San Fran Is Pension Ground Zero

SEPT. 28, 2010

By DAVE ROBERTS

SAN FRANCISCO — San Francisco’s 26,000 city government employees have had it pretty good for many years – so good that city officials have had to cut services and could be looking at eventual bankruptcy if the generous health and pension benefits continue flowing. But a proposition on the November ballot requiring employees to increase their contributions to their benefit plans is receiving strong support and could help turn things around before San Francisco becomes the next Vallejo, the Bay Area city still struggling to emerge from bankruptcy. However, the city’s 26 unions won’t go down without a strong, well-funded fight.

Jeff Adachi, a San Francisco public defender who has spearheaded Proposition B, faced off in a spirited 80-minute debate Monday night with Tim Paulson, executive director of the San Francisco Labor Council, at a West Twin Peaks Council meeting. The debate was preceded by a report by Shirley Hansen, a San Francisco civil grand jury member, who presented grim news from the jury’s report entitled “San Francisco’s Pension Tsunami: The Billion-Dollar Bubble.”

On paper the city’s pension plan is 97 percent funded, but that’s based on a 7.5 percent investment growth rate, she said, which is well above the 4.5 percent growth rate in the last 10 years. Some 900 San Francisco government retirees receive more than $100,000 annually in a lifetime pension. “Pension costs now threaten the city s financial future,” she said. “In 2001 health care for retirees cost the city $17 million. 10 years later it’s grown to $140 million. Health care just goes up and up faster than the cost of living. Funding of the city pension and retiree health benefits for the past fiscal year was $413 million. It will rise to $1 billion in just five years, becoming one-third of the city General Fund.”

Employee salaries and benefits are squeezing out money for city services. Adachi said he got involved with the issue after wondering why the city’s public defenders’ budget continued to get cut. The city’s $4 million summer school program for 10,000 children was eliminated this year. Residents now have to pay to rent park facilities. Parking meter hours have been extended to 9 p.m. in some areas, and 1,500 new parking meters have been installed with downtown rates costing up to $18/hour.

“You can’t turn around without someone picking your pocket in this town,” said Adachi, who has worked for the city for 22 years. “As Americans we believe in fairness. Our country was founded on the principle that hard work, individuality, self determination and doing the right thing mean something. Our public pension system in San Francisco and the health benefit system for city employees is not fair. It is bankrupting our city.

“We spent $829 million, that’s close to a billion dollars, this year alone on benefits for city employees. These pensions were created at a time when public employees were paid less than private sector employees. So it was understood as a form of deferred compensation. That is no longer true. According to our city controller, the average city employee earns $93,000 a year. The average private sector employee earns $46,000 a year, not including benefits.”

Police and firefighters can retire at 55 with 90 percent of their last year’s pay level. One officer last year earned $516,000 and retired at 56 with a $240,000 annual pension, totaling an $8.5 million payout over the rest of his life. “And he’s not the exception,” said Adachi. “There are 100 other top-paid police officers who earn an average of $241,000 a year. I have the ultimate respect for police officers and firefighters who put their life on the line every day. Yet how much can we afford to pay?” Other workers are also doing well – janitors can make $79,000, nurses get $115,000 and nearly two-thirds of city employees earn over $75,000, he said.

Employees who work for five years are entitled to lifetime health care. “That’s a great thing,” said Adachi. “The problem is we can’t afford it. According to the city’s actuary, we owe $4 billion in unfunded health care coverage for city employees. The scary thing is that the number will double in the next five years on the health and pension side. We need to do something now. We can’t kick the can down the road. This is an opportunity for us to correct this.”

Currently 46 percent of city employees contribute nothing to their pension plans. Prop B would require all employees to contribute at least 9 percent (10 percent for police and firefighters). Currently 10,000 employees pay nothing for their health insurance. Prop B would require them to pay at least $106 annually for Kaiser (more for Blue Shield or the city’s Cadillac plan and those wanting to also cover family members).

Adachi pointed out that San Jose recently laid off 50 firefighters and Oakland laid off 80 police officers because they could not afford the pension costs. Officers and firefighters in bankrupt Vallejo are now paying 13.5 percent into their pension plans. He said that Proposition B is projected to save the city $121 million a year, according to the city controller.

“By that measure, 10 percent for police and firefighters (in San Francisco) is a good deal,” he said. “We don’t want to end up like Vallejo. This is a reasonable change. This measure has to come from the people. I realized early on that it was not going to make employees happy. The only way this could happen was to bring this to the people. There’s been $1 million spent (by the unions) and another $2 million pledged to defeat this measure. We don’t have those resources, but I believe we have the better case.”

Paulson criticized the measure as much ado about nothing. He said it will punish a nursing assistant making $45,000/year who currently pays $8,100 for her and a family member for the city’s health plan by raising the cost by $5,000. He blamed the Wall Street meltdown for the current pension deficit situation, and said things will pick up economically. “This is the most well-funded pension fund in the United States,” he said. “This is not Vallejo. This is a well-funded pension fund that is moving forward.”

Paulson pointed out that all of the officials representing San Francisco, from Congresswoman Nancy Pelosi to Mayor Gavin Newsom, are opposed to Proposition B. And he said that city employees have given up $250 million in compensation concessions over the next two years “to make sure that during these bad economic times we will save the parks, keep the clinics open and make sure the streets are clean. San Francisco is one of the healthiest urban centers in the United States. This is the wrong way of doing things. This is not a pension plan that is in trouble. (Proposition B) is bad medicine and does not do what it purports to do.”

Adachi responded that the employee getting the $5,000 increase in the city plan, which he called a “Rolls Royce” plan, could avoid that by switching to the lower cost Kaiser or Blue Shield plans. He pointed out that the heath of the pension system is based on a 7.75 percent annual increase, which is unrealistic in the current economy and for which the taxpayers will have to make up the difference.

He pointed out that former Mayor Willie Brown supports Proposition B, but he’s not surprised that other politicians are running from it. “They are the politicians who authorized this,” said Adachi. “They said, ‘I can’t do it – it will cost me my election.’ I can understand that symbiotic relationship between unions and officials. But that doesn’t mean it’s the right thing.”

Polling done for the Proposition B campaign shows 54 percent support against 21 percent opposed, according to the San Francisco Examiner, including strong support in households with a city employee or a union member not employed by the city.

Photo: San Fran Public Defender Jeff Adachi