Just when his adversaries began to think it would never happen, mayoral candidate Bob Filner finally released his illusive pension reform plan.
For about the past 10 months, the Democratic congressman has promised an alternative to the controversial pension reform ballot measure Prop B, the initiative crafted by opponent and Councilman Carl DeMaio.
While Filner was apt to criticize Prop B, he put off releasing a hard copy of his own answer to the city’s $2.1 billion pension deficit, garnering harsh criticism from his opponents and the public.
In more recent debates and forums, he outlined the basics of his plan: refinancing the pension system’s debt at a lower interest rate using municipal bonds and capping some city employees’ six-figure pensions.
Filner finally released his plan – in writing – on Saturday, calling it “Real Pension Reform – Now!” The title references the changes that can be made now to reduce the current pension deficit, as opposed to if he wins the mayor’s race.
The plan is sparsely detailed in comparison to Prop B, but lists a five-point reform plan that will help the city earn money. In addition to using the bonds and capping pensions, he proposes negotiating with labor unions for savings and putting half of any projected budget surplus into the pension system.
It documents the savings he promised in previous appearances – about $500 million into the city’s general fund over the next 10 years. This will be attained by buying pension obligation bonds at a low interest rate and then selling them to investors at market value.
Using municipal bonds is not uncommon. As Filner notes in his plan, San Diego County is already doing this. Other municipalities are increasingly turning to the method and seeing some success.
And it just might work for the City of San Diego too, depending on how low the interest stays, said David Hitchcock with Standard and Poor’s Rating Services.
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“It depends on what they’re investing in and what sort of return they actually get. You have to have a positive rate of return higher than the interest rate, otherwise there’s no sense of doing it,” Hitchcock said.
S&P recently upgraded San Diego's appropriation debt to an A+ rating. The agency doesn’t usually rate pension obligation bonds, but since the bonds are one notch below general obligation bonds, the improved rating will help.
“If they were to issue pension obligation bonds, it’s likely that they would be rated A+ as well,” said Sussan Corson, director of public finance with S&P.
San Diego’s higher rating could lead to lower interest rates, which would put more money into San Diego’s coffers in the long run.
“But what actually happens in the market is anyone’s guess,” Corson added.
Before the plan’s release, many believed refinancing the debt would merely be “kicking the rusty pension can down our crumbling roads,” as District Attorney and mayoral candidate Bonnie Dumanis said on Monday.
DeMaio reissued a response on the conservative blog San Diego Rostra on Monday as well. DeMaio said selling the bonds is “unsustainable” and passes along debt to later generations.
Ron Nehring of the California Republican Party tweeted that the plan “looks like he just faxed over a stack of scribbled-up post-it notes.”
Calls to Filner requesting comment were not immediately returned.
For more on this issue and others facing voters in next month's elections, check out our Decision 2012 page.
