What people need to understand is the management of the pension plan has not changed. The pension power brokers are still very much in control of the city council and of the mayor’s office. There has been no reform. So what we have is a more sophisticated way of hiding the losses. So now you have a high-risk investment policy that has produced massive losses, and you had the creation of 50,000 years of pension benefits with no funding. Those two things come together and create a massive, oppressive debt that the City has been trying to pay by shortchanging all of the essential services. That whole ability now has been swamped.
Let’s put it this way, if San Diego was Enron or Bear Stearns or Wachovia or Washington Mutual or Countrywide, they would have still tried to keep the businesses going and continued to hide the losses and the financial imbalances. And that’s what we’re doing. And beyond that, again, as I said, we’re putting our head in the sand. That’s why I’ve been trying to get the mayor and the council to focus on this problem, which, I think there’s a lot of reluctance because it’s a lot of unpleasant news and it’s going to upset the municipal unions because it’s going to show that they were completely and totally wrong. And now it’s a catastrophic situation that they’re not prepared to deal with.
Is there any way at all for the public to find out what the current status of the fund is?
The only way to do that is if we can get the mayor’s office to disclose that information. Right now the response from Jay Goldstone is that I’m being an alarmist. He’s not interested in getting the information out on a current basis. He did provide me the information as of September 30. That information is that it’s $4.3 billion. That is extremely serious and very telling.
Is there any suggestion that the funds themselves have been mismanaged in some way?
Well, the funds have been mismanaged in the sense that there has been the creation of 50,000 years of pension credits with no funding. And then there has been the adoption of the very high risk investment policy that was more like a high-risk mutual fund than it was a conservative pension plan. Where we are now is that they basically rolled the dice with the pension assets on the stock market and the bond markets and that it’s all blown up, as many people were saying.
Ideally speaking, what you want in a pension plan is to be in as risk-neutral, risk-averse a position as you possibly can. And then if you go out with some limited percentages of your pension plan and move it into the stock market, you know, that’s rational and reasonable. But what they were doing is they were all in. They were touting the fact that they were getting 16 percent, 20 percent returns. The problem with that is, to get those kinds of high returns, you have to be high risk, and if the market goes the other way, you know, you have the opposite effect, and that’s what happened here. There’s been a substantial hit, and it’s been hidden!
Just like in 2003 when Diann Shipione was trying to get the information out. Five years later we find ourself in the same position. The pension power brokers, again, they don’t want to release the information. They’re concealing the information. And I’ve advised them that I don’t think we can move forward with any kind of bonds until we make full disclosure of the pension debt. Which is ironic because this is exactly how we got ourselves in trouble five years ago. We moved forward without disclosing the pension debt on our wastewater bonds, and then Diann Shipione wrote the emails bringing all that out. That threw the wastewater-bond offering into a tailspin, and we’ve never recovered from it. Here we are five years later right back in the same position. We’re organizing the bond offering for the water department, a very sizeable bond offering. And I’ve advised them, until we get this information on the pension plan, you know, I don’t see how we can go forward.
Is there an issue with the downtown tax increment with the condo values going down? Is there any risk that the City could be underwater on its downtown redevelopment bonds?
Not as of yet. Nothing that I’ve seen. I think that the major problem that we have with downtown redevelopment has been the various conflict-of-interest problems that SEDC and CCDC have both just gone through, and then I think that the real question is, can we really justify using tax instruments to continue to pay subsidies to developers in downtown San Diego when their development otherwise would have been market viable. I think that’s the question.
The big question in San Diego is that we have this massive housing-production machine which has run its course, and yet it’s still spewing forth houses and tying up capital so that we have a huge backlog of housing stock, instead of making the transition over to infrastructure. We have to completely redo our roads. Seventy percent of our roads are below the standards that they should be. Our bridges, we have another half a billion dollars of bridge work that we need to do. Our alleys, our sidewalks, our rec centers, our buildings, getting our recycling together with water so we have a reliable water source. Energy, with the whole need to transition to renewable. There are these tremendous potential opportunities we could build into to the next generation — a very solid foundation to empower strong economic activity going forward. But we’re not doing that. That, I think, is where there really is the opportunity cost…that we’re not doing these other things that really could revitalize the economy.
I think what we’ve all discovered here in San Diego, and I think throughout the country, is that the crisis that we’re facing economically is that there’s been a vast inflation of values, nonexistent values, that really show that the fundamentals are not sound and that the way that we’re going to work our way out of this is to do a fundamental restructuring of our infrastructure and our water supply, energy supply, roads, streets, bridges, and all the other things, and that that is what’s going to create real economic viability. Something along the lines of what’s going on in China and going on in some of the more northern European countries. More efficient uses of power and the centralization of recycling systems and water and renewable energy and all the things that are on the forefront.