Pension reform hot-button issue in SF mayor's race

SAN FRANCISCO – Mayoral candidate Jeff Adachi stands accused of being anti-labor, an enemy of the blue collar and in cahoots with tea party types.

And all this over one of San Francisco's most liberal Democrats.

"I've taken on tough issues that no one else would touch," Adachi says. He's taken on one of the toughest of all: pension reform.

There are dueling pension propositions on Tuesday's ballot. The debate over which is best for San Francisco has become a hot-button issue in the race for mayor of a city where labor unions are the bedrock of the working class.

Proposition C was crafted by Mayor Ed Lee and a broad coalition of political and business leaders, as well as labor unions, and would save the city as much as $1.3 billion over 10 years. Adachi, the city's public defender who is vying for Lee's chair at City Hall next week, collected enough signatures for Proposition D. It could save up to $1.7 billion over the same period.

While there are differences between the competing measures, they share a similar goal: Both would require city workers to contribute a larger portion of their salaries to pay for their golden years.

The San Francisco public pension system carries a liability of some $4 billion over the next decade for its 26,000 current and 28,000 retired employees. Unable to keep up, San Francisco is among several California cities asking voters to help tackle public pensions, now one of the biggest causes of municipal budget shortfalls nationwide.

As they struggle to slash their budgets in the rough economy, cities have been embarrassed by massive public pensions. In San Francisco, former police chief Heather Fong, who retired in 2009 at age 53, gets an annual pension of $264,000. A city nursing supervisor retired with an annual $202,000 for life and a transit operator takes in $105,000 each year.

The state, meanwhile, suffers the second-highest rate of unemployment in the nation.

"San Francisco cannot afford to pay pensions like this without bankrupting the pension system and the city," says Adachi, who has made pension reform the centerpiece of his campaign.

He says San Francisco taxpayers spend one out of every six tax dollars on city employee benefits.

"I entered the race for mayor of San Francisco because the political establishment was failing to address the greatest problem facing the city: the threat to the city's fiscal integrity because of the looming pension crisis."

But the political establishment was forced to address the issue, thus the dueling measures.

City officials crafted Prop. C, which calls for hikes in contributions by public employees making more than $50,000 a year. It's supported by the Chamber of Commerce, was unanimously approved by the city's Board of Supervisors and has the backing of powerful San Franciscans such as U.S. House Minority Leader Nancy Pelosi and U.S. Sen. Dianne Feinstein.

Lee said labor backed Prop. C knowing it could serve as a model for sustaining public pensions.

"We had to come to consensus here very quickly because the cost increases on the pension and health care side was going to hurt the very employees we were negotiating with — and they knew that," Lee said.

Nathan Ballard, a political consultant and the chief strategist behind Prop. C, said Adachi's proposal would not stand up in court because it lacks a mechanism to reduce employee contributions if the pension fund should ever become flush again.

"Prop. D will never achieve one penny of savings for the city because it's flat out illegal," said Ballard, one of Adachi's loudest critics. "He's power hungry and wants to become mayor ... It was an epic miscalculation."

Max Neiman, senior resident scholar at the Institute for Government Studies at U.C. Berkeley, said both measures were respectable attempts to cut public pensions. Both, he said, would likely face a legal challenge.

He said he expects there to be litigation regardless of which of these two passes. "And if both of them pass, there'll be a lot of fun in the courtroom as well."

Both measures on Tuesday's ballot need a majority to pass; the one with the most votes goes into effect.

The dueling propositions achieve much of their savings by limiting cost-of-living adjustments, reducing benefits for new hires and increasing employee contributions.

Proposition C would require city workers to contribute 7.5 percent of their salaries to their pensions, except in years when the retirement fund is performing poorly and contributions could go as high as 13.5 percent. City workers would pay into a health care fund for retirees.

Proposition D also would require most city workers to contribute 7.5 percent, though police and firefighters would contribute 10 percent. Workers earning less than $50,000 would never pay more than 7.5 percent, while those making more than $200,000 could contribute as much as 16 percent in years when the pension fund is earning a low rate of interest.

J.P. Aubrey of the Center for Retirement Research in Boston said both propositions mirror actions that cities and states are already taking. What stands out, he said, is Prop C's plan to float employee contribution levels depending on how well the pension plan is doing.

"I've rarely seen the employee asked to share in the market risk," Aubrey said. "It doesn't sound on first glance unfair, but it's definitely different."

Adachi has been seen as a maverick by some, particularly public policy wonks who back severe pension reforms.

But he's been vilified for bucking the city's powerful labor unions. Slick anti-Prop. D doorknob flyers show a winking Sarah Palin and declare that San Francisco is no tea party town.

"Talk about courage. One of the city's most liberal politicians took on labor over the bedrock issue of pensions," the San Francisco Chronicle said of Adachi. Though the newspaper endorsed one of his opponents for mayor, Board of Supervisors President David Chiu, it named Adachi as another strong contender. "He's been unfairly vilified by much of the city's political establishment for daring to raise the pension problem that others preferred to ignore.