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

Wednesday, Aug 31 2011

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.

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.

Not surprisingly, considering its bulk, the city plan focuses on many more facets of city policy than Adachi's. Among them:

It will do away with an only-in-San Francisco treat in which employees who leave after five years but before they're due a significant pension receive back all of the money they paid into the retirement system — plus interest — as well as a 100 percent match from the city.

It will compel existing employees to finally begin contributing a small percentage of their salaries to a fund offsetting their future health care costs. Tens of millions of dollars will be amassed in a decade's time to address a multibillion-dollar problem. It's not much — but it may appease the folks who set the city's bond rating.

About The Author

Joe Eskenazi

Joe Eskenazi

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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