San Francisco’s Pension Crisis

A day before Halloween, glorious San Francisco weather brought hundreds of participants to “Pet Pride Day” at Golden Gate Park. As drums pounded and electrified folk tunes blared, children and parents, many in costume, paraded before a reviewing stand with their pets: dogs, cats, birds, a prize-winning hawk, chinchillas, rats, snakes, and even a puppy perched on a pony. Between a tent providing low-cost rabies injections and another offering “doggie makeovers” stood Jeff Adachi, the city’s public defender, shaking hands with passersby. As a lone campaign aide waved a bright blue ADACHI FOR MAYOR sign behind him, the candidate, a long shot in a crowded field of 16 mayoral aspirants, asked voters what was on their minds.

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While several mentioned the push to let dogs run off-leash in more city parks—San Francisco supposedly has more dogs than children—others peppered Adachi with questions about bread-and-butter issues. Why was it was so tough to turn a property into condos? Why were the city’s schools so bad? Why were the ranks of the homeless growing? What was the environmental impact of lining parks’ soccer fields with ground-up tires? Why did the police ignore open-air drug dealing in the Tenderloin? Did Adachi support the Central Subway Transit Project extending a branch of the city’s subway to Chinatown—a boondoggle whose cost has spiraled out of control?

What almost no one mentioned, however, was the issue that prompted Adachi to run for mayor in the first place: pension reform. Adachi’s demand that city employees start paying more into their own pensions has not only defined him as a public figure but made him anathema to San Francisco’s political establishment—that is, the mayor, the Board of Supervisors (San Francisco is both a city and a county, so its board serves as city council), and the powerful public-sector unions.

“Pension reform is a tough issue,” Adachi tells me as we travel to the site of his next campaign appearance, a farmer’s market. “Unlike many other campaign issues, it’s hard to explain. It’s not ‘Save the Redwoods.’” Still, Adachi is largely responsible for having turned the issue of pension reform from a conservative talking point into a mainstream cause in liberal San Francisco. He is running as a “pragmatic progressive”—in fact, one of the most liberal candidates in the race. He argues that the underfunded pension obligations undertaken by irresponsible mayors risk not only bankrupting the city but also “crowding out” essential city services upon which middle-class citizens depend.

In San Francisco, a popular vacation destination, signs of that “crowding out” abound. The streets are filled with potholes that the city can’t afford to fix. Though the city earns much of its income from tourism, since 2010 it has imposed stiff fines for parking on the street during holidays, much to the concern of local businesses. For the second summer in a row, San Francisco has been unable to offer summer school to some 10,000 public school students because of a $1 million budget cut in the program. School budget cuts cause particular concern, since the city’s poorly rated school system is often cited as a major cause (along with a stagnant economy and high unemployment) of the flight of middle-class residents with children. Last year, the city’s parks budget was cut in half, while spending on services for seniors and those with AIDS was reduced by 30 percent. San Francisco taxpayers now spend one out of every six tax dollars on city employee benefits, Adachi says.

Though Adachi has been the city’s public defender for nine years, his devotion to pension reform makes him feel like a “consummate outsider.” “I’m the guy in the sci-fi movie who keeps yelling, ‘They’re coming, they’re coming,’” he jokes. But Adachi’s warnings about the city’s precarious finances and the “unsustainable” costs of unfunded pension liabilities have helped change the nature of the debate, analysts say. In late October, Governor Jerry Brown unveiled a 12-point proposal to limit the size of future pension liabilities. And thanks to Adachi, two competing pension-reform proposals will appear on Tuesday’s ballot: the one he drafted, Proposition D, which would save the city $1.7 billion in the next decade, he says; and Proposition C, a compromise measure supported by the current mayor, Ed Lee, the public-employee unions, and the rest of the city establishment. That might save as much as $1.4 billion over the same period, pension experts say.

“Win or lose,” says Corey D. Cook, an associate professor of political science at the University of San Francisco, “as a progressive candidate, Adachi can take credit for helping shift the ground of this debate. Pension reform is now very much in the air.” According to Cook’s latest polling for both the mayoral contest and the dueling pension-reform proposals, the odds seem to favor Lee, the first Chinese-American mayor in the history of a city whose population is about 30 percent Chinese. Widely regarded as a consensus candidate, Lee was appointed by then-mayor Gavin Newsom after he became California’s lieutenant governor ten months ago. Lee promised not to run for a new term, but he changed his mind and (having decided not to accept public money) has raised far more money for his campaign than any of the other candidates.

For this year’s election, San Francisco is inaugurating a complicated voting system that allows voters to rank their top three choices among the candidates. Oakland used this “ranked-choice” or “instant-runoff” system last year and got puzzling results, with the eventual victor, Jean Quan, not receiving the most first-place votes in the initial tally. In a column in the San Francisco Chronicle, kingmaker and former mayor Willie Brown (who, like most of the city’s political establishment, has endorsed Lee) says that the system has “thrown the whole town for a loop.” With 16 candidates “clamoring for attention” in a “town so disconnected,” Brown bets that half of the city’s 450,000 registered voters “give up in frustration.”

By any standard, Adachi, 52, is an unusual candidate. The great-grandson of Japanese immigrants who came to San Francisco in 1890, he was raised in Sacramento, where he attended public school. His parents and grandparents were interned for four years during World War II by the U.S. government at a camp in Arkansas. Given 24 hours to pack and leave their homes, his parents were not bitter, Adachi told me: “They never talked about it until I began asking questions.” That injustice undoubtedly helped shape his determination to defend the poor and vulnerable. In 2002, he ran for public defender—the San Francisco PD is the only elected one in California—against the city’s powerful political machine. Though outspent four to one, he scored an upset victory. But that wasn’t enough for a man who boasts about what the San Francisco Chronicle calls his “masochistic work ethic.” Adachi’s own friends describe him in similar terms: “relentless,” “super-intense,” a “micromanager,” a “dog with a bone.” Adachi lives comfortably, but by San Francisco standards not lavishly, in a $1.5 million house in upscale St. Francis Wood. His wife, Mutsuko, is a stay-at-home mom; their 11-year-old daughter attends private school. Somehow, Adachi found time to write two novels, and he lifts weights at 5 every morning.

Lean and fit, Adachi seems perpetually in motion. His foot never stops tapping as he tells me how pension reform became his cause. His interest began in 2009, when a civil grand jury report concluded that the cost to taxpayers of city-worker pensions would grow from $175 million to $700 million by 2018, crowding out welfare and other services. (That’s not even counting the unfunded pension liability—“bureaucratese for ‘the debt we’ll saddle our children with,’” Adachi says—which currently exceeds $3 billion.) More than a third of San Francisco’s nearly 30,000 city employees earned over $100,000, the report said, but many made little or no contribution toward their pensions.

Adachi succeeded in getting a pension-reform measure on the November 2010 ballot. Opposed furiously by most of the city’s unions, Proposition B went down to defeat, 57 percent to 43 percent. Adachi refused to give up. He revised the measure (weakening some key provisions, pension reformers complain), organized another petition drive, and put his watered-down Prop. D on this year’s ballot. Like the ill-fated Prop. B, the new measure would postpone the impending pension crunch by stopping pension “spiking,” limiting retirement benefits to 75 percent of salaries, and requiring city employees to contribute a greater percentage of their salaries to their pensions. Workers earning less than $50,000 would not be required to pay more than 7.5 percent, while those making over $200,000 could contribute as much as 16 percent in years when the pension fund was earning less than anticipated. Adachi’s plan would also prohibit pensions from topping $140,000 annually. (Former police chief Heather Fong, who retired two years ago at 53, got an annual pension of $264,000.)

To counter Adachi’s new plan, Mayor Lee and his union allies draftedProposition C, which, like Adachi’s plan, would require city employees to contribute 7.5 percent of their salaries to their pensions. And like Proposition D, it would also require them to pay more if the fund was performing poorly—but only up to 13.5 percent of their salaries. Steven Greenhut, an expert on the pension crisis who writes a weekly column in the San Francisco Examiner (and who contributes regularly to City Journal), calls Prop C. a “half-measure . . . designed mainly to take votes from Adachi’s real measure.” To Adachi’s dismay, Lee not only gave the police and firefighters’ unions a 4 percent compensation hike to offset the 3 percent increase in the pension contributions that they would have to make if Prop. C passed; the mayor also cut a deal with those unions to exempt them from Adachi’s Prop. D in case it passed. (Lee declined to be interviewed.) According to figures from the city controller’s office, uniformed police earned average annual wages and benefits last year of $166,607 per officer. Firefighters fared even better, earning an average total compensation of $178,732.

Adding insult to injury, the city’s controller, a Lee ally, skewed what was supposed to be an independent assessment of the rival measures to minimize the expected savings from Adachi’s Prop. D. Greenhut says that the controller used a ten-year timeframe to analyze the projected savings from Prop. D, rather than the customary 25-year timeframe, though the savings would increase dramatically in the later years because the reforms would apply mainly to new hires. It was such shenanigans that prompted Adachi to enter the race for mayor, which he did only hours before the filing deadline in August. “He had no money, no staff, no organization, nothing,” says Ryan Chan, Adachi’s 23-year-old campaign manager, who volunteered to help and wound up managing the fly-by-night operation. Adachi is thick-skinned: accused of being anti-union, a closet Tea Party Republican, and a Republican in progressive’s clothing, he ignores critics and plows ahead.

Still, the pension-reform proposals have thoughtful critics. Max Neiman, senior resident scholar at the Institute for Government Studies at UC Berkeley, recently suggested that the legality of both Propositions C and D would be challenged in court if passed. Both measures, argued Daniel Borenstein, a columnist for the Contra Costa Times, would place a disproportionate burden on the majority of city workers. These rank-and-file employees, he pointed out, would essentially subsidize the much better organized police and firefighters, who have far more lucrative plans and constitute 11,000 of the city’s 34,000 public-service employees. “There’s no reason that general workers, represented by a less-influential union, should have their rates dragged up by the spiraling cost of generous police and firefighter pensions,” Borensteinwrote. As Heather Knight observed in the Chronicle, the average pension for a retiree from the fire department was $108,552; from the police department, $95,016; from all other city agencies, $41,136.

Corey Cook thinks that prospects are poor for Adachi’s measure. “Mayor Lee’s proposition really took the air of the drive for deeper reform,” he says. “And one must ask whether having a consensus among the mayor, the unions, and the Board of Supervisors on the need for some reform isn’t better than the additional savings that Jeff Adachi’s measure would bring.” But Melissa Griffin, a reporter for theSan Francisco Examiner who has covered the mayoral race and the pension contest and anchored three of the mayoral debates, sees little indication that the gravity of the pension crisis has sunk in with city voters. Questions at the debates focused mostly on the shortage of affordable middle-class housing and the flight of middle-income families from San Francisco. “Folks appear to be more worried about their own ability to stay in San Francisco and less about services for the indigent,” Griffin wrote in the Examiner. “The theme this year is ‘Charity Begins at Home.’”

David Crane, a former adviser to Governor Arnold Schwarzenegger who has pressed for pension reform at the state level, thinks that neither Adachi’s nor Lee’s proposition goes far enough. “Neither revision covers existing public-sector workers, just future employees,” he says. Crane thinks that the municipal-pension crisis is far more severe than Americans realize: “Cities are broke; they have no cushion.” And when those cities are forced to make good on their pension promises, “services will cease and people will move. For cities, this is the Number One challenge.”

(Judith Miller is a contributing editor of City Journal, an adjunct fellow at the Manhattan Institute, and a FOX News contributor. This article was first published in City Journal.)

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