| Solving San Francisco’s Budget Problems
By Jeff Adachi, SF Public Defender Dec 22, 2009
How would you act if you knew that your household spending was projected to outpace your earnings? You would cut back on vacation plans, dining out, and other unaffordable spending. You would figure out what you could and could not live with, and make the necessary adjustments.
Unfortunately, San Francisco’s city government has not done this. For the tenth consecutive year, the city faces a growing budget deficit. Next year’s deficit is projected to be $522 million. In addition, a $53 million dollar shortfall is expected in the current fiscal year. But this is not because there isn’t enough money to cover essential services. It’s because the political will hasn’t existed to make the tough decisions that would bring our city’s budgetary spending into line.
Over the past ten years, the cost of city government has increased 58% from $4.2 billion to $6.6 billion. The cause, according to the controller, is that “citywide costs have continued to climb, in large part due to escalating salary and benefit costs related to labor agreement provisions, new mandates and capital funding.” Put another way, the city is paying for salaries, pension plans and mandated spending levels that it simply can’t afford.
Like the state legislature in Sacramento, San Francisco has tried to triage each year’s budget deficit, delaying important capital projects, bargaining for short-term salary concessions while hoping that the economy improves. But these temporary fixes ultimately make the problem worse by passing the buck to the next year.
But the good news is that this dire situation can be reversed if immediate changes are made.
The city’s pension system must be re-designed to ensure that it is able to meet the needs of retirees without bankrupting the city. According to findings reported by the civil grand jury, the City's cost to its retiree pension system will grow 310% from $175 million in 2005 to $544 million by 2012. With over 40% of active employees who are eligible for retirement, this will create a huge cash flow problem and add to future years’ deficits. Without sufficient funding to pay the city’s pension liability, the system will eventually go broke.
Abuses to the system, such as “pension spiking,” where employees are allowed to artificially increase their pension before retiring, must be stopped. The grand jury estimated that this practice has cost the city $132 million, citing an example of one employee who was allowed to raise his annual pension by $25,500 after being promoted to a higher paid position in his last year of service.
It is also time to evaluate mandatory spending set-asides that require the city to spend certain amounts regardless of the city’s financial standing. Currently, 60 percent of San Francisco’s general fund budget is spent through mandated spending formulas. However, in an economic recession, all mandates, except those established to protect extremely vulnerable populations, should be suspended or reduced.
Pay raises should be limited during deficit years. Just two years ago, city officials voted to give a 25% increase to police officers over four years at a cost of $64 million and a 19% increase for registered nurses over three years at a cost of $39 million. In order to pay these increases, between 300 to 400 employees, including police officers and nurses, would have to be laid off.
But even if these changes are made, the budget process itself needs to be reformed in order to ensure better long-term planning.
Currently, the city’s budget process requires that the mayor submit an annual budget by June of each year. The board of supervisors then reviews the budget and has sixty days to study, gather information, hold constituent meetings and make revisions.
As a department head, I have witnessed the inefficiency of the current process. Although each department is required to submit a proposed budget, the mayor’s office, has, in recent years, simply imposed across the board cuts on city departments in order to address budget deficits. This approach does not allow for strategic long-term planning and fails to protect the fiscal health of core government operations.
When cuts are imposed, decisions to restore programs fall to the board of supervisors. Their decisions are made under extreme time pressures, with department heads and constituents flooding their offices to advocate for funding. The board then tries to find additional cuts so it can meet the demands of each supervisor’s constituencies.
The budget process needs a neutral, professional budget officer who is accountable for guarding the long-term fiscal health of San Francisco government. This practice, followed in a majority of similar-sized counties, would require the mayor, the board of supervisors and department heads work collaboratively to identify core priorities and create a budget to adequately fund them, while providing taxpayers with an objective evaluation of the performance of the city’s departments and programs.
Having an independent budget office would also provide oversight by discouraging elected officials from making short-term political decisions that may not be in the best interest of the city. Because the budget officer would be appointed, not elected, he or she would not be as constrained by political influences.
The independent budget office could also provide performance-based evaluations of city contractors.
Contractors who failed to achieve their promised outcomes would be required to explain their shortcomings, and the mayor and the board would have the benefit of an objective evaluation before deciding whether to eliminate, continue or increase funding for a given program. Programs would be evaluated based on usage by city residents, and the quality of the service provided. Duplicative or ineffective services would be weeded out, while successful programs would be encouraged and replicated. “Best practices” could be employed to help programs that are worth saving but need corrective action to improve their performance.
Of course, these fundamental changes, like the efforts to redesign our nation’s health system, won’t come easy. Changing the budget process would require an amendment to the City Charter and combining the city’s various budget agencies into a single, independent budget office. But the failure to act will mean more mass lay-offs, a severe decrease in city services and a bankrupt pension system. Only by enacting real, structural reforms to our fiscal process will we get San Francisco’s city government back on the road to a sound and sustainable economic recovery.
Jeff Adachi is the elected Public Defender of San Francisco.
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