Newsom: I'm Already Reforming Pensions, My Way
City officials dismiss concerns raised in 'Pension Tsunami' report
In June, the San Francisco civil grand jury released a report about the city’s mounting pension obligations. Entitled “Pension Tsunami,” it warned that San Francisco’s pension obligations could grow to $1 billion by 2014. The city’s annual budget is about $6.5 billion. The city already must pay 13.5 percent of each employee's salary into the pension fund to cover the pension fund’s yearly shortfall, and that figure may climb to as much as 30 percent of payroll in four years. If left unchecked, the grand jury report warned, pension and benefit costs could bankrupt San Francisco in the years ahead.
City officials are dismissive of the report, its facts, its findings and its intent — to say the least. Privately, some decry civil grand juries, which spend a year investigating an issue of public concern, as a pointless sideshow whose recommendations are traditionally ignored. Asking a public official about a civil grand jury’s findings, one senses, is somewhat akin to asking what he or she plans to do about the imminent end of the world, based on the ravings of a lunatic on a downtown street corner.
“The report is so flawed, it is comical,” Mayor Gavin Newsom said Wednesday as he paid a visit to The Bay Citizen’s newsroom. The report “means nothing at City Hall,” Newsom said, since he and his staff have been working on pension and benefits issues for years, and have achieved what he says are significant steps to reduce future obligations. “We don’t need a grand jury to shock us” to action, he said.
“We did pension reform,” Newsom said, citing the June passage of Proposition D, which significantly reduces pension liabilities going forward because it requires increased pension-fund contributions for new city employees, and seeks to reduce pension “spiking” by basing pension payouts on a worker’s average compensation over the last two years of employment, rather than the final year, when a big push in overtime can lead to greatly enhanced pension benefits.
Furthermore, Newsom said that recent wage concessions from most of the city's public-employee unions have saved the city nearly $240 million. “Our labor unions in the city have recognized” that the pensions and benefits offered in the past are placing the city in a budget vise, he said. The union leaders “took a lot of heat to agree to these pension packages. They should be recognized and supported” for that.
Newsom said he was accosted at a North Beach restaurant Tuesday night by a man enraged about what he perceived as too-rich public pensions.
Public-pension obligations have become a hot-button issue across the country. Northwestern University professor Joshua Rauh presented a study last week that found state governments alone face $3 trillion in unfunded pension liabilities. The civil grand jury’s report reflects wide public fears that the pension obligations taxpayers are legally required to honor will cripple governments in coming years.
Newsom and several other city officials were required to officially respond to the civil grand jury report this week. The city filed four official responses with the Superior Court, from City Attorney Dennis Herrera, Mayor Newsom, the Department of Human Resources and a consolidated response from City Controller Ben Rosenfield, San Francisco Employee Retirement System director Gary Amelio and fire Chief Joanne Hayes-White.
In general, their response was that the pension fund is in fine shape, that pension benefits for city workers are not as rich as those enjoyed by employees of many other California cities, and it may well be impossible to adjust already-promised pension packages anyway.
Uniformly dismissed by City Hall was the grand jury’s allegation that the city had failed to enforce provisions of 2002’s Proposition H, which increased firefighter and police pensions, but which was supposed to result in minimal cost to the city, since the pension fund was then operating at a surplus. Once the pension fund began running at a deficit, as it has ever year since 2004, Prop. H was to have forced the city and the unions to “meet and confer” annually to share costs.
Though SFERS is currently 97 percent funded, Craig Weber, the certified public accountant who chaired the grand jury's pension committee, cites a 2010 actuarial report prepared for SFERS that forecasts that its funding ratio may fall to just 60 percent in a few years.
Weber says that Prop. D has no effect on near-term obligations, since it only applies to new hires. Furthermore, he warns that SFERS has calculated an economic recovery into its assumptions, and it is far from certain that a broad recovery is at hand. A less robust recovery than that forecast by SFERS would cause the city’s required contribution to the pension fund to spike even higher than the forecast 30 percent, which “could result in very deep cuts in basic city services and possible downgrading of the City’s bond ratings,” Weber wrote in an e-mail.
Moody's Investors Service already has a "negative" outlook on its rating of San Francisco's creditworthiness, which means "we think it greater than a 50-50 chance that within the next two years, we will lower city's rating. It's that simple," explains San Francisco-based senior vice president Eric Hoffmann. Such a change would increase the city's borrowing costs. "Unless something significant changes — the economy, voters approve [new taxes] or the city negotiates greater concessions from labor — which seems unlikely, the rating is likely to be reduced."
City Supervisor Sean Elsbernd, who serves on the seven-person pension board and who initially helped to spearhead Prop. D, says that the truth of the city’s pension situation lies somewhere in between the city’s response, which tends to downplay things, and the civil grand jury’s position, which was perhaps overly alarmist in its use of the word “tsunami.” Elsbernd, who had asked the city for years about Prop. H compliance, says he is now satisfied that the city “has complied generally” with its provisions.
Herrera, however, did write that the Department of Human Resources should “improve its implementation” in requiring police and fire workers to share more of the costs of their increased pensions, and that the process should be made more transparent to the public.
Others who served on the grand jury feel that the city is starting to come to terms with the depth of the pension liability issue.
Abraham Simmons is an assistant U.S. attorney who was a grand juror for two years. He is also running for the Board of Supervisors from the district now represented by Michela Alioto-Pier. Simmons says he was encouraged that the city seemed to indicate in the letter signed by Controller Ben Rosenfield that more active efforts to reduce liabilities are necessary. “Under any reasonable economic scenario employer pension contribution rates are expected to increase significantly,” the letter notes. “City leadership will consider how to manage retirement costs and benefits, and … may make proposals regarding retirement benefits within the current system.”
Ronsenfield’s letter also touches on the notion that what constitutes a fair or unfair pension package is not ultimately up to the city: “It is important to note that the question of what is ‘fair’ … is for the voters to determine.”
City Attorney Herrera notes in his response that the broader financial issues raised in the grand-jury report may be addressed by officials privately. “The Civil Grand Jury touches upon serious policy questions about whether the City needs to take other actions to ensure the long-term viability of its Retirement and Health Systems and protect its General Fund,” Herrera wrote. “We are prepared to provide legal advice to the City policy-makers should they wish to examine such actions. “
Simmons says that he fully expects his support of Prop. B, the controversial pension and benefits initiative promoted by Public Defender Jeff Adachi, to doom Simmons’ bid to join the Board of Supervisors. (Prop. B, which would require greatly increased pension and health care contributions from current city employees, is on the November ballot, but city unions have filed suit in an effort to remove it.) “Something has to happen” to reduce the city’s pension obligations, Simmons said. “We cannot keep on the current path. The city will be bankrupt.” While not perfect, Prop. B “is one thing we can do,” he said.
Left somewhat forgotten amid all this debate are the actual pensioners, for whom all this hubbub is likely quite distressing. Newsom is pained by what he sees as a widespread misconception that hordes of retired government workers — including his father, a retired judge — are raking in six-figure pensions. (Nearly 2,400 city retirees, however, do receive more than $75,000 a year.) He made a plea for his father and retired public servants in general to get “a little respect” from the public.
The Commish
It's amusing that Newsom found the grand jury report "so flawed, it is comical" because in reality the City's response to the report has been so flawed, it's comical.
The City's response claimed that the cost sharing requirement of Prop H was not even triggered until 2004, but that wage concessions implemented previously in 2003 were the cost sharing. The City can't point to any contributions earmarked as cost sharing. Instead, the City points to a basket of supposed wage concessions that were made for other reasons and claims somewhere in there are the cost sharing contributions for pensions under Prop H. City officials aren't pointing to any contemporaneous actions that show compliance with Prop H, and are instead looking back in time and trying to re-write history. And the City Attorney's response admits that yearly meet and confers to implement cost sharing did not happen. Instead, his office has now interpreted Prop H (apparently after the fact) to allow multi-year agreements to circumvent that requirement.
On the bigger issue, Newsom has shown no leadership on pension reform. His premise that he is reforming pensions his own way is a joke. Newsom is trying to get to Sacramento and will leave the residents of the City holding the bag of unfunded pension liabilities. It's frankly sad that our public defender had to step up and show leadership by advocating pension reform because Newsom and our elected leaders think they represent labor, not the citizens who live here.
Seej Cane
“We did pension reform,” Newsom said, citing the June passage of Proposition D, which significantly reduces pension liabilities going forward because it requires increased pension-fund contributions for new city employees..."
Why do we have to keep reading this drivel from Newsom?? Prop D doesn't significantly generate pension savings for TWENTY YEARS and pension costs are exploding by an additional $500 million over the next five years. Prop D does NOTHING for the problem at hand but we have all these journalists who will just parrot misleading quotes from our cowardly politicians. Can someone, anyone just print that Prop D is for NEW public safety hires only (and insignificant # of Calpers employees)...
The City is NOT in compliance with Prop H. Both DHR and CA memos admit that the City HAS NOT met every year to reduce police and fie pension costs via increased employee pension contributions as required by Prop H.
Thank goodness someone like Abraham Simmmons has the guts to support REAL PENSION REFORM in Prop B (November) unlike the rest of the cowards on the BOS and the Mayor who are in bed with organized labor.
Mr. G
Once again the Mayor waters down the problems, until he can get out of town to something else...
Let's remember what got us into this mess, items like ballot measures that increased pay, benefits, pensions, etc. And all the while the Mayor and BOS never told the public how expensive these would be. This was fraud in my book, the voters depended on the politicians (shame on us) that we could afford all of this, even though it was far too generous...
Of course the Mayor, in many speeches, has blamed the voters for passing these same measures that tie his hands during the budget crisis, proving either he, and others, are grossly incompetent or fraudulent. And quite frankly, with the amount of fraud we read about nowadays by government employees I believe it is the later. The public has no trust in anything that is said at this point.
Jamie Whitaker
Newsom believes "We did pension reform?" Yes, for the young people who start working for the City now, but those savings do not help 35-year-old non-profit LGBT health services organizations like New Leaf to keep providing vital City services whennbudget cuts are needed to pay into the pensions and, the BIGGER problem, retiree health insurance ($4 billion of unfunded liabilities and this dolt waves his hands and says everything is alright ... Arggghh!).
Him bringing up existing retirees is bologna too ... Their pensions will not change ... And since they are retired, they won't pay anything into their pensions. Stop spreading lies, Newsom!
For him to say the Grand Jury report means nothing at City Hall is not only incredibly disrespectful to the 19 San Franciscans who volunteered their time to work on it for a year and the City Controller Ben Rosenfeld, whose office provided the numbers Newsom stupidly ignores, but it also indicates that Newom will continue to ignore the financial ramifications of his lack of action going forward .... Even Willie brown admits the problem was created by him and others in the 1990s who refused to listen to the warnings of the number crunchers who are finance professionals.
DO NOT ELECT NEWSOM AGAIN .... NO VOTE FOR LT. GOVERNOR
Jamie Whitaker
Oh yeah ... In District 6, please vote for my friend Jim Meko for Supervisor who gets it and fully supports passing Prop. B to help save our Vital City Services.
Mr. G
Anyone running for office in SF better make your position very clear on pension reform, because it will be the #1 issue moving forward, "whether you like it or not".
voltairesmistress
"'The report “means nothing at City Hall,' Newsom said."
And therein lies the problem with leaving government officials alone to reform existing problems with government.
The mayor dissembles, because he feels he cannot govern without organized labor's support. And because he is a man of great visions, mostly of himself holding public office interminably. To stand up for principle at great political cost to self -- that is not in Gavin Newsom's DNA.
Whether one calls rising public pension costs "a tsunami" or "an approaching volume of water that arouses some concern", the problem lurks just off the horizon. Credible financial analysts say so. We cannot allow Mayor Newsom and friends to allay our fears. We must take charge of this issue. Prop B is a good start.
voltairesmistress
In case I spoke too broadly, I would like to amend my criticism of Mayor Newsom. He has stood up for principle on occasion, and then much later paid dearly for it.
One need only recall his efforts to bring about marriage equality in San Francisco: In his euphoria he imprudently said the fateful words -- "It's coming, whether you like it or not," -- a phrase the Prop 8 forces used to pillory him and to help ship us all back to the bad old days. That image and words haunted his gubernatorial campaign.
But in that case, Newsom stood up for principle in a locality where the majority of residents, union leaders, and his frequent "progressive" antagonists supported gay marriage. So there was no immediate political cost to him. Instead, that cost became apparent only later.
My disappointment with Mayor Newsom stems from his devotion to keep political office, no matter the burden to the rest of us. There are times and issues on which a politician must take great risks, possibly lose an election in the short term, and try to come back later. Going against public employees unions to enact true pension reform is one of those issues, and this is the time to do so.
Mr. G
The official responses from the City to the Grand Jury findings are very interesting...
Two things are obvious, it all falls back on the voters who approved various increases, and it will have to be the voters that fix this mess, because all the city employees are "just following the rules" to their own advantage anyways...
The other thing we need is an immediate freeze on all wage rates for all city employees, it is incredible to me how many planned increases there are over the next few years. Every attempt to save money and have employees pay for portions of their pensions and healthcare are always given right back with pay increases. They never actually save a dime, they just play a shell game by moving the money around, just incredible!
Adachi's proposition will be just the first step of many to get things fixed. The elected officials better realize this if they want to be re-elected, although it looks like we need a brand new set of people to start things with a clean slate...
The city employees are betting they can once again fool the voters, but the voters are finally waking up...
Another issue that is never addressed is the 27,000+ employees or is it 36,000+ employees, we just don't need that many people on the payroll...
Jamie Whitaker
Gavin Newsom is just extending the dereliction of fiduciary responsibility with his delusional notions that Rosenfield's numbers are not grim for San Francisco's future.
Kim
Unions have figured out the way to buy all politicians. Not one will stand up to them. This is left to the taxpayer/voter.
The Road to Bankruptcy
Vallejo was terrorized when the Zodiac said he would start killing school children on buses. They had armed Pinkerton guards riding along with the kids to school. The killing on July 4th at Lake Herman, 4 days later a historic church burnt to the ground. Then something historic happened which had only happened once in US history, the police and fire walked out on strike together. The union set up shop in the Casa De Vallejo and in the cocktail lounge they hammered out a deal with the city.
Binding arbitration clause was adopted and approved by terrorized voters.
The Zodiac victims were all linked, a Vallejo police officer was a suspect in the early days.
Binding arbitration which favors the union was the first step in the road to bankruptcy.
Vallejo declared bankruptcy 2 years ago, soon the fire union sued the city in an attempt to block bankruptcy.
In a hard fought fight the voters in Vallejo in June 2010 finally removed binding arbitration to level the playing field. Oddly the city council signed a contract that the city could not pay for a few weeks later, it has since been voided by the bankruptcy judge. A bankrupt city paying firemen and police 250k per year that remain on the job after layoffs.
San Francisco became a charter I think in 1969 right after the Zodiac killing on Washington St.
Your politicians won't save you, the voters will have to. The union spent 300k on its campaign to stop the grassroots campaign to end arbitration, the grassroots spent 12k and won.
Amber Lynn
Mayor Newsom's smug dismissal of the Grand Jury report is similar to a Contra Costa County Supervisor who made statements about Grand Jurors just being some well-meaning retired folk that didn't really understand the pension issue. Well, guess what, just a few years later pension costs soared as a result of the
Supervisor's granting exorbitant increases in pension benefits. Seems that the old retired folks understood more than they were given credit for. Too bad the people in charge didn't bother to listen to them, or the County Treasurer, or the Sheriff, or the County Fire Chief. Taxpayers will be paying for their error for generations. Imagine the exponential damage Newsom can do as Governor!
Dean Clark
We need to act upon the growing concern of pensions for city employees. I am amazed we have an issue of reforming individuals pensions that dont even live in San Francisco.