanding the convention center.”
The disconnect, Kogan explained, is because “San Diego has two governments: a big government that delivers benefits to a narrow, elite few and a small government that delivers services to many. [City Councilmember and Mayoral candidate] Carl DeMaio will say that’s because our city and its officials are in the grip of public-sector unions. Former city attorney Mike Aguirre says it’s because the city officials are either stupid or corrupt. Then there’s the ever-popular idea that there’s a lot of ‘waste, fraud and abuse’ in government.”
Like other California cities, Kogan said, San Diego was hit hard by the passage of Proposition 13 in 1978, which not only slashed property taxes and kept them artificially low — especially for corporations and long-time homeowners — but also imposed a two-thirds vote requirement for virtually all tax increases. Indeed, he argued, San Diego was hit harder by Proposition 13 than most California cities and counties, because a succession of conservative governments had historically kept taxes lower than they were elsewhere in the state — and so when the state doled out its own funds to keep California’s local governments afloat, San Diego got less money than more liberal, higher-tax cities like San Francisco and Los Angeles.
According to Kogan, San Diego has done one thing right that Detroit and the other fading “Rust Belt” cities of the Midwest did wrong. “We’ve been able to keep our suburbs within the city limits,” he said. But, he added, “that creates a problem because you have to govern both the suburbs and the urban core.” Kogan cited Interstate 8 as the great dividing line between old and new San Diego, and showed a map based on census data on the age of the city’s housing stock. Virtually all the housing north of I-8 was built after 1970, while virtually all the housing south of I-8 was built before 1970, creating “a division based on income, property values and geography” that deeply affects the city’s politics.
Another aspect of San Diego that gives it unique political and economic problems, Kogan argued, is the lack of a business class with real roots in the city. “San Diego is primarily a branch-plant town for companies headquartered elsewhere,” he said, “so executives in San Diego don’t have an incentive to get involved in San Diego politics because they don’t intend to stay here. Second, we’ve built most of our economy on the tourism, and its profits don’t depend much on what the city does. Third, because of the heavy military presence in San Diego, a lot of our land is owned by the federal government, and therefore it’s not taxed.”
Add to that the role of the initiative process, which enables voters to enact laws that don’t make economic sense — like the so-called “People’s Ordinance” of 1919 which guarantees that San Diego can never charge residents to pick up their trash — and “the quality of life and public services in San Diego is significantly worse than it was before,” Kogan said. “In 2001 library branches were open a total of 48 hours per week; today it’s 36. We have fewer firefighters and police officers per capita than we did 10 years ago. Today a lot more of our budget goes to pensions than it did 10 years ago.”
Kogan then brought up the elephant in the room of San Diego politics: the $2.1 billion in unfunded liabilities the city owes its City Employees’ Retirement System (SD-CERS), plus an additional $1 billion the city owes to fulfill its promise from the 1980’s that, in exchange for city employees voting themselves off Social Security, the city would pay for their health care for life. He meticulously charted all the steps by which the city got itself that far in the hole to its retirees, including former mayor Pete Wilson’s decision to “eliminate the dedicated property tax used to fund retiree pensions,” so pensions were put in the same pot as — and forced to compete with — the police, fire, libraries and all other city services.
Then the city got in the habit of raiding the pension fund, first to pay for retiree health care and then to give retired employees a so-called “13th check,” essentially a bonus if the pension fund’s investment income exceeded their “target,” usually 8 percent per year. According to Kogan, this worked until 1989, when the Cold War ended and the defense industry, one of San Diego’s major employers, shrank. At the same time San Diego elected Susan Golding as Mayor. A Republican politician on the make, Golding was determined to run for the U.S. Senate in 1992 and build a track record for that by bringing the 1996 Republican convention to San Diego. She also wanted a new stadium for the San Diego Padres and a new downtown library.
At the same time, as part of the city’s regular negotiations with the unions representing its employees, San Diego offered what came to be called “MP-1” (for “manager’s recommendation”), which was, as Kogan explained, “instead of increasing pay, they would increase retirement benefits. In exchange, the employees let them pay less into the pension system, and there would be a ‘trigger’ that would require the city to pay the pension system a lump-sum payment” if its investment income fell below a certain level. This deal held until the stock-market boom of the 1990’s came to an abrupt end in 2000, whereupon a new mayor, Dick Murphy, and city manager, Michael Uberuaga, concocted a new deal, MP-2, that eased the “trigger” requirement and let the city underfund the pension system even more.
“As a result,” Kogan said, “the city faces a $2.1 billion pension shortfall,” Kogan said. He said that the retroactive increases in city pensions, which Carl DeMaio wants to eliminate, only add up to $350 million of that — so even forcing the entire burden onto city workers, as DeMaio wants to do, won’t solve the problem. According to Kogan, the Comprehensive Pension Reform Act — the initiative DeMaio championed and got on the November 2012 ballot — will take new city workers out of the pension system and give them 401(k) plans instead, making their income entirely dependent on the stock market and their skill at investing in it. What it won’t do, Kogan said, is ease the current crisis because the savings from eliminating guaranteed-benefit pensions for new city workers won’t materialize for decades.
Kogan also noted that DeMaio is a major champion of “outsourcing” — transferring city services to the private sector. “In general, there’s evidence that outsourcing saves money, but a lot of cities have found that outsourcing costs more and they’ve insourced again,” Kogan said. “There’s no evidence that the city has the infrastructure to do outsourcing right.”
Who’s to blame for San Diego’s economic woes? “It’s really the voters,” Kogan said, “because they want high levels of services and low taxes. All the reform proposals will be painful, and the politicians who promise they won’t be are continuing the tradition of charlatans.”