San Diego flirted with bankruptcy. Orange County, still emerging from its mid-'90s cash crisis, moved back toward the brink. And in Fresno County, the grand jury recently declared that public employee retirement costs have that government "facing insurmountable debt in the near future."
Statewide, governments are rattled by the soaring price of public pensions expanded by politicians at the bargaining table and gobbling up an increasing share of taxpayer dollars. But a rare exception has emerged in an unexpected place: San Francisco.
Even as a bulwark of organized labor, the city has kept its pension costs in check while many others are digging deep into their general funds to pay for benefits that taxpayers were assured would cost nothing.
Why is San Francisco different? Politicians there can't give much away; a century-old provision in the City Charter prohibits it. The only group empowered to enhance government benefits is the public, which must sign off on changes in the municipal pension plans at the ballot box.
The provision was unique to San Francisco until last month, when San Diego voters overwhelmingly decided that they too would like a say in such matters. Now the gospel of voter oversight is spreading.
"There is no question that it has been a sobering force for any aggressive or ambitious union seeking to improve benefits," said former San Francisco Mayor Art Agnos. "They know they can't rely on the politicians who are anxious to please them. Any proposal ultimately goes to the voters. They are the ultimate bankers."
The city's officials say the rule has helped save San Francisco from itself in recent years. When other governments kept constituents in the dark about their actuarial assumptions -- such as an unending stock market boom -- as they raised pension benefits in the late 1990s, San Francisco officials had to explain exactly where the money for benefits would come from, and then get voters' permission.
In the last decade, residents there have approved at least four benefit increases -- moderate ones.
"If you need to win a majority of voters, you are more careful what you ask for," said Claire Murphy, executive director of the city's retirement fund.
The only proposal voters rejected in that period was a 1996 initiative championed by former Mayor Willie Brown to give him the authority to cut deals with public employee unions on his own -- without having to go to the ballot.
Not everyone is a fan of San Francisco's policy.
"Our preference would be to amend the charter so we wouldn't have to have voters involved," said Maria Guillen, regional vice president of Service Employees International Union Local 790 in San Francisco.
Guillen said that, although the public may be sympathetic to police officers and firefighters, getting voters to sign off on retirement benefits for other government workers is another matter. People aren't as eager to rush to the polls to support street sweepers and custodians, she said, and their benefits are falling far behind.
"We don't have the same public relations," she said. "We have a harder route. And these are the workers that do so much to make the city run."
Many pension fund managers also are skeptical.
"I don't think employee compensation issues should be subjected to the politics inevitably injected into any debate that includes a vote of the people," said Keith Brainard, research director for the National Assn. of State Retirement Administrators, "just as you wouldn't want people voting on how much water should be let out of a dam, or what neighborhoods police should patrol at night."
But he also acknowledged that the San Francisco model "looks like it's working."
The city's fund is on target to have more than enough money to pay all of the cash retirement benefits promised to its employees. Orange County and San Diego are short about 30%. That translates into billions of dollars, and residents could be forced to make it up by sacrificing services or enduring tax hikes. Scores of other local government funds also are struggling.
And the state's giant public employee pension plans are short tens of billions of dollars, despite impressive returns for pension funds from the stock market, real estate, venture capital and hedge fund investments in recent years.
Many experts blame politics. Elected officials, they say, want to reward government employees -- and endear themselves to the politically powerful unions behind them -- but don't want to confront taxpayers about the true cost of increasing benefits.
So they mask the price tag with overly optimistic investment projections and other maneuvers. It isn't until years later, when the higher benefits kick in or the stock market dips, that voters get the picture.
"No one is minding the store," said J. Fred Giertz, a professor of economics at the University of Illinois at Urbana-Champaign. "Politicians give out the benefit increases to keep the employees happy, and they also keep taxpayers happy because they can do it without raising taxes at that moment. But the burden gets passed on to the future."
Brainard, of the retirement administrators group, says the solution to runaway pension costs is not bringing every contract to the ballot, but bringing more transparency and oversight to the bargaining process.
He points to Georgia, which has strict rules in place to ensure that politicians cannot increase benefits without having the funds to cover the cost. Georgia is one of the few states not facing a large shortfall in its pension funds.
But in San Diego, where lack of disclosure about a multibillion-dollar tab for enhanced public pension benefits led to federal sanctions for securities fraud, voters decided that they wanted to go a step further. Last month, nearly 70% of them cast ballots in favor of putting the San Francisco model in place in their city. All future benefit increases must go through them.
Unions bitterly fought the proposal, saying it would cripple the city's ability to attract quality police officers and firefighters.
"San Diego already has one of the lowest ratios of police officers and firefighters per population in the state," said the ballot argument opposing the measure. "Proposition B will only make that problem worse."
Former San Francisco Mayor Agnos calls such arguments "purely special-interest rhetoric." He said his city has had no problem attracting job applicants.
Now activists hope Orange County will follow suit. One is George Passantino, a senior fellow at the libertarian Reason Foundation.
Passantino sees the irony of looking for solutions in the liberal city that activists such as him love to hate. But there is no denying it, he said: "San Francisco is way ahead of the curve."
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Public pension funding
Most of California's large public retirement funds lack enough money to cover benefits promised to government workers. But San Francisco's fund has a surplus.
*--* Retirement plan Surplus/ Percent Value of shortfall funded assets (in billions) (in billions) San Francisco +$0.42 103.8% $11.3 City of San Diego -1.4 68.0 3.6 City of Los Angeles -2.1 77.2 7.2 Orange County -2.3 71.5 5.8 Los Angeles County -5.6 82.8 27.0 California State Teachers -20.3 87.0 157.0
Sources: National Assn. of State Retirement Administrators, Los Angeles City Employees Retirement System, Orange County Employees Retirement System, San Diego City Employees Retirement System.