San Diego City Councilman Carl DeMaio has unveiled a plan he says could potentially turn the city’s deep deficits into a surplus, but there are already signs of a pushback.

On Friday, several days after voters adopted DeMaio’s stance against a tax increase to plug the projected $70 million budget gap, he produced a comprehensive plan that would revamp the city’s pension system and outsource some city services. DeMaio projects his plan would save the city $87.3 million in the 2012 fiscal year, and ultimately $737 million by reforming retiree health care and pension liabilities and $304 million by outsourcing.

“I challenge city leaders to move beyond the ‘can’t do’ attitude and embrace creative, new and innovative ways of providing city services,” DeMaio said. “Our plan borrows some elements from the bankruptcy process, with the imposition of a five-year mandatory spending cap, reorganizing city operations and restructuring several significant liabilities that face the city.”

Also Friday, the Center for Policy Initiatives, a nonprofit think tank that is often allied with labor groups, issued a critique of the plan, calling it a “fantasy.”

“A quarter of the supposed savings in Councilmember DeMaio’s plan — $21.7 million — comes from privatization, and those projections are fantasy,” a written statement from CPI said.

“Privatization shifts costs to city residents in the short term and could cost the city dearly in the long term,” the statement continued. “Privatizing the landfill, for example, doesn’t end San Diego’s need for a landfill. City residents would still bear the cost — plus the private operator’s profit — while the city would lose energy and revenue generated by the landfill.”

DeMaio mentioned privatizing the landfill as one of several functions he would like to see outsourced, or at least go out to bid. Other areas he suggested could be outsourced included landscaping, auto maintenance, information technology and trash collection. Under managed competition, the city’s unions would be able to bid on certain jobs, and for an outside contractor to win, it would have to prove that the service level would remain the same.

The centerpiece of DeMaio’s plan, however, is pension reform. The plan, called “A Roadmap to Recovery,” recommends reducing and then freezing pensionable pay for five years. Pensionable pay includes base salary and certain other kinds of payment. DeMaio said this would reduce pension payments by 20 percent over five years.

DeMaio would also like to create a tiered pension system, where employees can choose between different plans, in some cases giving less to the pension system so they can take more pay home.

To save money on health care, DeMaio’s plan calls for the city to continue to provide health insurance for current retirees, but eliminate guaranteed health care for current employees when they retire. The city would expand defined contribution health care trusts for current employees’ retired health care needs.

Erik Bruvold, the president of the National University System Institute for Policy Research, a generally right- leaning local think tank, said that he largely agrees with DeMaio’s plan, but has some concerns about the employee health changes. For example, there are about 800 employees who aren’t eligible for Medicare after they retire due to some changes the city made in the early 1980s. This could lead to complications.

Ultimately, Bruvold said city managers — not just unions — will have to look closely at this plan, because it could potentially cause a wave of early retirements, or a struggle to attract good employees. DeMaio’s plan also calls for reducing special pay for things like higher education and being bi-lingual.

“That’s all stuff that requires you to be inside the numbers,” Bruvold said, meaning managers need to know their employees and where they are all at in terms of thinking about retirement. “I’m interested in hearing what management has to say.”

Mayor Jerry Sanders neither endorsed nor opposed the plan.

“As our city faces a major budget deficit, I welcome all good ideas that might help the city address it,” he said in a written statement after meeting with DeMaio Friday morning. “Some of the suggestions presented today are interesting and should be examined. To that end, I will forward them to the Citizens’ Fiscal Sustainability Task Force and ask that they be looked at to determine their practicality, legality and effectiveness in tackling our financial challenges while preserving essential city services.”

DeMaio said he consulted with the City Attorney’s office and thinks the plan would withstand any legal challenges.

Whether or not he could create a coalition amongst the predominantly pro-labor City Council remains to be seen. The council, mayor and labor unions all rallied around the half-cent sales tax proposed in Proposition D.

Councilmember Todd Gloria said in a written statement that he is open to looking at DeMaio’s ideas, but he is concerned about certain cost estimates, and the legality of proposals like cutting retiree health.

“I am concerned that the roadmap contains several speed bumps that will likely make its full implementation impossible before we need to balance the budget prior to the start of the next fiscal year,” Gloria said. “Banking on 15 percent savings from managed competition is problematic; litigation on several fronts is likely; and the author’s predetermination of the outcome of good faith negotiations with our employees is troublesome.

“Specifically, for Councilmember DeMaio’s proposal to eliminate retiree health care for existing employees to work, the City will have to find a way back into the Social Security program,” he continued. It’s unclear if that’s possible. And if so, the City will have to pay into Social Security benefits for its employees. I don’t see those costs factored into his plan.”

“I am committed to securing the City of San Diego’s long term financial stability,” Gloria said. “Extending a courtesy never afforded to Proposition D by Mr. DeMaio, I am open to some of the ideas presented in ‘A Roadmap to Recovery.’”

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