Pressures Build to Slash Costs of City Employees

The Bay Citizen, 2/12/11.

By Elizabeth Lesly Stevens

Shortly after the November elections, an unusual band of labor leaders, along with Ben Rosenfield, the city controller, and Sean Elsbernd, the most fiscally conservative city supervisor, met in the posh offices of Warren Hellman, a San Francisco investor and philanthropist, with one goal in mind: Cutting a deal to slash the ballooning public employee costs weighing heavily on the city’s financial crisis.

Hellman (who is the chairman of The Bay Citizen but plays no role in editorial operations) became a hero to the city’s labor unions last year when he disavowed his earlier support for the ballot measure that would have forced city employees to contribute more toward their benefit and pension costs.

A few weeks before the election, two labor leaders, accompanied by Joseph D. Driscoll, an old friend of Hellman’s who is also a fire captain and a member of the city’s pension fund board, persuaded Mr. Hellman that the city’s unions could come up with a better plan to slash the city’s pension and benefits costs, rather than have one foisted upon them.

The ballot measure, Proposition B, which had been promoted by Jeff Adachi, the city’s public defender, lost by a wide margin. And the emboldened unions and the City Hall politicians who had lobbied against it had won the tough task of coming up with an alternative solution.

Three months later, the pressure is building. Deadlines are looming to ready new initiatives for the November ballot. Control of the group — and hosting honors — has been claimed by the new mayor, Edwin M. Lee.

Stakes are high: The city’s annual budget is $6.6 billion, and it anticipates a $380 million deficit in the coming year. Widespread layoffs and continued deep cuts in services may be inevitable.

Source: The Bay Citizen (

But interviews reveal that some members of the group are growing impatient, even exasperated, at the pace of the conversations, and old rivalries and grudges among the different unions and city officials now crowding the table are beginning to become apparent. Meanwhile the city’s pension and health care liabilities continue to grow.

Hellman says that if nothing is done, San Francisco will be bankrupt in five years.

Michael Moritz, a venture capitalist and San Francisco resident who was the most significant backer of Proposition B, does not believe the working group can succeed.

“This group was supposed to have produced a solution months ago,” Moritz said in an e-mail.

If the group can pull it off, however, it would be a notable, perhaps precedent-setting, achievement as governments across the country grapple with many of the same issues.

“This is the public labor movement’s Nixon-to-China moment,” said David Crane, a Proposition B backer who served as Gov. Arnold Schwarzenegger’s special economic adviser and who now lectures on public policy at Stanford University. “They are the ones who should propose and make it all happen.”

Thomas P. O’Connor, president of the San Francisco firefighters union, said, “Everything is on the table, everything. We cannot put our heads in the sand anymore.”

In an interview Thursday afternoon, Hellman said the group must come up with annual savings of $300 million to $400 million. (Proposition B was to have saved the city $120 million.)

“I hate that it comes out of the hide” of city workers, particularly those making modest salaries, Hellman said. “It is going to be really painful.”

The city’s pension and health care costs for active and retired employees total $820 million this year, on top of a city payroll of $2.4 billion, Rosenfield said. Next year, those costs will swell to an estimated $914 million, and may reach $1.4 billion by 2014. A decade ago, the city’s health and benefits costs were just $176 million.

The pressure to hammer out a viable plan is intense. “If we give up, then we are giving up on our city,” said Steve Kawa, the mayor’s chief of staff. “We are not going to give up on San Francisco.”

But more than three months after Proposition B’s defeat, the group is still fact-finding, and has not even set up parameters for the financial savings it is working toward. Hellman was the only one of 11 participants interviewed who would or could articulate what amount of savings needed to be achieved.

The group’s ranks have grown in recent weeks and now include the city attorney, Dennis Herrera; the Board of Supervisors president, David Chiu; and Mayor Lee, among many others.

The issues are complicated. The laundry list of possible pension fixes the group is contemplating, for example, includes such bold measures as essentially capping pension payouts at $100,000 a year, stripping some retirees of their supplemental cost-of-living raises, and greatly increasing the amount that existing employees must contribute to the pension fund.

A list of eight possible reforms was completed at a meeting Wednesday, and it will take the controller’s office several weeks to estimate savings for each idea.

The group has not yet begun to tackle changes to the health care system, which is considerably more complicated than the pension system.

Because any proposal would almost certainly require a measure on the November ballot, crucial deadlines are on the horizon. Within two weeks, the city must meet and confer with its unions to discuss the changes, even though no one yet knows what will actually be proposed.

Over the past three weeks, City Hall moved to dominate the group. Lee asked that participants now come to City Hall instead of meeting in Hellman’s offices as they had been doing.

“Warren Hellman had helped us put the group together,” said Lee, who skipped the meeting last Wednesday and sent aides instead. “I have a very unique opportunity” to finish the job.

In a complicating move Friday, Lee met with Adachi. The public defender has become a political pariah for his Proposition B efforts, but has vowed to introduce another ballot measure addressing the same issues. The unions are adamant that Adachi not be allowed into the working group. But there is widespread fear that competing ballot proposals could create political chaos, and delay any reform.

“Inviting Jeff Adachi to our talks would be like inviting Sarah Palin to speak at the Democratic convention,” said Nathan Ballard, a Democratic strategist who has been involved in the working group since its inception.

Moritz, the venture capitalist, continues to agitate for steep financial reforms. “It puzzles me that they have to engage in fact-finding when the facts are staring them in the face,” he wrote in an e-mail.

Hellman had “promised to swing back in support of Proposition B if he was unable to negotiate a plausible solution prior to election day last year,” Moritz continued.

That didn’t happen, and Hellman has devoted considerable time and support to the working group.

But that might change. Hellman said that “if we don’t get anyplace” in the working group, he will re-join Moritz’s effort.

Such a re-reversal would come as a shock to the labor leaders who now count Hellman as a treasured ally, even presenting him with a personalized antique fire helmet at the first of their meetings as a token of gratitude for his “moral stand,” O’Connor of the firefighters union said.

It is also possible that Supervisor Elsbernd, who has worked on pension issues for years, may eventually support Adachi’s nascent alternate plan if the working group does not produce enough significant changes.

Hellman is sanguine that will not be necessary. “I hope I’m not the only optimist in the city,” he said.

Link to full article: