Grand jury cites S.F. pension system abuse San Francisco Grand jury questions police, fire department practices

San Francisco's skyrocketing pension costs are untenable and both unions and politicians are to blame for abusing the system by negotiating extraordinary pension and retirement benefits without considering the unfair burden on future generations, according to a report issued Thursday.

City officials acknowledged that San Francisco has some challenges. But Supervisor Sean Elsbernd, who has worked extensively on the issue, said the civil grand jury report grossly overstates the city's risk. He noted that voters, not politicians, have the ultimate say on the approval of retirement benefits. And because of that, he said, San Francisco is in a far better place than comparable cities and counties, as well as the state of California, over the long term.

The document specifically targets San Francisco's police officers and firefighters for essentially gaming the system through "spiking" - the practice of artificially inflating retirement benefits by increasing their compensation just before retiring, often through temporary promotions. The jury calls the practice "institutionalized and ongoing" in public safety agencies and estimates it cost the city and other employees at least $132 million over a 10-year period ending in 2008. The report said more than half of police and firefighters who have retired since 1998 receive a pension worth more than their highest pay.

Grand Jury member Craig Weber, an accountant, said the city should conduct an independent investigation into spiking and a review of pension benefits at both agencies. But he said the practice is more pronounced at the Fire Department, and credited Police Chief Heather Fong for bringing it under control.

Civil service tests

Firefighters union president John Hanley flatly rejected the jury's findings, saying spiking does not occur in San Francisco because promotions are based on civil service tests.

"People get promoted in their last few years because they become smarter and more experienced later in their careers so they do better on tests," he said. "This is much ado about nothing."

Elsbernd, however, said spiking needs to be addressed, but noted that with more than 50,000 beneficiaries, "a handful of spiking employees is not going to bring down the system."

"Frankly it's a low-hanging fruit that the grand jury is picking on. ... What we do need to deal with is retiree health care costs," he said.

Elsbernd said Proposition B, which creates a health care trust fund and was passed by voters last year, will make a huge difference funding those costs over the next two decades. And in a statement, Mayor Gavin Newsom's office said he is "very concerned" about the city's obligations to its employees and plans to convene "a group of experts to advise him on meaningful pension reform and develop a strategy."

As prior city reports have found, the grand jury determined that the city's pension contribution will probably increase by nearly 300 percent - from $178 million a year to $520 million - over the next three years. The increase is compounded, according to the report, by the fact that 40 percent of the city's employees are now eligible for retirement and another 15 percent will become eligible over the next five years.

Risk to city

If a dramatic increase in the retirement rate occurs, the report said, it would pose a huge risk to the city's cash flow and funding. Already, about half of the city's pension payroll is paid to people who retired in the last decade, the report found.

Elsbernd said San Francisco does have short term challenges over the next few years that could impact other city spending. But over the long term, he said, the picture is far more positive.

Part of the problem, the grand jury members and Elsbernd agreed, is that the city's investment portfolio has sharply declined in value over the past year - 20 percent, according to estimates. But even without the stock market dip, the city has been greatly overstretching itself, the report says. The jury also disputed the argument that public employees should be eligible for more generous benefits because their pay is low compared to the private sector, noting that recent city surveys found San Francisco workers in nearly all jobs paid more in both wages and salaries than other government workers and most private employees.