Jeff Adachi: Solving city's budget woes

San Francisco's impending $522 million budget deficit may come with a silver lining: it may finally force city leaders and the electorate to make the tough decisions needed to turn things around.

Over the past decade, the cost of city government has increased 58 percent, from $4.2 billion to $6.6 billion, while the city has continued to experience huge budget deficits each year. 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 and bargaining for short-term salary concessions while hoping the economy improves. These temporary fixes ultimately make the problem worse by passing the buck to the next year. But, the good news is that it can be fixed if we take immediate action and make necessary changes.

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 percent, from $175 million in 2005 to $544 million by 2012. With more than 40 percent 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 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. These mandates were passed by voters in better economic times to require specified spending levels for police, libraries, schools and youth programs. However, in an economic recession, these mandates should be suspended or reduced

. Pay raises should be limited during deficit years. Just two years ago, city officials voted to give a 25 percent increase to police officers over four years, at a cost of $64 million, and a 19 percent increase for registered nurses over three years, at a cost of $39 million. This decision may mean there will be fewer police officers and nurses to serve the public in the future. 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 SF Board of Supervisors then reviews the budget and has 60 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, Board of Supervisors and department heads to 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 Board of Supervisors would have the benefit of an objective evaluation before deciding whether to eliminate, continue or increase funding for a given program.

Of course, these fundamental changes won't come easy. Changing the city's budget process requires a Charter amendment 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 San Francisco's public defender.