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Once obscure and perhaps forgotten even by the public officials who lobbied for its passage in 2002, Proposition H is becoming a hot-button issue in city politics.

Prop. H, put on the city ballot in the months after the September 11, 2001 terrorist attacks, greatly increased the pension benefits of the city’s police and firefighters. Prop. H allowed these “safety” workers, who at that time contributed nothing toward their pension plans, to retire at age 55 at 90 percent of their final year’s salary.

The pension-reform initiative promoted by San Francisco Public Defender Jeff Adachi takes issue with what it describes as the city’s failure to properly enforce changes made to the city charter by Prop. H. Additionally, a civil grand jury report on pension issues released in June says that the city’s failure in this regard has created a $276 million unfunded pension liability.

The state of the city's pension and benefits obligations has become a flashpoint issue. Everyone seems to agree that a problem exists, but public officials disagree — quite heatedly — about what must be done.

The city's human resources chief, Micki Callahan, said in an interview last week that amid the ebb and flow of regular contract negotiations, police and fire contributions have been sufficient, and reflect Prop. H's requirements. The unions say that they have already made concessions that have saved the city hundreds of millions of dollars amid its general budget woes. Mayor Gavin Newsom's spokesman says that the city has made strides to get its benefits costs under control, most notably with the passage of Prop. B in 2008, which addressed health contributions, and Prop. D, passed in June, which required increased pension-fund contributions for new city employees. The Adachi measure would require existing city employees to make increased pension-fund contributions.

"San Francisco is one of the few cities in California that has already taken on pension reform, but by working with our public employee unions, not against them," Newsom spokesman Tony Winnicker wrote in an e-mail. "We've already started to bring our future pension obligations down and increased employee pension contributions even as we've negotiated voluntary wage givebacks from nearly every City union ($240 million over the next two years)."

Proposition H was designed to be a generous move to reward cops and firefighters, and was billed as not costing city taxpayers a cent.

The information provided to voters for the 2002 election makes for some interesting reading. Edward Harrington, the city controller from 1991 to 2008, wrote to voters that while the fattened pensions would cost “about $28 million a year for the next 20 years” and about $8 million a year thereafter, the actual expense to the city would be nil, since the city’s retirement fund was then running at a substantial surplus.

“While the cost of this proposal would reduce that surplus,” Harrington continued, “the City nonetheless should not be required to make employer contributions to the Retirement System for at least the next ten years.” The increased pension costs under Prop. H total nearly $206 million as of the current fiscal year, according to the city.

Harrington, who is now the general manager of the Pubic Utilities Commission, is charmingly candid about the situation not turning out as all involved had hoped back in 2002. “It’s all my fault!” he joked. Financially, in 2002, “the world was spinning along at a fabulous clip. At the time we did that, we were probably about 125 percent funded in the retirement system,” he said. Given that, the city was not required to make contributions to the pension fund, and that had been the case for several years leading up to 2002, Harrington recalled. “No one would have expected [the pension fund would lose] $5 billion in a year.”

Harrington was hardly alone in his support for Prop. H in 2002. No one — literally, not a soul — was opposed to the measure.  The “rebuttal” and “opponent” section of the voter pamphlet is blank. Other public officials who submitted statements supporting the measure included Sen. Dianne Feinstein; Rep. Nancy Pelosi; every member of the Board of Supervisors except Matt Gonzalez; future mayor Gavin Newsom; then-Mayor Willie L. Brown Jr.; labor groups; the San Francisco Republican Party; then-City Treasurer Susan Leal; and then-City Assessor-Recorder Doris Ward.

“Because of a multi-billion dollar surplus in our pension fund, there will be no cost to taxpayers for at least ten years, and probably much longer,” said a statement signed by Feinstein, Pelosi, Newsom and other supervisors. “As an added financial protection, Proposition H requires that if the retirement surplus is ever exhausted, the public safety officers would be required to enter into negotiations with the city to pay for the added benefit themselves.”

To further reassure voters that the sweetened police and fire pensions wouldn’t cost them a dime, five members of the seven-member board that oversees the city’s pension fund submitted a paid argument in favor of Prop. H.  “The current surplus in the retirement fund is more than enough,” the board members wrote. “As an added protection, Proposition H requires that public safety employees enter into negotiations to pay for pension upgrades in the unlikely event that the surplus is no longer sufficient.”

The boom times for the pension fund ended soon after Prop. H passed, however. The pension fund has been running at a deficit and requiring contributions from the city since 2004.  It currently has assets of $13 billion (down from a 2007 high of $17.4 billion) and is 97 percent funded, Gary Amelio, the fund’s executive director, said in an interview last week.

On Thursday, Mayor Newsom and Micki Callahan, the city’s human resources director, issued “City Response: Inquiry on Prop. H Obligations.” 

As a result of the city’s labor negotiations with the police and fire unions in the spring of 2003, the Newsom/Callahan document states, the safety union employees began contributing “the maximum employee contribution allowed” under the city charter. Depending on when the employee was hired, the contribution rate was 7 percent or 7.5 percent. Over time, the city argues in its letter, these safety employee contributions have totaled approximately $202 million. Since the boost in pension payouts authorized by Prop. H have cost the city pension fund $207 million, the city argues, the whole thing is a wash.

Left unsaid, however, is the total cost to the pension fund of the safety workers' pensions for that period. The $206 million identified as “Prop H increased costs” are just a portion of the overall bill. The city department of human resources referred questions about this figure to the pension board, which did not respond to a query.

In 2006, the city resumed making contributions to the pension fund on behalf of employees. It had not covered these costs for employees since the early part of the decade, when the payments were suspended due to budget constraints. But in the midst of contract negotiations, the police and fire unions decided to forgo the city’s “pick-up” of members’ pension costs. The city considered that concession to satisfy the Prop. H stipulation that employees share or assume the cost of enhanced pension benefits if the pension fund began running a deficit.

Craig Weber, a member of the civil grand jury that issued the June report faulting the city’s implementation of Prop. H, says that the letter Newsom and Callahan issued Thursday doesn’t really address the concerns in the grand jury report. 

Labor negotiations in 2003 that resulted in police and fire workers making their own pension contributions had nothing to do with the requirement under Prop. H that employees share additional costs if the pension fund begins running a deficit. The pension fund began showing a deficit in the 2004-2005 fiscal year—well after the 2003 contract was signed.

The city has never specifically negotiated with the unions for additional employee contributions as mandated by Prop. H since the pension fund began underperforming, Weber says.

Another factor at play is the probability that no single city official is actually responsible for paying particular attention to how Prop. H and the condition of the pension fund should affect labor negotiations.

“There is no automatic mechanism to enforce it,” says Harrington, the onetime city controller. Enforcing Prop. H would have been a “shared responsibility” among many different city officials, he notes. “The good and bad about city government is that power is intentionally diffused, so there is no king.”