At the Hi-Dive bar on the Embarcadero, under the Bay Bridge, San Francisco unions celebrated heartily Tuesday night. Proposition B, the measure that would have forced them to make much larger contributions to their pension and benefits costs, suffered a resounding defeat.

As of 10:45 p.m., with 98.5 percent of the votes counted, the tally was 42.5 percent in favor of Prop. B, 57.5 percent against. Just over 160,000 ballots had been cast. 

Giants cap on his head, a beer in his hand as he enjoyed the balmy night on the sidewalk in front of the bar, Sean Connolly, president of the Municipal Attorney's Association of San Francisco was a supremely happy man. Prop. B's failure "restores a lot of faith I have in San Francisco voters," Connolly said. He said it had been "refreshing, invigorating" to see many different factions of the city labor unions -- the executives, the attorneys, the police and fire fighters, and the service employees -- work together.

He said the union's victory was sweeter than the Giants' World Series win.

An exultant Nathan Ballard, the former communications chief for Mayor Gavin Newsom who was hired to help the unions defeat Prop. B around Labor Day, predicted that such a definitive loss for Prop. B meant the political death of Jeff Adachi, the city's longtime public defender and a popular progressive figure.

"This could be the end of the line for him. He bet it all on red, and he lost," Ballard said. As far as San Francisco politics are concerned, any candidate "needs a coalition that includes some labor. No part of the labor movement will be ready to forgive Jeff Adachi any time soon."

Not far away, at the Lava Lounge in SOMA, a more sedate crowd of Adachi supporters commiserated on their setback. Adachi chatted in a back room with former Board of Supervisors President Matt Gonzalez, one of the few public figures, except for former Mayor Willie L. Brown Jr., to support Adachi's effort.

Adachi said his campaign raised awareness among San Franciscans about ballooning pension and benefits costs, and he vowed he would be back again with reform proposals if the unions and the city's elected officials do not make good on stated plans to sit down after the election to come up with a solution for the city's financial plight.

"The reality is that every San Franciscan has to face is that we are continuing to go deeper into debt," Adachi said. "Unless (Prop. B's opponents) can come up with a solution."

Adachi said that he had no regrets and felt he had run a good campaign, but that the unions had done a better job of "scaring people" that Prop. B would have taken away union members' health insurance.

For union leaders and the long lst of San Francisco elected officials who banded together to denounce Prop. B, he said, "there comes a responsibility now to address this problem that threatens the future of our city."

San Francisco will face a $500 million budget defecit next year, $70 million to $90 million in additional pension costs and an unfunded retiree health care liability of nearly $5 billion.

"Public defenders, we don't give up," said Adachi. "I'm going to stay on this, make sure the problem is dealt with. Because it is not going to go away.

The fight over Prop. B had been growing increasingly rancorous since Adachi began collecting signatures this spring to place the initiative on the November ballot.

The city’s longtime public defender said he reluctantly took up the cause because he is convinced that San Francisco’s rapidly escalating costs for employee and retiree pensions and benefits will soon bankrupt the city. A Civil Grand Jury report this summer estimated that the city’s pension obligations will grow to $1 billion a year by 2014. The city’s annual budget is about $6.5 billion.

Prop. B aimed to require most city employees to contribute 9 percent of their salaries into the city’s pension fund (many now pay nothing, while 7.5 percent is typical). Police and fire employees would have contributed 10 percent. Most contentiously, Prop. B would also have increased what employees would pay toward the cost of providing health insurance to their dependents. Presently, all San Francisco city employees receive free health coverage; and Kaiser coverage for an employee plus one dependent is $106 a year, and $2,745 a year for an employee plus unlimited dependents.

Under Prop. B, an individual employee would begin paying at least $106 a year for health insurance, and the increased cost for an employee with two dependents would increase by $2,639 a year.

Adachi’s first big backers were venture capital Michael Moritz and Moritz’s wife, Harriet Heyman, who gave Adachi $245,000 to get the campaign rolling. All told, Adachi said he gathered more than 77,000 signatures, easily qualifying his measure for the ballot. San Francisco has about 450,000 registered voters.

The unions reacted harshly to the measure, angered that their wage concessions in recent negotiations with the city were not seen as contributing enough to easing the city’s serious budget woes. In August, throngs of union members, some with young children in tow, demonstrated noisily in front of Moritz and Heyman’s Pacific Heights home as they hosted a fundraiser for the measure.

Eventually, other big donors to Prop. B would include philanthropist and investor Warren Hellman, who donated $50,000 and saw his name placed on Prop. B’s campaign materials. In early October, Hellman had a change of heart and withdrew his support. Hellman, who is also a major funder and chairman of The Bay Citizen board, plays no role in editorial operations.

Other financial backers of Prop. B included Google CEO Eric Schmidt, Angel investor Ron Conway, San Francisco resident David Crane (who serves as special economic advisor to California Gov. Arnold Schwarzenegger) and Basic American Food chairman George Hume. The measure’s most notable political supporters were former Board of Supervisors President Matt Gonzalez and former Mayor Willie L. Brown Jr., who shocked his longtime labor-union allies when he co-hosted a Prop. B fundraiser in September.

Meanwhile, nearly all the elected officialdom of San Francisco opposed the measure. Mayor Gavin Newsom, in a late-August visit to The Bay Citizen newsroom, said that ballot measures he promoted in 2008 and June 2010 already addressed the city’s pension problem, and that, if Prop. B passed, the city would need to grant wage increases going forward to remain a competitive employer.  Myriad supervisors and other elected officials showed their support of the city unions at a steady stream of No on B rallies at city-owned hospitals, schools and other sites. And in mid-October, Catherine Dodd, the director of the city’s huge Health Service System, which oversees the health plans offered to tens of thousands of workers, retirees and dependants, made a surprise appearance as a private citizen at a public Prop. B debate in Diamond Heights (her own neighborhood) and denounced the plan.

The unions poured more than $1 million into their effort to squash Prop. B. The individual unions kicking in the largest donations included the generally well-paid fire fighters, police and municipal executives. The service employees’ union, which represents a large number of city employees who typically make less than members of the aforementioned unions, also contributed about $300,000. 

Bob Muscat, chairman of the public employee committee of the San Francisco Labor Council (the local affiliate of the AFL-CIO) said Tuesday morning that if the unions succeed in defeating Prop. B, they would honor an earlier promise to begin negotiating with the city “as soon as possible” to “resolve the long-term financial problems facing the city. We are well aware of the problems, like the long-term liability of retiree health care” facing the city.

In the summer, a union attorney had vowed in a San Francisco Superior Court hearing that sought to have Prop. B thrown off the ballot that the unions would file suit to challenge the law should it be approved on November 2. On Tuesday morning, Muscat said that now “there is no set plan to file suit if we lose. All our plans are about winning, not losing.”

Win or lose, Adachi has earned the lasting enmity of the city’s unions. He has “burned a lot of bridges, hurt a lot of feelings,” said Thomas O’Connor, head of the union of the city’s fire fighters. “He went around and vilified working men and women…very shameful. Locking us up in the public stockade and humiliated us because we have a paycheck.”