Illustration by David Plunkert
Many an offbeat film is highlighted by the crafting of a cockamamie plan blessed with the endorsement, "It's so crazy, it just might work!" Leave it to San Francisco to make this notion the basis for establishing public policy.
In 2008, San Francisco found itself unable to properly staff its police force. The solution enshrined by city voters: Allow cops to simultaneously work and be retired — and earn both hefty salaries and pensions at the same time. The effectiveness of this plan is a matter of debate. Its craziness? Less so. "It appears you're paying people twice," former city Controller Ed Harrington notes, "because, in fact, you are."
The Deferred Retirement Option Program (DROP) was sold to the city and its voters as the cure for a police department that was unable to attract new recruits, yet losing cops who took advantage of 90 percent pensions at age 55. The San Francisco Police Officers Association — which pushed DROP onto the ballot via a signature-gathering drive — argued that the city needed to entice the oldest officers to stick around. The means: Offer them a financial windfall. Earning a salary and pension at the same time, commonly known as "double-dipping," contravenes nearly every notion of fiscal common sense — and, not insignificantly, the city charter.
DROP participants, however, use some nuance to get around charter rules regarding double-dipping. While cops draw their pay, their pension payments are socked away in a tax-deferred account with a guaranteed 4 percent return. When they officially retire after up to three years in the program, they receive a lump sum payment — which can easily exceed $300,000. Then regular pension payments commence. For example, one inspector who drew $174,372 in take-home pay in fiscal year 2009-2010 walked away with a lump sum of $265,331 in June after two years in DROP — and then retired on a pension in the vicinity of $130,000 a year.
You'd think this would have been a hard sell, but DROP's backers knew the magic word: "cost-neutral." Not only would the program stave off manpower shortages, argued the police union in its ballot measure, "it will do so without any cost to the taxpayers." Not a single opponent chose to publicly differ with the influential union. Proposition B of February 2008 was, in fact, backed by the majority of the Board of Supervisors, which even referred to institutionalized double-dipping as "good public policy" in a union-funded voter pamphlet statement. DROP breezed to a victory with 65 percent of the vote.
Yet no city analysis was ever undertaken to back up claims of cost-neutrality — since the measure was brought before voters via signature-gathering, the city had no means to do so. "While the initiative states that the program shall be cost-neutral, no cost analysis is to be conducted until April 15, 2011," reads a 2007 letter from Clare Murphy, then-director of the San Francisco Employees' Retirement System, to the Department of Elections.
In fact, unbeknownst to the police union, the actuary it hired was the target of lawsuits by several California government entities for scores of millions of dollars' worth of negligence at the very time he was crunching its numbers and assuring it DROP was, indeed, cost-neutral. Three years — and many millions of dollars — into DROP's existence, the city controller is slated to complete the first cost analysis of the program this week.
No cost analysis is necessary, however, to judge that DROP has been a rip-roaring success for the police who have participated in the program. Those who have already departed DROP have been handed retirement nest eggs exceeding a quarter of a million dollars on top of their forthcoming pension payments. The officers still enrolled are accumulating still tidier sums. It will now be up to the Board of Supervisors to determine whether DROP is working for the city and its residents. Or, perhaps more accurately in this political climate of exploding pension costs and rampant budget shortfalls, the supes will have to decide what it's worth to potentially incense one of the city's most powerful unions.
DROP is a policy encased in amber. It remains preserved, a snapshot in time — while the world around it has changed radically.
When the police union began pushing DROP in 2007, the police department, like many others, was unable to attract new blood. San Francisco cops' salaries were significantly lower than those doled out by neighboring cities — locales offering more sanguine working conditions than for those patrolling, say, Sixth and Market. Departed S.F. cops already earning generous pensions could, with relative ease, land spots in police departments in the Central Valley or elsewhere. And the notion of tossing an additional, unfunded burden onto the city's pension system was neither a political nor practical concern.
The times — they have a-changed. San Francisco has showered police with generous raises: The total compensation for a rank-and-file officer leaped from $92,844 in 2007 to $111,363 this year. Police salaries are now 2 percent over the pay rate for all Bay Area cops; as recently as 2004, they were 12 percent below. San Francisco's finest are due raises in June of this year and January of the next one, which will only push the city's pay rate that much higher than the regional average.
Older officers, meanwhile, are not running off to jobs in other departments — hardly anyone is hiring. And, just after the adoption of DROP, the bottom fell out of the city's pension fund (and everyone else's). Between June 2008 and June 2009, its value dropped from some $15.8 billion to $11.9 billion. Since DROP accounts are guaranteed a 4 percent return, the city has been forced to eat the difference when officers who enrolled during boom times cash out.
To date, the city has handed the 55 cops who left the program $6.9 million in lump sum payments. The 113 officers enrolled as of Jan. 1 have amassed $14.5 million — a total that grows with every month's deposit. Considering that pension payments for 30-year cops will be 90 percent of their final salaries, the city has spent $24 million or more on the wages of officers who are technically "retired" — at a time when police academy classes have been canceled because of budgetary concerns.