The Billion-Dollar Bet: Which Pension Reform Measure Will Pass and Survive Legal Challenge

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Illustration by Charlie Powell

Until recently, pension reform was largely the obsession of a mafia of nerds. These economists, politicos, journalists, and others brandished alarming financial forecasts and horrifying charts, solemnly prophesizing the sky would fall.

And, lo, it has. Dire predictions have grown ever more so, and dire realities have commenced. Thirty states have slashed pension benefits for new employees; 11 have done so for current workers.

Whether Mayor Ed Lee uses his popularity to push his pension measure or his pension measure to push his popularity, he’s dealt himself a formidable hand.
Charlie Powell
Whether Mayor Ed Lee uses his popularity to push his pension measure or his pension measure to push his popularity, he’s dealt himself a formidable hand.
The odds of a political slugfest jumped when Supervisor Sean Elsbernd ensured the contest between the dueling pension measures would be winner-take-all.
Charlie Powell
The odds of a political slugfest jumped when Supervisor Sean Elsbernd ensured the contest between the dueling pension measures would be winner-take-all.

Here in San Francisco, though, voters last year heavily rejected Proposition B, in retrospect a modest alteration to employees' pension and health care plans. As a direct result, the city's credit rating was downgraded. This year, San Francisco funneled $423 million to its pension plan — a $100 million spike from the prior year. By 2014, the city may be bleeding in the realm of $700 million to fund a virtual second government of pensioners. These aren't good times — they're bad times. But they're good times for those who foresaw bad times. They're good times for Jeff Adachi.

"Did I make it on time?" the public defender asks rhetorically as he strides into the Department of Elections on a recent Friday. Adachi, the author of Prop. B and this year's follow-up, is the man pension reform built. And, after signing a few papers and taking an oath — he was, after all, on time — he's also a candidate for mayor. A scrum of camera- and notebook-toting members of the media are here, because he told them to meet him here. The blinding TV lights illuminate the shadowy corridors of City Hall as Adachi speaks about politics and pensions in slow, easy-to-follow sound bites.

Pension politics, however, is not an easy subject to follow. Adachi's 11th-hour entry into the mayor's race further muddies an already complicated battle between a pair of esoteric measures on November's ballot: the "mayor's plan" or "city plan," meticulously kneaded into existence by city labor and management and near-universally endorsed by the people in this city called upon to endorse things — and Adachi's blunter and less labor-friendly rival pension proposal. Wading through the politics and sussing out the differences in the competing measures would be a commitment for voters even if they weren't, in effect, deciding a proxy battle between two mayoral candidates: Adachi and Mayor Ed Lee. Both were late entrants to the fray. And both can, if they wish, harness contributions to their ballot measures to indirectly advance their mayoral ambitions (unlike contributions to candidates, there's no limit on how much an individual donor can pour into a ballot race).

Apart from the mayoral drama, and no matter what the forest-destroying piles of forthcoming political mailers claim, the crux of both plans is the same: Current workers must contribute more toward their pensions so the city can contribute less, preventing scores of millions of dollars a year from being sucked away from running the city and poured into pensions. But based upon decades of case law, this is a tenuous proposition. So just how the competing measures go about inducing workers to pay up is vital — a billion-dollar plan won't save a dime if a judge tosses it.

The city plan proposes an intricate pas des deux with legal precedents, hoping to simultaneously evade litigation while buttressing itself against attacks. Adachi's plan offers no such subtleties. It gives short shrift to established legal sentiments that you can't simply demand higher contribution rates from workers — and simply demands higher contribution rates from workers. Old precedents, Adachi notes, are old. "We need to look at what's happening around the country and what the California Supreme Court will do now," he says. "This is an issue that needs to be litigated."

Whether San Francisco and other cities can wrest more from the current workforce is "your million-dollar question," says University of Minnesota law professor and pension expert Amy Monahan. "In California, it's a multibillion-dollar question." The measures' backers, to varying degrees, are gambling. Each is making a billion-dollar bet that they can sidestep or smash legal challenges, alleviate San Francisco's crushing pension obligations — and maybe, just maybe, reap the political benefits.

Counterintuitively, Adachi claims he's been quietly negotiating with labor even into late August in hopes of striking a pension compromise. Regardless, city voters are in for a gamble as well. Barring a political miracle, they'll choose one plan or the other — or, burying their heads deep in the sand, reject both. Faced with dueling pension proposals that both promise near-certain litigation — and the even likelier specter of depleted city services and free-falling bond ratings by maintaining the status quo — voters may recall a famed fictional San Franciscan's bitter query: Do I feel lucky?


The city pension plan, crafted by cavalcades of wonks, bean counters, and labor officials over several months and run through the legal wringer by a platoon of lawyers from the City Attorney's office, is nearly 300 pages long. Near-identical, pages-long legal proscriptions and references to various subsets of the city charter are restated, recapitulated, and repeated ad nauseam. It is impenetrable to a degree that rivals Finnegans Wake. Adachi's plan, meanwhile, weighs in at a dozen pages. It could fit in your back pocket — a necessity for a measure toted by paid signature-gatherers.

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16 comments
Alferdonito4
Alferdonito4

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Barbra Barr
Barbra Barr

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Guest
Guest

The City Family Plan is so corrupt it is a joke, what we have are people nearing retirement who are not willing to give up anything, and expecting to walk away with the golden parachute and leave the tab on newer employees. I really hope the voters can be more responsible in this election because the budget crisis caused by these incredible pensions is going to explode at some point, and then they will all lose. But the greedy people at the top just can't see that happening...

BTW - I would love to see an investigative article chronicle the past 20 years of City personnel costs, compare the number of employees, the benefits and pension changes they have received. In particular I would like to see how police/fire have been able to gain insane increases to the point that we are paying double here in SF to what NYC, and all other major cities in the US pay for police/fire. Does any journalist have the guts to take on that story?

Outland10
Outland10

Great story (and illustrations)! The relative size of the two measures tells a lot--one is stuffed in typical City Family style-- to put off the reader from unpleasant details like the Police and Fire deals. A lot of City workers would be happy to keep their jobs and pensions and contribute. The managers and Unions, who feed off the City workers, just want to hang on at everyone else's expense. SF needs someone who looks hard at the numbers and has integrity. Go, Jeff!

Coffee a
Coffee a

nice of you to refer to the mayor as 'elfin'; and that reference to Kurt Cobain is seriously dated, but I guess Amy Winehouse is too soon?

Pointmade
Pointmade

Which is it 'politics makes strange bedfellows' or 'it's complicated' In truth, it depends on who will say what they mean and do what they say.

Joe
Joe

Jeff Adachi and all the other talking heads could make this easier than it has to be. Move current workers into 401(K) plans and then taxpayers and public workers would be happy. But they can't because the City would still be on the hook for all the CURRENT retirees. So they can't have workers putting their own money into their own private accounts, no they need that money going to fund the pension for current retirees. City workers know there wont be a pension in 30 years when they try to retire and think it's a shame to have to pay money into a fund that you have no control over and then in 30 years there's the "Gotcha" moment. Gotcha! the pension is bankrupt and you have no retirement....

RBOrbust
RBOrbust

Sorry- this is just awful journalism from the usualy sharp Eskenazi.

No one has written more about how historically wrong the Controller's estimates have been regarding employee benefit changes on the ballot. (Anyone remember that "cost-neutral" DROP program?) And here Eskenazi just cites the Controller's figures as if they're gospel WITH NO CAVEATS. No journalist even bothers to disclose the direct financial conflict the folks in the Controller's office have in this matter-paying more out-of-pocket under Adachi's plan.

Instead we get the all the requisite quotes from the City officials who got us into this mess.

The Controller's assumptions for the comparitive savings between the two ballot measures (Prop C and Prop D) are grossly negligent with the clear intent of narrowing the generated savings gap between the two measures.

How about some journalism?

Joe Eskenazi
Joe Eskenazi

RB --

Thanks for the compliment in there.

The 10-year numbers generated by Adachi's camp are almost exactly the same as those put forth by the Controller. What's more, Adachi is happy to cite the controller's numbers.

Unlike the designations of cost-neutrality RB is referencing, the 10-year projections are meant to simply show how each plan would perform in an admittedly contrived set of circumstances. This story takes pains to note that the promises of savings are "estimates" derived from what is essentially financial modeling.

Conspiracy theory-mongering about how City Hall officials would have to pay more under the Adachi plan and therefore must be involved in a plot to sink it is awful commenting from the usually sharp RBorBust.

Best,

Joe Eskenazi

RBOrbust
RBOrbust

Joe-

You are not correct. Trust me - I think you're the best local reporter on this topic but you fell short here imo.

Adachi being "happy" to cite the Controller's numbers is simply not true. What other option does he have? Could he generate different numbers internally with the same patina reporters seem to grant automatically to the Controller as you have done with this piece.

What's interesting is that you've done a really good job of reporting on questionable Controller Statement practices after the fact, but here before the fact we don't see the same scrutiny or skepticism

Also interesting that you don't find the financial conflict material in light of the many historical Controller Statements that erred to the benefit of employees. You're working on a project that one way or another is going to cost you $10,000- seems material, "conspiracy theory mongering" talking point aside. That doesn't necessarily mean Controller should not write the Statement (though independent analysis from CPA would be better imo) but it would be more transparent to disclose the conflict, i.e. better governance.

Peace.

RBOrbust
RBOrbust

JE,

There is too much to get into here but don't really disagree in general- but I did want to ask you one question. As you know, the last time the City put a pension reform plan on the ballot (Prop D 2010) the Controller analyzed the cost savings over 25 years. Why then, with Prop C 2011 did the Controller reduce the time frame significantly to 10 years for its cost savings analysis?

http://www.smartvoter.org/2010...

RB

Joe Eskenazi
Joe Eskenazi

RB --

Again, the 10-year numbers generated by Adachi's camp were just about exactly what the Controller put out. There's no argument here, and there's no "grossly negligent" behavior.

Prop. D proponents would have liked a longer window -- the dire city contribution rates projected a decade and change in the future favor Adachi's plan. Your point about the controller's past performance is well-taken, but internal numbers from a campaign aren't sacrosanct either.

Also, there is a big difference between projecting whether a measure will be cost neutral or not and setting up a pair of 10-year fiscal models and running Adachi's plan and the city plan through them. The controller was flat-out wrong about the impact of Prop. H and other measures. In this case, however, this was an exercise based on actuarial projections. If the future doesn't work out that way, the numbers will be different -- but, again, the point here wasn't so much to predict the future, but to measure how the dueling pension measures stack up against each other hypothetically.

In the end, I can only return to the point we made in the story:

Voters are left with an intriguing — and not entirely enviable — decision. The city plan would admittedly save less than Adachi's. But it does so in a conventionally legally defensible manner. It also establishes bonhomie with labor — not a trifling matter with a number of contracts due to be negotiated in the near future, and the ever-present specter of litigation. Adachi's plan, meanwhile, would save the city more — and could serve as the legal bombshell to immolate the state's vested-rights doctrine. But it might blow up in the city's face — both plans were crafted to generate savings in the short-term, which neither will do if it's tied up in court or invalidated. Years-long legal battles would cost the city a fortune — but that expenditure will be dwarfed by the pension dollars the city bleeds while the measures meant to avoid just such a situation are litigated.

Best,

JE

supertamsf
supertamsf

Excellent in-depth article. Good writing from Joe Eskenazi.

JanetteT
JanetteT

It is a total disgrace that benefits to govt workers we can't afford are burned into city charters and state constitutions. What private sector has such protection. What about equal protection under the law in the US constitution?

intelligencer
intelligencer

Great article. But wrong slant on the Health Service Board. The composition of the Board was changed in 2004 to a member-elected majority is because employee health benefits (and the hundreds of millions of dollars used to pay for them) had a long history of being woefully mismanaged by a Board that prior to 2004 had a majority of political appointees. Ask for meeting records and financial records for this Board prior to 2004... there are practically none. No vendor management, no routine financial reporting, no audits, no paper trails, no reliable documentation of Board meetings and so on. But plenty of opportunities for healthcare lobbyists to flow money hard and soft to influence decisions. The current member-majority Board has operated with a much higher level of integrity and fiscal responsibility - monthly budget reports, annual third party audits, vendor performance guarantees with financial penalties, meticulous meeting notes, online audio and video of meetings. The "fox in the henhouse" argument is a red herring. The reorientation of the Board in Prop C is a politico power grab to return this Board to politics as usual, with the usual financial hijinks. Especially in light of the little noted provision in Prop C that will also expand the Board's spending authority over the Health Service Trust Fund. (Currently they are limited to spending only on purchasing, and communicating about, plan benefits.) I shudder to think of all the boondoggles that are likely to result from Health Service money being funneled to politico pet projects.

JanetteT
JanetteT

The current board has an employee majority. They could care less about the private sector taxpayer. You want premium HC for life and dependents paid for by people that will be lucky to get any care from Medicare? F*ck You and the horse your rode in on civil servant scum.

 
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