San Diego using loophole to hand out large raises during pay freeze

May 14--The city of San Diego has given nearly 150 high-level managers more than $4 million in pay raises since 2012 despite a voter-imposed salary freeze, saddling the city and its taxpayers with many millions in additional pension debt.

Increases in pension debt raise the city's annual pension payment, shrinking the money available for libraries, parks, recreation centers and other cherished amenities.

That was a key motivation in 2012 for the successful Proposition B ballot measure, which promised nearly $1 billion in long-term pension savings by mandating a five-year freeze on "pensionable" pay increases.

But the freeze has a crucial loophole that has allowed 141 high-level managers to quietly be given large increases in their annual pay that have averaged $28,800 per employee.

The ballot measure allows the city's top brass to increase pay, significantly if they desire, for workers who get promotions. Significant pay hikes can bloat the pension debt because a retired employee's pension is based on the highest salary they earn during their career.

The authors of Proposition B sought to limit such raises by adding strict prohibitions against increasing salary ranges for existing jobs, and outlawing the creation of new job titles with higher salary ranges than those that existed in 2011.

But the city has managed to give out large raises despite those prohibitions by utilizing two existing job classifications -- program manager and program coordinator -- with unusually high salary maximums.

The maximum pay for program coordinator is $143,208 and the maximum pay for program manager is $179,388.

The San Diego Union-Tribune was able to identify 141 employees in city compensation data who got large raises after being promoted to either program manager or program coordinator. And the number of city employees with those two job titles has sharply increased from 84 before Proposition B to 219 in 2016.

Former City Councilman Carl DeMaio, who helped write the ballot measure, blamed Mayor Kevin Faulconer last week for allowing so many reclassifications with large pay hikes.

"It really is the failure of Kevin Faulconer because these reclassifications would not be done unless the mayor approved them," DeMaio said. "It's clear this is a back door to get out of some of the pension reforms we wrote into Proposition B and that the voters strongly approved."

A spokesman for Faulconer called those criticisms baseless, contending the promotions and pay increases violate neither the written restrictions nor the spirit of Proposition B.

"If you're talking about spirit you're talking about intent, and the intent of Prop. B was never to prevent people from earning promotions that are based on merit," said the spokesman, Matt Awbrey. "No private sector business would do that, and voters certainly didn't ask for that when they approved Prop. B."

Lani Lutar, who also helped write the ballot measure as head of the San Diego County Taxpayers Association in 2012, agreed.

"We didn't want to create a retention problem for employees who were going above and beyond their job responsibilities and deserved to be promoted," said Lutar, who now works as a consultant.

Awbrey also said the pay hikes have been necessary because the city has expanded services to residents, which has resulted in an expanded workforce to provide those services.

Councilman David Alvarez, however, said increased focus on street paving and other infrastructure projects is the only area where there has been an expansion that would warrant so many more program managers, program coordinators and other new high-level management positions.

"We've increased funding for infrastructure and we've got to have individuals who can deliver on that, so that makes sense," said Alvarez. "But everything else is constant, so why are these increases happening in so many other areas?"

Awbrey stressed that the impact of the raises on the city's pension debt is relatively minimal because 141 employees are only a small fraction of the city's 11,400 workers.

"This is an exceedingly small number of folks who earned merit-based promotions in a way that completely follows the law, spirit and intent of pension reform," Awbrey said.

Lutar agreed, suggesting the raises won't significantly lower the $963 million in long-term pension savings the salary freeze was projected to create.

"With only between 1 percent and 2 percent of city employees affected, the potential impact on pension savings is going to be modest at best," said Lutar, noting that the city's $2.5 billion pension debt is much more vulnerable to employees living longer and how the pension system's investments fare.

Alvarez, however, stressed that promoting employees into higher classifications has a snowball effect of giving them additional large raises in the future that they are guaranteed for reaching years-of-service benchmarks.

Examples include Colin Brazile, a supervising personnel analyst promoted to program manager in 2014. According to data the city provided to Transparent California, an open government group, Brazile's base pay went from $58,083 to $84,228, and then increased to $103,836 in 2016.

Monty Peretto, who was promoted from a supervising management analyst to a program coordinator in 2013, got an increase in base pay from $78,647 to $84,879. His base pay then increased to $97,044 in 2016.

Every such increase has a long-term multiplier effect because retired employees get annual cost-of-living adjustments to their pension benefits.

It's difficult to calculate the exact impact of these raises on the city's pension debt for a variety of reasons.

It's not clear how many of the employees were hired before another element of Proposition B kicked in: replacing pensions with 401(k) style retirement plans for all newly hired employees except police officers after July 19, 2012.

Data show that 124 of the 141 employees were on the city's payroll in 2011, so they are eligible for pensions. Ten were hired in 2013 or later, so they are not pension-eligible. And seven were hired sometime in 2012, making it uncertain whether they are pension-eligible.

It's also unknown whether the employees eligible for pensions were hired before 2005, when the city decreased the size of pension benefits, or 2009, when they were shrunk again.

And because 2016 had 27 pay periods instead of the normal 26 due to a calendar fluke, some of the 2016 base pay figures could be slightly skewed.

Estimates of the increase in the debt caused by these promotions have been as high as in the tens of millions of dollars.

Alvarez said he suspects the impact to the pension debt goes beyond just the promotions to program manager and program coordinator, suggesting the city may have promoted many other relatively low-paid employees into higher paying classifications.

He said that's based on his analysis of recent city budgets, and he expressed frustration that the City Council wasn't made aware of the practice of reclassifying employees to give them large raises.

"It's definitely a very non-transparent way to increase salaries," said Alvarez. "I don't know that I'd call it a loophole, but they're certainly gaming the system that exists. They want to give raises to people doing quality work but they can't because of Prop. B, so they've found this end-around."

Awbrey noted that all re-classifications are approved by the City Council.

But the agenda items the council has approved to allow these haven't included any information on the associated salary increases.

Alvarez said he recently questioned city financial officials about several planned promotions to program manager, program coordinator and other high-paying positions included in Mayor Faulconer's proposed budget for the fiscal year that starts July 1.

Examples include the creation of two new program coordinator and two new senior management analyst positions in the city's Office of Homeland Security. The proposed budget would also eliminate an associate management analyst position and three supervising management analyst positions in that department.

Alvarez said he suspects this is the city trying to give four people pay raises by using promotions to skirt Proposition B, but that he can't be sure until city officials confirm it.

Other examples include increasing the number of program coordinator positions in the Risk Management Department from two to eight.

Alvarez said city finance officials told him recently they may not be able to answer his questions about those proposed job changes before the budget is adopted next month.

Michael Zucchet, leader of the city's largest labor union, said the pay hikes are clearly legal under Proposition B and that the loophole is just another piece of evidence that it was a badly flawed ballot measure.

"It doesn't say you can't do the program manager game," he said. "It says explicitly you can do anything you want under the existing authority in the charter, which is exactly what they've done."

Zucchet also criticized DeMaio's contention that the raises violate the spirit of Proposition B and should have been prevented by Mayor Faulconer.

"Maybe that was the spirit, but the clear writing of it is that promotions are not included in the section on freezing pensionable compensation," Zucchet said. "Carl needs to look in the mirror and remind himself that he wrote this paragraph that explicitly not only allowed but specifically called out any mayor's ability to do exactly what's happened."

DeMaio said that when he helped write Proposition B he expected to become mayor later that year, and that he would have been adamant about prohibiting such raises if he hadn't lost to Bob Filner in a November 2012 runoff.

"The mayor has immense powers to continue a pension pay freeze, but Faulconer chose not to," DeMaio said. "He has gone wild and wacky with giving salary increases and that's not responsible. He should have said 'Prop. B is working but I still see a problem with investment returns so we need to extend the five-year freeze.'"

Awbrey, the Faulconer spokesman, said the mayor was one of the first supporters of the pension changes and has spent years fighting to protect it in court.

"Everyone knows that Prop. B was about requiring new employees to receive a 401(k) instead of pensions and getting the city's labor organizations to agree to a pensionable pay freeze, and that's exactly what we did and what we continue to do," he said.

Zucchet said the mayor is acting prudently to help the city avoid losing quality employees to other government jobs or the private sector, which Proposition B turned into a major concern by making it so hard to give people raises.

"The mayor is choosing the efficient operations of the city over what somebody considers the spirit of a political document," said Zucchet, who is general manager of the Municipal Employees Association.

On the other hand, Zucchet said his union has tried to block several such proposed promotions to highlight what a large impediment to keeping quality employees that Proposition B has become.

The only way to give raises under the ballot measure without using a program-manager-style loophole is to get a two-thirds vote of the council and have the city's actuary study how the proposed raises would affect pension debt.

The city has done that only once, when the council approved large raises for dispatchers last year amid a 9-1-1 response crisis during Mayor Faulconer's re-election campaign.

"We've encouraged the city at every step to follow Prop. B in that way, and the city has been unwilling to do that except in one instance," Zucchet said. "The political will has not been there to do that otherwise, and instead they've found other ways."

Proposition B was approved by 65 percent of voters in June 2012. The pay freeze part of the measure will expire on June 30, 2018 unless the mayor and council decide to extend it, or there is a subsequent public vote.

Union-Tribune Watchdog Data Reporter Lauryn Schroeder contributed to this story.

david.garrick@sduniontribune.com (619) 269-8906 Twitter:@UTDavidGarrick

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