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Double Drain: Program Pays Cops Pensions While Still on the Force 

Wednesday, Apr 13 2011
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As Summer was being buffeted by lawsuits, he was brought in by the Police Officers Association to help on its DROP. In the early months of 2007, union members met with city officials in an attempt to sell them on instituting the program. But when the city asked to see Summer's analysis, they were brushed off. Some who attended these meetings recall union members vouching for his work, stating that the numbers surely added up, and assuring that this wouldn't be another DROP disaster. City officials claim that they were told "trust us."

No one is claiming the police union didn't believe its claims of cost-neutrality. But "trust us" didn't cut it. The union got around the city by independently placing DROP on the ballot via paid signature-gatherers. By late 2007, Summer did produce an actuarial paper regarding the San Francisco DROP — but not before being sued by yet another pension system.

The Fresno County retirement association claims that for years, Summer contravened three decades of county policy and basic actuarial principles. He pushed costs onto employees that were traditionally shouldered exclusively by the retirement system — and, according to the subsequent lawsuit, failed to inform the retirement board of this step. As a result, the system was compelled to pay back millions to workers — with interest — and claims Summer's creative accounting led to a $99 million discrepancy. In 2009, Fresno accepted a $250,000 settlement — the best it figured it could get, considering the actuary's dicey insurance situation.

Summer, an MIT graduate, laughed out loud when asked whether his troubled background was relevant to his involvement in San Francisco's DROP. "It doesn't make my work in San Francisco a question anybody should care about," he says. "The fact there was a lawsuit doesn't necessarily mean there's anything wrong."

Summer continued to be a sought-after speaker at financial seminars, and obtained public sector work during and after his legal battles. He did so even after the Conference of Consulting Actuaries took the exceedingly rare step of publicly reprimanding him in 2009. (It claims he refused to assist an actuary who discovered a serious error in calculations Summer had made on a plan he formerly administered. The reprimand also notes that Summer was "repeatedly unresponsive" to communications from the Actuarial Board for Counseling and Discipline, which was investigating the case.)

The actuary's 2007 forecast for San Francisco's DROP, incidentally, is far from definitive. It offers scant analysis to back the plan's purported cost-neutrality, instead stating that "cost neutrality is almost impossible to obtain," and "Sometimes, real-world experience does not match actuarial projections." The latter is a statement with which a number of Summer's former clients would be inclined to agree.

Delagnes says he had no idea Summer was being barraged by successful lawsuits for gross negligence in the midst of his work on the city's DROP. But he says the actuary's pattern of bad decisions that led municipalities to bleed millions again and again doesn't mean the same thing will happen here: "Just because he was sued doesn't mean everything he ever did was wrong."


At the very least, it was exceedingly convenient for the Police Officers Association that a supposedly cost-neutral solution for a serious city problem would lead to massive additional payments to its most longstanding members. On the face of it, floating such a plan past the city — the lack of any political opposition made a ballot proposition a slam-dunk — seems to be a spectacularly counterintuitive feat. But it isn't. In fact, it's a textbook example of how government works — that textbook being The Logic of Collective Action by Mancur Olson.

When Olson, an economics professor, wrote his seminal work in 1965, the prevailing theory of group action was that "The larger, more nearly general interest would usually tend to defeat the smaller, narrower special interest." The general good — the will of that largest group of all — was "bound to win." But that's not how things work at City Hall; Olson knew it, and so does the Police Officers Association.

Loosely affiliated movements pushing for "the general interest" are as easy to brush aside as the balding men with ponytails who castigate the powers that be during Board of Supervisors public comment sessions. Small, organized groups with a laserlike focus on providing benefits for their members — and only their members — are the real winners in our democratic system.

Take the Police Officers Association, a small and highly focused group composed of an exclusive membership. The union and its constituents have a tangible rationale to push for goals that directly benefit them. And other, larger entities don't have much of an impetus to push back.

Small groups can beat out larger ones — "even if the vast majority of the population loses out as a result," as Olson put it — because of the nature of concentrated benefits and dispersed costs.

While the union and its membership are greatly enriched by a program like DROP, the bill, when divvied up among the city's taxpayers, is hardly anything to get worked up about. The police union and its members have every reason to protect payouts that could buy them a second home, but it's not worth average folks' time to get caught up in fighting something that is only costing them toothpaste money. Scores of millions of dollars are similarly infinitesimal to the San Francisco Employees' Retirement System. And our elected leaders may be reluctant to initiate a frontal assault on a powerful union over highly dispersed costs that pale in comparison to the city's gaudy budget numbers — especially if the union opts to defend its privilege like a mama bear separated from its cub.

About The Author

Joe Eskenazi

Joe Eskenazi

Bio:
Joe Eskenazi was born in San Francisco, raised in the Bay Area, and attended U.C. Berkeley. He never left. "Your humble narrator" was a staff writer and columnist for SF Weekly from 2007 to 2015. He resides in the Excelsior with his wife, 4.3 miles from his birthplace and 5,474 from hers.

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