| The following letter was received by this site's webmaster (John Tsiknas) from attorney Michael Conger who represented plaintiffs James Gleason, David Wood and Rosado Wiseman. The letter transmitted the Judgment and the executed settlement agreement, with its 6 exhibits, including the deed of trust for the city property pledged as collateral in years 2006, 2007 and 2008 (about 80 pages). A list of the properties pledged is included following the letter. |
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August 4, 2004
Re: Gleason and Wood, et al. v. City of San Diego, et al. San Diego Superior Court Case No. GIC803779
Dear John:
Enclosed please find a complete copy of the judgment which was entered in this case on Monday July 26, 2004.
The terms of settlement provide substantial benefits to both the 6,330 member plaintiff class, and the general public, which are briefly described as follows:
1. Direct benefits to the class
a. Actuarially determined rates of employer contributions
As recently correctly stated by deputy city manager Bruce Herring:
“As part of the Settlement Agreement, the City agrees to abandon the agreements between the City and SDCERS known as Manager’s Proposal I (1997) and Manager’s Proposal II (2002), under which the City had been making annual contributions to SDCERS. Those agreements allowed the City to pay less than the full actuarial rate calculated by the SDCERS actuary each year, and instead pay a lower rate to SDCERS. Under the settlement, the City abandons its practice of paying less than the full actuary rate, and abandons its interpretation of the Charter which allowed less to be paid. The City will begin paying the full actuarially calculated rate in Fiscal Year 2006 and beyond . . . .” (Manager’s Report 04-148, issued July 7, 2004, p. 3.) The Settlement Agreement (which is incorporated into the Proposed Judgment) provides in Section II(3)(a) that the City will make actuarially calculated contributions in fiscal years 2006, 2007, and 2008, and that after Fiscal Year 2008, . . . the City will remain obligated pursuant to the Charter to contribute to SDCERS an amount derived from the rates calculated by the SDCERS actuary in its annual valuation approved by the SDCERS Board of Administration . . . .”
b. $109 million in additional contributions from the City to SDCERS from Fiscal Year 2005 to 2008
According to calculations made by the defendants, the City’s contributions required by the settlement in the first four years alone (fiscal years 2005 through 2008) will be $109 million more than the City’s contributions under Manager’s Proposal II. (Compare “Summary of Certain Settlement Options dated February 19, 2004, prepared by SDCERS actuary Rick A. Roeder showing City contributions under “Updated Manager’s Proposal #2 ” equals $93 million for fiscal year 2005, $118 million for fiscal year 2006, $150 million for fiscal year 2007, and $193 million for fiscal year 2008 with Manager’s Report 04-143, issued June 25, 2004, p. 6, showing projected City contributions of $130 million for fiscal year 2005, $165 million for fiscal year 2006, $177 million for fiscal year 2007, and $191 million for fiscal year 2008.)
c. $535.1 million of collateral to secure payments due in Fiscal Years 2006 to 2008
Additionally, the City’s required payments for fiscal years 2006, 2007, and 2008, which are expected to be approximately $533 million, are secured by property valued at $535.1 million. Included in this property are several parcels of prime real estate. (Exhs. B, D-F to Settlement Agreement.)
d. Rescission of the underfunding contracts—Manager’s Proposal I and Manager’s Proposal II
The settlement also terminates Manager’s Proposal I and Manager’s Proposal II, which are “of no further force or effect.” (Section II(3)(b).) This provision of the settlement does much more than require “[t]he City [to] begin paying the full actuarially calculated rate in Fiscal Year 2006 and beyond . . . .” (Manager’s Report 04-148, issued July 7, 2004, p. 3.) By eliminating Manager’s Proposal II, the settlement also eliminates the provision of that agreement which prohibited SDCERS from adjusting its actuarial assumptions (such as mortality, wage growth, etc.). Recently, SDCERS’ actuary concluded that this onerous provision would have cost SDCERS $626 million by June 30, 2009, even if the City immediately paid off the entire $1.157 billion SDCERS deficit today. (Summary of Actuarial Rates with Issuance of Pension Obligation Bonds, May, 2004, POB proposal #3.)
e. Change of municipal law—repeal of San Diego Municipal Code section
The settlement also requires the City to repeal an offensive portion of San Diego Municipal Code section 24.0801, enacted on November 18, 2002, which permitted the City’s underfunding. (Section II(3)(c).)
f. The Settlement Agreement provides a mechanism for relatively easy enforcement
As required by rule 1859(h) of the California Rules of Court, the Proposed Judgment provides: “Pursuant to Code of Civil Procedure section 664.6 and rule 1859(h) of the California Rules of Court, the court shall retain jurisdiction over the parties in order to enforce the terms of this judgment and the Settlement Agreement.” This provision is important because, in the event of a breach by either defendant, the plaintiff class will have a relatively easy mechanism to enforce the terms of the settlement.
2. Benefits to the general public
a. Avoidance of City bankruptcy
Although the City publicly claims it would never file bankruptcy, a primary motivation for this settlement, and particularly the collateral, was the recognition by the plaintiffs that the City had insufficient funds to pay off its entire unfunded liability to SDCERS. Indeed, one of two candidates in the current runoff election for mayor recently stated that the City was on the verge of bankruptcy. By removing the City’s ability to discharge $533 million in unsecured debt (i.e., the City’s fiscal year 2006-2008 contributions to SDCERS), this settlement removes $533 million of the City’s incentive to file bankruptcy. The City will no longer be able to discharge that much of its debt, thereby dramatically reducing the incentive of any future administration to seek discharge in bankruptcy of the City’s unfunded accrued actuarial liability to its pension fund. b. Promotion of intergenerational equity
It has often been stated that the most important fundamental principle of public, defined benefit, pension plans is intergenerational equity. Simply put, it is the concept that requires today’s taxpayers to pay in full for the services consumed today – including the salaries and benefits of today’s public servants. Placing a large part of those benefits – such as pension payments – on tomorrow’s taxpayers is not only inequitable, it is also unwise because there is no guaranty that tomorrow’s taxpayer’s will agree to pay off debt for yesterday’s employees’ pensions. By requiring the City to make its full actuarial payment, the settlement accomplishes the goal of intergenerational equity for the first time since 1997 when the City and SDCERS entered into Manager’s Proposal I.
Thanks for your help and interest in what has been the most important case I have ever handled in 18 years.
Please do not hesitate to contact me if you should have any questions or comments.
Very truly yours,
Michael A. Conger |
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_____________________________________________________________________________________ City Property Pledged as Collateral |
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