Prospects for San Diego getting a reprieve from crippling pension payments improved Friday when a majority of the city’s pension board endorsed a plan that would lower those payments during the next five years.
But the pension board postponed a final vote on the plan until March. And some supporters said their vote may hinge on whether city finance officials can present a credible plan for stabilizing San Diego’s finances in the long term.
Those board members said they’d like to give the city short-term relief by pushing larger pension payments several years into the future. But they said such a plan makes no sense if the city will continue to outspend its revenue.
City finance officials said they have plans either to make significant budget cuts or to boost city revenue with new streams of money, including a possible sales tax increase that could generate $400 million a year.
The city also expects a revenue boost of roughly $80 million per year once it can start charging single-family homes for trash pickup sometime in 2025 or 2026.
The pension board’s support for giving the city short-term relief came during a debate Friday over seven possible scenarios for revamping a plan to pay off the city’s $3.4 billion in pension debt.
City officials had asked the pension system’s actuary to create the scenarios because the city faces what could be crippling payments in coming years, including a $526.6 million payment this June that would be the highest ever by 27 percent.
The board quickly narrowed its choices to two — Scenario 3, which was endorsed by the pension system actuary, and Scenario 5, which city finance officials prefer.
Seven of the 12 board members at the meeting expressed support for Scenario 5, while two members preferred Scenario 3 and three members said they could envision supporting either.
Under Scenario 5, the city’s annual pension payments during fiscal years 2026 through 2030 would be roughly $40 million lower per year on average than they are under the existing payoff plan.
But the payments would then be roughly $70 million higher on average than the existing plan during each of the next five years, fiscal years 2031 through 2035.
Under Scenario 3, the city would get less of a reprieve during the first five years, but also take less of a hit in the five years after that. Its payments during fiscal years 2026 through 2030 would be about $15 million less per year than under the existing playoff plan. But they wouldn’t be any higher at all than the existing plan from fiscal years 2031 through 2035.
Scenario 5 would pay off the city’s pension debt three years earlier than Scenario 3, 2039 versus 2042, and Scenario 5 would add far less to the city’s long-term payoff costs than Scenario 3, $118 million versus $406 million.
City officials tout Scenario 5 over the existing payoff plan because the existing plan forces high payments during its early years and much lower payments in later years, whereas city revenue is projected to rise slowly and steadily over time.
So a more sensible plan, city officials say, would have pension payments rising as city revenues do, making the payments a more stable and steadily affordable part of the city’s annual budget.
A majority of the board agreed Friday.
“Scenario 5 seems to me to be the best balance,” said board member Bret Bartolotta.
Board member Natasha Collura said she likes that Scenario 5 pays off the debt sooner and would cost the city nearly $300 million less long-term than Scenario 3.
Other board members in strong support of Scenario 5 included Thomas Battaglia, Elvin Lai and Paul Lotze.
Louis Nguyen and Michelle Bush also expressed support but said they have concerns about the city’s finances and a structural, long-term gap between revenue and expenses that finance officials described Friday.
Bush said she worried the city would keep coming back and asking for relief any time its payments got too big to handle.
Nguyen said he’d like to see a plan from city officials that would solve their financial problems long-term. But he said he has doubts based on the past.
“If we were to look at the history of the city’s management, it doesn’t give us a whole lot of confidence,” he said.
Such concerns were the primary reason board members Clifford Schireson and B. Chris Brewster opted for Scenario 3 instead.
“There is a big and very long-term structural challenge here,” Schireson said of the city’s future budget prospects. “If we don’t see some kind of a structure of a plan, it kind of seems like kicking the can down the road.”
Brewster was more blunt.
“The city should not be coming to the pension board for relief of its budget woes,” he said. “I understand that here’s the city today saying, ‘We’re in a real tough spot.’ But what is the city in 2033 going to look like?”
Board member Lisa Marie Harris said she would opt for Scenario 5 over Scenario 3 if city officials could convince her they will have the money necessary to cover six years of much higher payments between fiscal years 2034 and 2039.
Louis Maggi said that while he could support either scenario, delaying high payments makes him uneasy.
“I’d rather get paid today than wait until tomorrow when some new revenue stream appears,” he said.
Board President Paul Kaufmann said he could support either scenario or keeping the existing payoff plan. He said the key is to avoid ever asking the city to make payments that will force deep budget cuts and layoffs.
“It doesn’t make sense to crank these numbers up if the city can’t afford it,” he said.
Matt Vespi, the city’s chief financial officer, said after the meeting that he was encouraged by Friday’s debate.
“We heard lots of support for Scenario 5, and we think that’s a win-win,” he said. “It would be beneficial for the pension system by getting it to full funding sooner, and beneficial for the city by providing near-term budget relief.”
During the meeting, Vespi balked at the characterization by some board members that revamping the payoff plan was the pension board helping the city out of a jam.
He said a revamp makes sense because the pension system is going through a period of major change prompted by the unwinding of Proposition B, a 2012 city ballot measure that sought to eliminate pensions for all new city hires except police officers.
The courts overturned the measure, and the pension system has had to create retroactive pensions for several thousands of city workers over the last two years.
“That was once in a lifetime,” he said. “That was a significant change in the landscape of this pension system.”
The pension system actuary, Gene Kalwarski, continued to support Scenario 3 over Scenario 5. But he said it’s not his job to judge how well the city can handle larger annual payments.
“We can show you the impact, but I don’t think we can be the judge of what’s sustainable,” he said. “That’s not our area of expertise. That’s not an actuarial decision. We can just tell you what the numbers are.”
Kalwarski said that after the board votes in March, he will calculate a new long-term payment plan that could also affect the city’s payment for fiscal 2025 in June.
The city’s pension debt was calculated as $2.84 billion last winter, so the jump to $3.36 billion this winter is an increase of more than $500 million.
The debt is based on the gap between the estimated long-term value of pension system investments, which is now $9.72 billion, and the long-term estimated payouts to employees the system must make, which is now estimated at $13.08 billion.
