San Francisco County 2008-2009 - California Grand Jury Reports

From the annual report

The consolidated year-end volume. The individual investigations it contains are listed separately below.

📑 Year-End Report

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The full consolidated volume; individual reports are listed below.

Individual reports (4)

July 27, 2009 — Truants Can Be "joyful Learners," Too:*

47 pages 5 findings 6 recommendations

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Findings & Recommendations 5 findings

F1: A non-punitive truancy mediation program under the direction of the District Attorney's office would encourage school attendance and eliminate the need for many SST and SART hearings.

Related Recommendations (1)

R1: Resolve the stakes are high enough and the evidence strong enough to warrant greater involvement by the Board of Supervisors in the fight against truancy.

F2: SFUSD employs talented persons whose interests, for whatever reason(s), do not lie in marshaling the district's resources to ensure that every child gets to school.

Related Recommendations (1)

R2: 1 3(A) 3(B) 3(C) 3(D) 4 Response Board of Supervisors Χ Х Χ Χ Χ Χ Χ

F3: Collection of reliable data and proper distribution of such data is a prerequisite for understanding the true nature and extent of the truancy crisis. SFUSD is not collecting nor distributing to appropriate SFUSD personnel and outside agencies data from which it can be determined the reasons for truancy, the demographic information, the interventions attempted and the outcomes of such interventions. Using aggregate data does not violate student privacy.

Related Recommendations (1)

R3: SFUSD should work with the District Attorney's office or the Chief Probation Officer to establish a non-punitive truancy mediation program.

F4: Parents primarily are responsible to get their kids to school. When parents fail to do so, the school district, with the assistance of other agencies, has the ability and the responsibility to take corrective action. SFUSD is not using the tools available to it and is not providing in a timely fashion to other agencies the information necessary for them to intervene.

Related Recommendations (1)

R4: Direct the Joint City and School District Select Committee to ensure Recommendation Numbers 2 and 3 (above) are implemented. Recommendation 2 1 3(A) 3(B) 3(C) 3(D) 4 Response Board of Supervisors Χ Х Χ Χ Χ Χ Χ Endnotes

F5: Despite the efforts of the Mayor, the District Attorney and the Superintendent of Schools, neither the Board of Supervisors nor the Board of Education have determined which of them will take the lead in creating and implementing a truancy reduction policy. Finding 2 1 3

Related Recommendations (1)

R5: SFPD and SFUSD should increase, not curtail, the number of SROs to serve all middle schools. SRO responsibility should include (1) serving as part of a homeroom team for habitual truants, and (2) having SROs deliver the first written warning for the truant to take home and be signed by a parent or guardian.

Additional Recommendations 1

Not linked to specific findings.

R6: SFUSD should establish attendance award programs in all schools.

July 15, 2009 — Pensions Beyond Our Ability to Pay In reference to the pension scandal in San Diego in recent years, the Pulitzer Prize

30 pages 17 findings 19 recommendations

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Findings & Recommendations 17 findings

F1: Executive Summary ................................................................................................................... 3 1.1. The Pension Crisis .................................................................................................................... 3 1.2. The Retirement Health Benefits Crisis ...................................................................................... 5 1.3. Drop Program .......................................................................................................................... 5 1.4. Data Inconsistencies .............................................................................................................. 6 2. Pension Costs............................................................................................................................ 6 2.1. Findings ................................................................................................................................... 8 2.2. Recommendations ................................................................................................................... 9 2.3. Graphs and Tables .................................................................................................................. 10 3. Data Inconsistencies............................................................................................................ 15 3.1. Findings ................................................................................................................................. 15 3.2. Recommendations ................................................................................................................. 16 4. DROP (Deferred Retirement Option Program)........................................................... 16 4.1. Findings ................................................................................................................................. 17 4.2. Recommendations ................................................................................................................. 17 5. Findings, Recommendations and Required Responses ........................................... 18 6. End Notes ................................................................................................................................ Appendix A. Methodology ........................................................................................................ 21 1. DATA ......................................................................................................................................... 21 2. DATA VALIDITY........................................................................................................................... 21 3. PROCESS .................................................................................................................................... 22 4. DATA ANALYSIS .......................................................................................................................... Appendix B. Glossary .................................................................................................................. APPENDIX C. Cheiron PRESENTATION TO THE RETIREMENT BOARD JAN. 13,2009 ................. Appendix D. CHEIRON ACTUARIAL VALUATION AS OF JULY 1, 2008 ...................................... APPENDIX E. CONTROLLER’S REPORT ON PENSION AND RETIREE HEALTH SUBSIDY ANALYSIS 26 Appendix F. SFERS Letter to Director of Elections ........................................................... Appendix G. Mercer Actuarial Valuation of Health Benefits As Of July 1, 2006 …30 Appendix H. SFERS Pay Rate History Record Layout ….……………………………………..31 PENSIONS, BEYOND OUR ABILITY TO PAY, A REPORT BY THE 2008-2009 SAN FRANCISCO CIVIL GRAND JURY 1. Executive Summary Over the past 8 months the San Francisco Civil Grand Jury (the Jury) investigated the San Francisco Employees’ Retirement System (SFERS), which is responsible for the administration of the City’s defined benefit plans. In particular, the Jury investigated the significant increases in the cost of pensions and health benefits over the past 10 years. 1.1. The Pension Crisis The Controller of the City and County of San Francisco (CCSF) estimated that the $15.8 billion investment portfolio (as of June 30, 2008) has declined in value by approximately 20% for the quarter ended March 31, 2009. The full decline in the investment portfolio will not be disclosed until the fiscal year-end audit report is issued in September, 2009. As recently as January of 2009, the City’s Controller, in a presentation to the Jury, indicated that increasing pension costs were not an issue with respect to the City’s financial problems. The Mayor, Board of Supervisors, contract negotiators and the unions have ignored and not addressed the alarming increases in pension costs over the past 5 years. For the fiscal year 2005-2006, the City’s contribution to the pension fund was approximately $175 million. By fiscal year 2011-2012 the Controller estimates that San Francisco’s pension contribution will be approximately $544 million.4The estimated 200% increase in just 6 years is compounded by the fact that 40% of the active employees are currently eligible for retirement and another 15% will be eligible in the next 5 years. A dramatic increase in the retirement rate for some unforeseen circumstance will present an incredible risk to the City in terms of funding and cash flow. In the past month, the Controller stated to the Jury that the rising pension cost is a serious concern to the financial health of the City. The escalation of pension costs can be attributed to many factors not the least of which being the relationship of public officials and unions who have negotiated extraordinary pension and retirement benefits today, without consideration of the unfair financial burden placed on future generations. Unfortunately, the San Francisco electorate is as guilty as the politicians for approving measures that push out obligations to pay retirement and health benefits into future years. This willingness to accept indebtedness into the future is problematic. Over the past 17 years, the electorate has voted on propositions to increase pension and health benefits for Fire, Police and Miscellaneous workers in excess of $1.5 billion, an outstanding balance as of July 1, 2008.3 Significant time6 has been spent by law enforcement organizations, examining practices that can be used to dramatically increase the employee’s final pension benefits, many of which have PENSIONS, BEYOND OUR ABILITY TO PAY, A REPORT BY THE 2008-2009 SAN FRANCISCO CIVIL GRAND JURY been determined to be abuses. Ultimately the public will bear the cost of these increasing pension benefits, via increases in taxes and loss of vital services. One such practice, in which an individual accrues large numbers of hours of overtime, has been the topic of numerous investigations. In November, 1975, the voters of San Francisco passed Proposition “L” that mandated that overtime pay be excluded from the computation of pension benefits. However, there are other methods used to artificially inflate retirement benefits, thirty of which are described in People’s Advocate Research Report, “30 Ways to Spike your Pension.” Spiking is the common term used for these abusive practices, although during the investigation, a member of the San Francisco’s Police Department referred to one practice as “Chief’s Disease”. Pension spiking occurs when employees artificially inflate their final compensation just before retiring, in order to increase their pension. The Jury found a significant number of individuals whose retirement pay increased dramatically as a result of an unusual (see Appendix A, 4.1.1) salary increase during the last year(s) of service. A Lieutenant was temporarily assigned to a rank of Battalion Chief in his last year of service. As a result, the Lieutenant contributed $1,915 into the pension fund during the final year of employment, which raised his pension amount by $25,500 per year for every year of his retirement. The present value of the incremental pension cost of $25,500 over his life expectancy was estimated to be $296,000.9 A police officer retired after 25 of service years with annual salary of $88,000, was able to retire at a pension of $110,000/year. This pension benefit is 121% higher than it would have been if he retired without a change in rank. A Battalion Chief (Rank H-40) was deemed to have completed 365 consecutive days in a higher rank of Assistant Chief (Rank H-50) and paid a retirement benefit at the rank of Assistant Chief.11 After reviewing the Work History records, the Jury found that he did not perform at the Assistant Chief position for the required 365 days. However, the resulting spike in his retirement benefit created an obligation to fund his pension by approximately $503,000 which will be paid over his life expectancy. The analysis7 of data provided by SFERS indicates that this practice (spiking)19 may be institutionalized and ongoing, within San Francisco’s Safety personnel. Approximately 25% of safety personnel that retired in the last 10 years received an increase of 10% or greater in their last year prior to retirement (Figure 7). For just the 10 year period of 1998 - 2008, the Jury estimates that spiking will cost active members of SFERS and the City at least $132 million. The growth in retirees’ pension benefits continues to escalate each year as a result of retroactive salary increases and COLA adjustments. (Figures 8 and 9) The Jury found that 55% of Firefighters and 60% of the Police who retired since 1998, currently receive a pension check that exceeds their highest annual compensation paid to them at the PENSIONS, BEYOND OUR ABILITY TO PAY, A REPORT BY THE 2008-2009 SAN FRANCISCO CIVIL GRAND JURY time of their retirement. Based on the City’s May, 2009 payroll12 nearly 20% of retired Safety officers are earning a pension of over $100,000. Supporters of government pension benefit increases routinely argue that public employees are underpaid compared to private-sector counterparts, so retirement benefits must be sweetened to compensate. However, recent surveys used by the City’s Department of Human Resources to benchmark compensation disclose that in nearly all job classifications the City pays more in wages and salaries than the other governmental agencies and more than most private-sector employers. The staggering pension and post employment health benefit costs for Police and Firefighter retirees are like having a secondary Police and Fire department – one active member and one retired member. Approximately half of the City’s yearly pension payroll is paid to individuals who retired in the last 10 years. When retiring employees play the ‘spiking game’, they rob the SFERS members’ pension fund of the expected lifetime investment income on their contributions. Spiking is “something-for-nothing” abuse of the system. Since the analysis was limited to Safety personnel, the Jury’s findings cannot be generalized across all participants within the SFERS system, or any other individuals participating in any other City pension system. 1.2. The Retirement Health Benefits Crisis Mercer Consulting (an actuarial firm hired by the City) reported that if the City continued to have an unfunded plan, the projected liability would be approximately $4 billion13. In the actuary’s report, the pension obligation for the COLA adjustments that were approved by the voters in the passage of Proposition B in June 2008, resulted in approximately $750 million future pension obligation.3 1.3. DROP Program The DROP (Deferred Retirement Option Program) enacted in February 2008, addressed the need to retain experienced officers when recruiting new officers is problematic. Currently there are 55 individuals enrolled in the program. If all 55 officers leave DROP after the maximum 3 year period, SFERS will pay a lump sum of over $17 million, or an average of $300,000 dollars per person. DROP was enacted without a determination of cost to the City, cost of administering the program as well as systems necessary run calculations and accounting17, 18. PENSIONS, BEYOND OUR ABILITY TO PAY, A REPORT BY THE 2008-2009 SAN FRANCISCO CIVIL GRAND JURY 1.4. Data Inconsistencies In the course of the investigation the Jury found inconsistencies with the data provided to us by various sources. These inconsistencies in the Jury’s opinion could potentially result in an error in the calculation of pension benefits.

F2: Pension Costs The City provides a Defined-Benefit (DB) Pension Plan, it is administered by SFERS and guarantees all employees participating in the plan a pre-set monthly benefit payment upon retirement. The amount of the benefit is calculated by multiplying a fixed percentage rate by the number of years the employee worked for the city and applying that figure as a percentage of the employee’s highest compensation or some blended rate of the employee’s highest earnings over a 12 month period. Safety employees receive a maximum retirement benefit of 90% of their highest compensation (“a 3% at 55 plan”). For example, a firefighter who began employment at age 25 and retired with 30 years of service credit and his final annual compensation was $100,000, his retirement benefit is $90,000 (30 years * 3% *$100,000) or a monthly benefit of $7,500. Under a DB Plan, the City bears the risk of loss if investment returns are lower than expected, if SFERS is underfunded, if new benefit increases are added to the obligations without funds to support them, or if other actuarial assumptions are overly optimistic. In contrast to a DB Plan is the Defined Contribution (DC) Plan, which is similar to an IRA or 401K Plan. The Defined Contribution Plan does not offer employees any guaranteed level of benefits. The level of benefits the employee receives upon retirement depends on the performance of his/her investment portfolio, as well as the level of contributions. The significant difference between the Defined Benefit Plan and the Defined Contribution Plan is that under the DC Plan the employee bears the risk of his/her investment not the City. The ever increasing pension cost for the 52,164 active and retired members of SFERS is contributing to the City’s fiscal crisis. San Francisco’s present contribution rate to the pension fund is 4.99% of payroll. This contribution rate will increase to 9.49% in fiscal year 2009-10 and under unusual economic conditions may climb to 14.79% in fiscal 2011-12.3 The employee’s rate can remain constant at 7.5%.3 This year the City will contribute approximately $178 million to the pension fund. In the next fiscal year the City will contribute $338 million, an increase of 90%. In just 3 years, the City’s contribution is projected to be approximately $520 million; an increase of 293%.4 The Controllers projection is based in part on the recent actuary’s report which illustrates how the City’s contribution rate will be impacted in a volatile and recessionary economic environment3. PENSIONS, BEYOND OUR ABILITY TO PAY, A REPORT BY THE 2008-2009 SAN FRANCISCO CIVIL GRAND JURY The Controller estimated that the $15.8 billion investment fund (as of June 30, 2008) has declined in value by approximately 20% as of March 31, 2009. The full decline in the investment portfolio will not be disclosed until the fiscal yearend audit report is issued in September, 2009. The investment return combined with the employees’ and the employer’s contribution rates are major factors in the determination of how the pension liability is paid. In January, 2009, the SFERS Board recommended to the City the new employer contribution rate. For fiscal year 2009-10, the City’s contribution rate increased from 4.99% to 9.49%.5 The Retirement Board approved the rate without discussion and presented it to the City for adoption. The City is mandated by charter amendment to accept this new rate. The Jury analyzed the impact of Proposition B passed by voters in June of 2008 which increased the years of service required to qualify for employer-funded retiree health benefits as well as increased retirement benefits, COLA (cost of living allowance) new City employees, certain employees of the School District, the Superior Court and the Community College District and miscellaneous employees to qualify for employer-funded retiree health benefits. In the voter’s pamphlet, the City Controller Edward Harrington indicated that the annual cost to the City will be approximately $84 million for the next 20 years, dropping to an ongoing annual cost of approximately $27 million. In order to partially pay for this increased retirement benefit, Proposition B froze wages for some employees during the 2009-2010 fiscal years. According to the Controller, the wage freeze would save the City approximately $35 million annually. The cost to the City for the union’s concession on a pay increase was a net cost to the retirement system of $49 million for the next 20 years. The full impact of Proposition B has yet to be estimated, and the City has only allocated $500,000 to this trust. Government Accounting Standards Board (GASB 45)20 does not require the City to actually fund the liability; rather it requires that the City start to record and report a portion of the liability each year. The Superior Court and the Community College District have elected to self-administer their health plan obligations and not participate in the new trust established by the City. The passage of Prop B was a small measure to curb the mounting unfunded health benefit liability that already exists for approximately 50,704 active employees and retirees. The City funds the current year portion due only, and not the accrued liability or total costs related to post employment health benefits. This type of funding is commonly referred to as “Pay as You Go” method. San Francisco engaged the Mercer Consulting Group to estimate the actuarial valuation of this liability. Mercer reported that if the City continued to have an unfunded plan, the projected liability would be approximately $4 billion.13 In the actuary’s report, the pension obligation for the COLA adjustments that were approved by the voters in the passage of Proposition B in June 2008, resulted in a $750 million future pension cost.3 The Figure 10 shows the historical and projected contribution rates for both the City and employees. The PENSIONS, BEYOND OUR ABILITY TO PAY, A REPORT BY THE 2008-2009 SAN FRANCISCO CIVIL GRAND JURY employee contributions tend to remain static at approximately 7.5% while the Employer’s contributions resemble a “Hockey Stick” with a projected increase to 14.8% in 2012. The legacy of pension spiking in the Police and Fire Departments combined with the extraordinary future obligations to fund health care benefits should cause serious concerns by public officials. However, these concerns are perhaps confounded by the fact that everyone involved in pension negotiations as well implementing and monitoring the systems, is a member of the pension system. There is an apparent conflict of interest in nearly any effort on the part of public employees to reform pension practices. 2.1. Findings 2.1.1. The Jury has not found evidence that SFERS management has provided the oversight necessary to identify anomalies in pension payouts and to report the occurrences of pension spiking to the Retirement Board, the Mayor and the Board of Supervisors. 2.1.2. There are a number of cases of retiring employees placed into “Acting Assignments” or “Like Work Like Pay” for various period of time during the employees final year before retirement a period of 365 (or less) consecutive days for the purpose of increasing their final year’s salary, which resulted in a significant increase to their pension benefit. 2.1.3. Police officers, who retired in 1998, are on average receiving 150% of their original retirement pension amount. 2.1.4. Firefighters, who retired in 1998, are on average receiving 153% of their original retirement pension amount. 2.1.5. There is a 116% increase in the benefits compensation for the average Firefighter retired in the past 10 years. (See Figure 6) 2.1.6. There is a 117% increase in the benefits compensation for the average Police Officer retired in the past 10 years (See Figure 5) 2.1.7. Of the 707 Firefighters who retired in the last 10 years, 115 are being paid a pension of over $100,000 (See Figure 2.). 2.1.8. Of the 638 Police officers retired in the last 10 years, 39 are being paid a pension of over $100,000 (See Figure 1.). 2.1.9. On average of individuals retiring since 1998, 26% of Firefighters and 22% of Police officers received an increase of over 10% that is attributable to some type of premium service pay, such as LWLP, temporary assignments, etc. (See Figure 7.) 2.1.10. As of the July 1 Cheiron Actuarial Evaluation there are 2,142 retired police officers, and 1,977 retired Firefighters. Their Data provided to us by SFERS shows that 707 Firefighters and 638 Police officers who retired during the years of 1998 to 2008. Of the total number approximately 23% all police officers and 46% of all Firefighters during this time frame did so, on disability. 2.1.11. We found several cases of Tier 1 (Old Plan)21retiring employees, who did not complete the required 365 consecutive day of service to be eligible for an increased retirement benefit. To date there has not been an adequate explanation of whether certain work PENSIONS, BEYOND OUR ABILITY TO PAY, A REPORT BY THE 2008-2009 SAN FRANCISCO CIVIL GRAND JURY schedules by these individuals were included in the Final Compensation used by SFERS to compute the employee’s pension benefit. 2.2. Recommendations 2.2.1. A task force should be established to evaluate a change to a defined-contribution (DC) plan for all new employees of the City and County of San Francisco. By adopting a DC plan, the Mayor, BOS and SFERS can do more to restore credibility to the public pension plans than any other action they can take. 2.2.2. Pension Spiking should be prohibited altogether as an unfair and costly practice that benefits no one, except for the retiring employee. 2.2.3. An independent investigation of pension fund spiking should be initiated. 2.2.4. The Controller should undertake an audit of SFERS to include the reporting of work history and payroll data for the police and fire departments. In addition, the Controller should examine SFERS policies and practices regarding the determination of Final Compensation and the computation of pension benefits. 2.2.5. The Controller, Treasurer, and Executive Director of SFERS propose a long term solution to the OPEB $4 billion unfunded liability that will ensure a prefunding alternative that will begin in the near term. PENSIONS, BEYOND OUR ABILITY TO PAY, A REPORT BY THE 2008-2009 SAN FRANCISCO CIVIL GRAND JURY 2.2.6. POLICE OFFICERS WITH PENSIONS OVER $100,000 IN LAST 10 YEARS (39) PERCENT INCREASE INITIAL PENSION CURRENT NUMBER OF CURRENT FORM AT TIME OF PENSION INDIVIDUALS AVERAGE ORIGINAL TO RANK LABEL RANK RETIREMENT BENEFIT AT RANK BENEFIT CURRENT 0109 $94,856.40 $112,762.92 1 $112,762.92 119% 0111 $104,544.00 $117,330.72 1 $117,330.72 112% 0390 $348,660.84 $408,083.28 2 $204,041.64 117% 0395 $97,158.00 $111,481.44 1 $111,481.44 115% 0402 $975,027.24 $1,189,082.88 8 $148,635.36 122% 0488 $114,737.52 $133,266.12 1 $133,266.12 116% 0490 $486,566.28 $555,251.52 4 $138,812.88 114% 1237 $93,106.80 $103,252.20 1 $103,252.20 111% 1842 $290,120.16 $342,531.12 3 $114,177.04 118% 381 $98,076.60 $100,038.12 1 $100,038.12 102% 5177 $92,987.52 $100,510.20 1 $100,510.20 108% 8167 $118,654.68 $143,679.72 1 $143,679.72 121% PTF $96,732.60 $115,393.56 1 $115,393.56 119% PTF15 $105,714.60 $132,563.76 1 $132,563.76 125% Q 20 $88,729.32 $105,351.84 1 $105,351.84 119% CAPTAIN Q 80 $126,006.60 $147,726.96 1 $147,726.96 117% CAPTAIN Q 82 $641,104.20 $856,514.40 8 $107,064.30 134% Q 90 $181,683.72 $234,351.96 2 $117,175.98 129% FIGURE 1. For the period 1998 to 2008 only. Prepared by the SFCGJ. FIREFIGHTERS WITH PENSIONS OVER $100,000 IN THE LAST 10 YEARS (115) CURRENT AVERAGE PERCENT BENEFIT INCREASE (current FORM INITIAL PENSION CURRENT NUMBER OF pension/ ORIGINAL AT TIME OF PENSION INDIVIDUALS Number of TO CLASSIFICATION RANK RETIREMENT BENEFIT AT RANK Individuals) CURRENT 0140 $251,664.12 $337,808.40 2 $168,904.20 134% 0150 $775,489.68 $971,600.64 6 $161,933.44 125% 0742 $128,895.60 $143,425.68 1 $143,425.68 111% 1237 $85,680.00 $108,155.28 1 $108,155.28 126% 51F $430,875.48 $536,590.56 5 $107,318.11 125% 761 $122,459.04 $132,366.00 1 $132,366.00 108% Lieutenant, BFP H 22 $432,439.20 $509,366.52 5 $101,873.30 118% Lieutenant, BFI H 24 $187,026.48 $226,550.64 2 $113,275.32 121% Captain H 30 $4,721,549.76 $5,434,646.88 47 $115,630.78 115% Captain, Training H 39 $480,886.80 $580,130.16 5 $116,026.03 121% Battalion Chief H 40 $3,495,865.80 $4,250,503.20 34 $125,014.80 122% Asst. Chief H 50 $162,934.08 $238,596.72 2 $119,298.36 146% Asst. Deputy Chief II H 51 $386,282.52 $433,125.84 3 $144,375.28 112% PTF30 $90,575.64 $104,738.16 1 $104,738.16 116% FIGURE 2. For the period 1998 to 2008. Prepared by SFCGJ PENSIONS, BEYOND OUR ABILITY TO PAY, A REPORT BY THE 2008-2009 SAN FRANCISCO CIVIL GRAND JURY % INCREASE IN PENSIONS FOR POLICE OFFICERS WHO RETIRED IN 1998 CURRENT AVERAGE PERCENT BENEFIT INCREASE (current FORM INITIAL PENSION NUMBER OF pension/ ORIGINAL Rank AT TIME OF CURRENT PENSION INDIVIDUALS Number of TO CLASSIFICATION RETIREMENT BENEFIT AT RANK Individuals) CURRENT $32,929.44 $40,173.60 1 $40,173.60 122% 03 81 $50,382.00 $76,806.00 1 $76,806.00 152% 0382 $142,785.48 $217,681.08 3 $72,560.36 152% 51F $46,553.76 $71,036.16 1 $71,036.16 153% 8213 $54,378.00 $81,762.36 1 $81,762.36 150% 8304 $47,135.04 $71,634.60 1 $71,634.60 152% OFFICER Q 2 $43,106.04 $63,627.00 1 $63,627.00 148% OFFICER Q 4 $164,348.88 $256,076.28 4 $64,019.07 156% SERGEANT Q 52 $148,924.92 $211,966.92 3 $70,655.64 142% LIEUTENANT Q 62 $233,468.88 $356,035.08 4 $89,008.77 152% TOTAL $964 ,012 $1,44 6,799 2 0 $72, 339 150 % FIGURE 3. Year increase in pensions paid to police officers who retired in 1998. Prepared by SFCGJ. % INCREASE IN PENSIONS FOR FIREFIGHTERS WHO RETIRED IN 1998 CURRENT PERCENT NUMBER OF CURRENT AVERAGE INCREASE INDIVIDUALS INITIAL PENSION PENSION BENEFIT FROM Rank AT RANK AT TIME OF BENEFIT (per ORIGINAL CLASSIFICATION RETIREMENT individuals) TO CURRENT LIEUTENANT 10 $478,236 $734,712 $73,464 154% BATALION CHIEF 2 $138,852 $215,148 $107,520 154% FIREFIGHER/PARAMEDIC 10 $395,012 $592,272 $59,220 150% INSPECTOR 1 $48,204 $74,784 $74,784 155% OTHER 1 $94,464 $144,396 $144,396 153% TOTAL 24 $1,154.786 $1,761,312 $91,876 153% FIGURE 4. Year increase in pensions paid to firefighters who retired in 1998. Prepared by SFCGJ PENSIONS, BEYOND OUR ABILITY TO PAY, A REPORT BY THE 2008-2009 SAN FRANCISCO CIVIL GRAND JURY AVG. PENSION BY RANK FOR POLICE WHO RETIRED IN THE PAST 10 YEARS (636) PERCENT INCREASE SUM OF AVERAGE FROM SUM OF INITIAL CURRENT YEARLY ORIGINAL RETIREMENT RETIREMENT RETIREMENT RETIREMENT RANK LABEL RANK BENEFIT BEINFIT MEMBERS BENEFIT BENEFIT $8,775,028.08 $9,231,641.40 112 $82,425.37 105% 01 09 $94,856.40 $112,762.92 1 $112,762.92 119% 0111 $104,544.00 $117,330.72 1 $117,330.72 112% 0114 $51,795.00 $70,074.84 1 $70,074.84 135% INSPE CTOR 0380 $459,755.76 $552,450.24 6 $92,075.04 120% 0381 $104,535.00 $154,906.68 2 $77,453.34 148% 0382 $3,328,129.08 $4,164,295.20 49 $84,985.62 125% 0390 $348,660.84 $408,083.28 2 $204,041.64 117% 0395 $97,158.00 $111,481.44 1 $111,481.44 115% 0402 $975,027.24 $1,189,082.88 8 $148,635.36 122% 0488 $114,737.52 $133,266.12 1 $133,266.12 116% 0490 $486,566.28 $555,251.52 4 $138,812.88 114% 1237 $93,106.80 $103,252.20 1 $103,252.20 111% 1368 $54,522.00 $75,965.76 1 $75,965.76 139% 1842 $290,120.16 $342,531.12 3 $114,177.04 118% 3280 $76,198.68 $80,042.16 1 $80,042.16 105% 337 $49,806.00 $69,391.92 1 $69,391.92 139% 380 $97,435.44 $97,435.44 1 $97,435.44 100% 381 $98,076.60 $100,038.12 1 $100,038.12 102% 382 $738,539.16 $795,976.68 9 $88,441.85 108% 402 $71,571.60 $85,183.20 1 $85,183.20 119% 5177 $92,987.52 $100,510.20 1 $100,510.20 108% 51F $46,553.76 $71,036.16 1 $71,036.16 153% 5291 $69,372.48 $77,843.40 1 $77,843.40 112% 7366 $28,099.56 $28,661.52 1 $28,661.52 102% 8121 $102,591.00 $138,802.08 2 $69,401.04 135% 8146 $144,025.20 $180,465.48 2 $90,232.74 125% 8167 $118,654.68 $143,679.72 1 $143,679.72 121% 8213 $677,876.52 $928,981.08 12 $77,415.09 137% 8304 $47,135.04 $71,634.60 1 $71,634.60 152% 9175 $86,527.80 $95,669.40 1 $95,669.40 111% 9210 $33,907.80 $38,192.16 2 $19,096.08 113% 9212 $60,120.00 $81,271.20 1 $81,271.20 135% 9216 $74,551.68 $82,955.64 1 $82,955.64 111% C351 $241,661.16 $289,641.84 3 $96,547.28 120% PTF $96,732.60 $115,393.56 1 $115,393.56 119% PTF15 $105,714.60 $132,563.76 1 $132,563.76 125% OFFI CER Q 2 $4,171,355.28 $4,821,125.88 76 $63,435.87 116% OFFICER Q 3 $840,993.84 $1,026,489.12 17 $60,381.71 122% OFFICER Q 4 $10,820,463.12 $12,929,574.72 190 $68,050.39 119% Q 20 $88,729.32 $105,351.84 1 $105,351.84 119% Q 35 $147,396.72 $170,060.16 2 $85,030.08 115% SERGE ANT Q 50 $584,272.08 $708,360.96 9 $78,706.77 121% SERGEANT Q 51 $51,363.00 $72,988.92 1 $72,988.92 142% SERGEANT Q 52 $3,232,862.40 $3,903,425.52 53 $73,649.54 121% Q 61 $230,064.00 $282,744.84 3 $94,248.28 123% LIEUTE NANT Q 62 $2,401,967.64 $3,020,525.88 33 $91,531.09 126% Q 63 $46,490.04 $51,730.68 1 $51,730.68 111% CAPT AIN Q 80 $126,006.60 $147,726.96 1 $147,726.96 117% CAPTAIN Q 82 $641,104.20 $856,514.40 8 $107,064.30 134% Q 90 $181,683.72 $234,351.96 2 $117,175.98 129% Tot al $42,10 1,433 $49,45 8,717 63 6 $77, 765 117 % FIGURE 5. Police who retired during 1998 to 2008. Prepared by SFCGJ. PENSIONS, BEYOND OUR ABILITY TO PAY, A REPORT BY THE 2008-2009 SAN FRANCISCO CIVIL GRAND JURY AVG. PENSIONS BY RANK FOR FIREFIGHTERS WHO RETIRED IN PAST 10 YEARS (707) PERCENT INITIAL PENSION NUMBER OF CURRENT INCREASE FORM AT TIME OF CURRENT INDIVIDUALS AT AVERAGE INITIAL TO RANK TITLE RANK RETIREMENT PENSION BENEFIT RANK BENEFIT CURRENT $10,115,699.16 $10,722,419.52 112 $95,735.89 106% 01 40 $251,664.12 $337,808.40 2 $168,904.20 134% 0150 $775,489.68 $971,600.64 6 $161,933.44 125% 0742 $128,895.60 $143,425.68 1 $143,425.68 111% 0761 $186,720.36 $229,087.20 3 $76,362.40 123% 1237 $85,680.00 $108,155.28 1 $108,155.28 126% 2532 $109,506.36 $148,872.00 2 $74,436.00 136% 51F $430,875.48 $536,590.56 5 $107,318.11 125% 71F $245,832.12 $268,666.68 3 $89,555.56 109% 761 $122,459.04 $132,366.00 1 $132,366.00 108% Fire/Res P aramedic H 1 $686,505.36 $808,868.16 17 $47,580.48 118% Firefighter/Paramedic H 2 $19,034,128.32 $22,191,270.36 296 $74,970.51 117% Firefighter/Paramedic H 3 $872,704.44 $971,774.40 17 $57,163.20 111% Inspector, BFP H 4 $973,896.84 $1,174,059.84 13 $90,312.30 121% Investigator, BFI H 6 $440,861.40 $534,987.84 6 $89,164.64 121% Incident Support Specialist H 10 $1,137,569.76 $1,392,203.28 18 $77,344.63 122% Lieutenant H 20 $6,954,159.36 $8,298,396.12 94 $88,280.81 119% Lieutenant, BFP H 22 $432,439.20 $509,366.52 5 $101,873.30 118% Lieutenant, BFI H 24 $187,026.48 $226,550.64 2 $113,275.32 121% Lieutenant, Training H 28 $271,744.68 $337,880.04 4 $84,470.01 124% Special Services Officer H 29 $31,523.52 $48,376.20 1 $48,376.20 153% Captain H 30 $4,721,549.76 $5,434,646.88 47 $115,630.78 115% Fire/Paramedic Captain H 33 $205,101.72 $238,753.08 3 $79,584.36 116% Captain, Training H 39 $480,886.80 $580,130.16 5 $116,026.03 121% Battalion Chief H 40 $3,495,865.80 $4,250,503.20 34 $125,014.80 122% Section Chief, EMS H 43 $70,472.64 $81,520.08 1 $81,520.08 116% Asst. Chief H 50 $162,934.08 $238,596.72 2 $119,298.36 146% Asst. Deputy Chief II H 51 $386,282.52 $433,125.84 3 $144,375.28 112% PTF15 $63,703.80 $78,773.76 1 $78,773.76 124% PTF30 $90,575.64 $104,738.16 1 $104,738.16 116% TOT ALS $53,152,754 $61,533,513 706 $87,157 116% FIGURE 6. Firefighters who re tired during 1998 to 2008. Prepared by SFCGJ. RETIRED SAFETY WITH OVER 10% INCREASE IN COVERED EARNINGS UNDER 20% - 25%- OVER TOTAL OVER TOTAL POPULATION 10% - 20% 10% 25% 30% 30% 10% POLICE RAW NUMBER 628 485 52 25 27 39 143 PERCENT 77% 8% 4% 4% 6% 22% F IRE RAW NUMBER 69 8 53 3 9 8 4 5 6 1 6 16 5 PERCENT 76% 14% 6% 1% 2% 24% FIGURE 7 The % increase repre sents the member’s gross pay that is included when calculating con tributions over regular pay. Prepared by SFCGJ. PENSIONS, BEYOND OUR ABILITY TO PAY, A REPORT BY THE 2008-2009 SAN FRANCISCO CIVIL GRAND JURY FIGURE 8 Current pensions as a percent of initial pensions. Prepared by SFCGJ. FIGURE 9 Current pensions as a percent of initial pensions. Prepared by SFCGJ. PENSIONS, BEYOND OUR ABILITY TO PAY, A REPORT BY THE 2008-2009 SAN FRANCISCO CIVIL GRAND JURY Figure 10 Contribution rates for Employees and Employer into the SFERS pension fund. Year 2011 is a projected rate. Prepared by SFCGJ.

F3: Data Inconsistencies The flow of information to SFERS begins with data being entered by the departments into their own systems. Some of these systems are manual and some are automated. Care is taken to make sure accurate data goes to the individual payroll departments in order to produce an accurate payroll check for every individual. The files are then filtered and the information is forwarded to SFERS. Some of the information going to SFERS is in database form, and some is transmitted as a PDF file, which in essence is a picture of reports generated in other departments. SFERS staff then maintains its own database of information it needs for determining pension data. The pension calculation and verifications performed by SFERS team of pension Analysts is extremely involved due to the complexities of the numerous MOU’s between the City and the individual unions. SFERS has no manuals that describe how a pension calculation is to be performed. Pension Analysts rely on institutional knowledge of senior members of the staff to learn how to compute a final pension amount for any given individual. Since these calculations are very complex, the analysts check each other’s work, and rely on many sources of data. 3.1. Findings 3.1.1. During the course of the investigation the Jury had the opportunity to examine various reports and databases. All of them in one way or another feed the SFERS system which then computes the final pension benefits for retired individuals. SFERS has no up-to- date procedure or training manual for teaching new analysts how to determine the PENSIONS, BEYOND OUR ABILITY TO PAY, A REPORT BY THE 2008-2009 SAN FRANCISCO CIVIL GRAND JURY correct pension amount, and relies on Senior Pension Analysts to assist in resolving issues. 3.1.2. SFERS maintains its own database, uses paper and report images files (PDF) to check the calculations, and has assured us that the data which we found to be inconsistent is not used in any calculations. However the Jury finds that since some of the data is entered manually in various systems, an entry error would be easily propagated without being found. This in the Jury’s opinion can lead to errors in the data used by SFERS to determine pensions. SFERS maintains a staff of approximately 20 Senior Analysts to determine the accuracy of final benefits, due in their words the “complexity of the task”. 3.2. Recommendations 3.2.1. The City should undertake an audit of the data initiating with time sheets, and payroll history files of the police and fire departments, and terminating with the process of establishing a pension amount due a retiree. 3.2.2. SFERS should become fully automated. This billion dollar agency should not rely on old paper copies of reports to determine correctness of pensions. An integrated data collection system should exist between all agencies feeding data to SFERS. 3.2.3. Since the determination of pension benefits is a complex process the need for automation becomes more critical. SFERS should provide its Analysts with a manual of standard procedures and methods for determining every possible variation of an individual’s pension amount. We find that this lack of a manual can lead to different analysts computing a different amount of pension for the same individual 4. DROP (Deferred Retirement Option Program) Officers participating in DROP would continue to receive their regular pay and benefits. DROP participants would begin accumulating their regular retirement payments, frozen at the level that the officer had earned upon entry into DROP. These payments would be placed in a tax deferred DROP account maintained by the City’s Retirement system. At the end of the DROP period, officers would begin receiving their regular monthly retirement payment, as well as their retirement benefits that had accumulated in their DROP account, in a lump sum. An officer can earn a salary and a retirement pension at the same time from the same employer, a practice some call “double dipping”. For example, a 55-year-old police officer who enters the program while earning $100,000 annually could receive a lump sum of $225,000 after three years. The Proposition provides that the City should not incur any overall cost increase due to the creation and operation of the DROP. This Charter amendment requires periodic evaluation by the City of the costs of the program to ensure its cost neutrality. PENSIONS, BEYOND OUR ABILITY TO PAY, A REPORT BY THE 2008-2009 SAN FRANCISCO CIVIL GRAND JURY 4.1. Findings 4.1.1. The Controllers report stated that this program would be cost neutral to the City however, in a letter to the Director of Elections dated October 26th 2007, SFERS management wrote that: “While the initiative states that the program shall be cost neutral, no cost analysis is to be conducted until April 15th 2011. In other words the cost to administer the program has not been determined and the systems necessary to run it, have not been developed. If the Board of Supervisors determines not to extend the DROP based on this cost analysis no further DROP elections will be allowed”.17 4.1.2. To date approximately 80%-85% of systems required for DROP calculations and accounting have been completed17. 4.1.3. There 464 officers eligible for DROP as of July 7th 2009. As of the writing of this report there are 55 officers enrolled in the program, however costs to SFERS or the City have not been determined, and no special Account has been set up as stipulated in the proposition. 4.1.4. Of the 55 officers enrolled in the program all but 4 have a pension benefit of over $90,000/year. The average pension compensation amount is $105,000 per year. 4.1.5. If all 55 individuals leave DROP after the maximum 3 year period, SFERS will pay a lump sum of over $17 million (approximately $300,000 per individual). 4.1.6. A law enacted In California, allows the 20 county systems that operate under DROP. Former Gov. Gray Davis vetoed four state and local DROP bills in 2000-2002, citing the increased cost to the state. 4.2. Recommendations 4.2.1. The City and SFERS should complete all systems required to properly calculate and perform accounting functions for DROP. 4.2.2. The City and SFERS should determine the actual cost of running the program, to determine if the DROP program is economically viable at this point. 4.2.3. SFERS, the City, and the SFPD should not enroll additional individuals into DROP until all necessary systems to monitor and calculate are fully functional, and the costs to run the program are computed and finalized. PENSIONS, BEYOND OUR ABILITY TO PAY, A REPORT BY THE 2008-2009 SAN FRANCISCO CIVIL GRAND JURY 5. Findings, Recommendations and Required Responses RESPONDENT FINDINGS 2.1.1 2.1.2 2.1.3 2.1.4 2.1.5 2.1.6 2.1.7 2.1.8 2.1.9 2.1.10 2.1.11 SFERS X X X X X SFFD X X X X X X X SFPD X X X X X X X SUPERVISORS X CONTROLLER X X MAYOR X RESPONDENT FINDINGS 3.1.1 3.1.2 4.1.1 4.1.2 4.1.3 4.1.4 4.1.5 4.1.6 SFERS X X X X X X X X SFFD SFPD X X X X X SUPERVISORS X CONTROLLER X X X X X MAYOR X RESPONDENT RECOMMENDATIONS 2.2.1 2.2.2 2.2.3 2.2.4 2.2.5 3.2.1 3.2.2 3.2.3 4.2.3 SFERS X X X X X SFFD X X SFPD X X SUPERVISORS X X X CONTROLLER X X X X X X X MAYOR X X X X X RESPONDENT RECOMMENDATIONS 4.2.1 4.2.2 4.2.3 SFERS X X X SFFD SFPD X X X SUPERVISORS X CONTROLLER X X MAYOR X PENSIONS, BEYOND OUR ABILITY TO PAY, A REPORT BY THE 2008-2009 SAN FRANCISCO CIVIL GRAND JURY 6. End Notes 1. Roger Lowenstein, While America Aged, The Penguin Press, New York, 2008 2. Philip LaVelle, “New board for pension has tough task ahead”, San Diego Union Tribune, April 14, 2005 3. Appendix D. Actuarial Report prepared by Cheiron Consulting as of July 1, 2008, and presented to the SFERS Retirement Board on January 13, 2009. See , Table IV-2, SFERS Development of the Total Propositions Rate as of July 1, 2008 (FY 2010).

F4: Appendix F. Controller’s Pension and Retiree Health Subsidy Analysis, FY 05-06 to FY11-12 5. See Figure 10 for the historical and projected increase in CCSF Employer Contribution Rates.

F6: Task force created against pension fund abuse (Global Pensions May 5th 2009). Thirty-six attorney general's offices are set to create a multi-state task force to explore pension fund abuse across the country, New York State attorney general Andrew Cuomo has said, “The task force is intended to enable states to share vital information to prosecute wrongdoing and facilitate nationwide reform. The task force will allow us to have a unified, efficient method for gathering information as we fight to combat corruption and restore transparency and integrity to public pension funds.” 7. Appendix A. Methodology for this investigation.

F8: Present value calculation for SFFD was $107 million and SFPD was $24 million. See Appendix A. Methodology for a present value example.

F9: A Lieutenant was temporarily assigned to a rank of Battalion Chief during the course of the last year of before his retirement. This action was authorized by the Fire Chief and sanctioned under the Memorandum of Understanding (MOU) between the City and the San Francisco Firefighters Union (Local 798) dated July 1, 2007 to June 30, 2011. As a result of being assigned to Battalion Chief, the Lieutenant contributed a onetime amount of $1,915 into the pension fund during his last year of employment. This payment increased his pension amount by $25,542 per year. The effect of the “spike” was to increase his pension by 22% a year over the pension amount that he would have received at the rank of Lieutenant. The value of a $25,542 increase over his actuarial lifetime (29.6 years) was calculated to be $296,000. If one deducts his original contribution and the contribution the City made to the fund, the liability incurred by the City and the active members of the SFERS was $293,000. The above example was based on the actual retirement record of a 52 year old Fire Lieutenant, who started his career in 1981 and worked for 26.5 years for the Fire department.

F10: The practice permitted an officer making $88,000/year in his final year of service to retire at an initial pension of $110,000/year, due to an assignment that allowed him to earn a rate of $111,000/year for the last 3 months prior to retirement. Cost of living and other increases in his pension benefits have boosted his current retirement pay to $113,000. This pension benefit is 121% higher that it would have been if he retired without any change in rank.

F11: Email received from SFERS Deputy Director. Final Compensation is defined in Charter citations A8.595-1 and A8.559-1 for “Old Plan” members and A8.596-1 and A8.585-1 for “New Plan” members. There are specific Safety Pay Types that are included/excluded in PENSIONS, BEYOND OUR ABILITY TO PAY, A REPORT BY THE 2008-2009 SAN FRANCISCO CIVIL GRAND JURY Final Compensation as outlined in a final judgment to a lawsuit won by SFERS in the Superior Court. We found the Pay Type of “WDO” – Work Day Off was not indicated as a pay type to be included in Final Compensation. We contacted the Executive Director and the Deputy Director of SFERS for an explanation of why the WDO pay type was included in the determination of this employee’s Final Compensation and the resulting increase in his retirement benefit. The Executive Director and the Deputy Director have not responded to our specific inquiry.

F12: Email dated June 19, 2009 from SFERS Deputy Director SFERS.

F13: Appendix E. The Mercer Actuarial Valuation report on unfunded retirement health benefits.

F14: State of California, Funding Pensions & Retiree Health Care for Public Employees- A Report of the Post-Employment Benefits Commission, 2008.

F15: SFERS Annual Reports – 2003 to 2008.

F16: Dave Umhoefer, “Pension Twist Costs County Millions”, Journal Sentinel Watchdog Report, Milwaukee County, July 29, 2007.

F17: Email From Deputy Director SFERS, July 24, 2009 o “The policies regarding the DROP program have been developed and implemented (see DROP booklet previously provided). The systems for calculation and accounting for DROP are approximately 80 to 85% complete.

F18: SFCGJ Internal Analysis 55 DROP members deferred compensation provided by SFERS.

F19: People’s Advocate Research Report, “30 Ways to Spike your Pension.” 20. Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions (Issued 6/04) 21. SFERS administers a 2 tier benefit system. Employees who became plan members before 11/2/1976 are said to be Old Plan members while Employees who became members after 11/2/1976 are said to be New Plan member. Each of the plans have had subsequent voter approved Charter Amendments. PENSIONS, BEYOND OUR ABILITY TO PAY, A REPORT BY THE 2008-2009 SAN FRANCISCO CIVIL GRAND JURY Appendix A. Methodology 1. DATA As of July 1, 2008, the total Fire and Police non-active members was 4,118, consisting of 1,977 Fire and 2,141 police retirees. Our analysis focused on the 707 Fire and 638 Police retirees, who retired during the period January 1, 1998 to December 31, 2008. The data utilized in this report were obtained from a number of different sources. The Jury obtained data files from SFERS that contained work and pension information that was used by SFERS to compute the retiree’s pension benefit. The data file was exported into an Excel file for our review and analysis. The data file layout is included in the Appendix B. The Jury also obtained from the Police and Fire DHR records on retirees’ work history in order to determine the duration and type of work assigned to the retirees in their final year of employment. The work history records were reviewed in conjunction with the analysis of the SFERS data to determine any unusual increases in the retirees’ “Covered Compensation” (the key element in the calculation of a retirees’ pension benefit). The increases in compensation for job promotions were excluded in our analysis of pension “spiking.” See Appendix D for Pension Glossary. The Jury found 165 or 26% of all Fire retirees and 143 or 22% of all Police retirees retired with a 10% or greater increase in their “Covered Compensation” over their historical pay rate. See Figure 7. The Jury computed the present value of the pension spike to quantify the additional liability to fund that resulted from this practice. The present value concept as it relates to pension cost is best understood by the example of parents saving for their child’s college education. Most parents know approximately, how big the college (or the pension) expense will be when it comes due. The question is how much they must put aside now to meet that expense. The answer is the present value of the future obligation. In our analysis of the present value of the pension spike, we used the same discount rate as the rate used in the latest SFERS actuarial valuation (i.e. 7.75%). See Appendix C for the Cheiron Actuarial Valuation dated July 1, 2008.

Additional Recommendations 19

Not linked to specific findings.

R1: Roger Lowenstein, While America Aged, The Penguin Press, New York, 2008

R2: Philip LaVelle, “New board for pension has tough task ahead”, San Diego Union Tribune, April 14, 2005

R3: Data Inconsistencies The flow of information to SFERS begins with data being entered by the departments into their own systems. Some of these systems are manual and some are automated. Care is taken to make sure accurate data goes to the individual payroll departments in order to produce an accurate payroll check for every individual. The files are then filtered and the information is forwarded to SFERS. Some of the information going to SFERS is in database form, and some is transmitted as a PDF file, which in essence is a picture of reports generated in other departments. SFERS staff then maintains its own database of information it needs for determining pension data. The pension calculation and verifications performed by SFERS team of pension Analysts is extremely involved due to the complexities of the numerous MOU’s between the City and the individual unions. SFERS has no manuals that describe how a pension calculation is to be performed. Pension Analysts rely on institutional knowledge of senior members of the staff to learn how to compute a final pension amount for any given individual. Since these calculations are very complex, the analysts check each other’s work, and rely on many sources of data. 3.1. Findings 3.1.1. During the course of the investigation the Jury had the opportunity to examine various reports and databases. All of them in one way or another feed the SFERS system which then computes the final pension benefits for retired individuals. SFERS has no up-to- date procedure or training manual for teaching new analysts how to determine the correct pension amount, and relies on Senior Pension Analysts to assist in resolving issues. 3.1.2. SFERS maintains its own database, uses paper and report images files (PDF) to check the calculations, and has assured us that the data which we found to be inconsistent is not used in any calculations. However the Jury finds that since some of the data is entered manually in various systems, an entry error would be easily propagated without being found. This in the Jury’s opinion can lead to errors in the data used by SFERS to determine pensions. SFERS maintains a staff of approximately 20 Senior Analysts to determine the accuracy of final benefits, due in their words the “complexity of the task”. 3.2. Recommendations 3.2.1. The City should undertake an audit of the data initiating with time sheets, and payroll history files of the police and fire departments, and terminating with the process of establishing a pension amount due a retiree. 3.2.2. SFERS should become fully automated. This billion dollar agency should not rely on old paper copies of reports to determine correctness of pensions. An integrated data collection system should exist between all agencies feeding data to SFERS. 3.2.3. Since the determination of pension benefits is a complex process the need for automation becomes more critical. SFERS should provide its Analysts with a manual of standard procedures and methods for determining every possible variation of an individual’s pension amount. We find that this lack of a manual can lead to different analysts computing a different amount of pension for the same individual

R4: DROP (Deferred Retirement Option Program) Officers participating in DROP would continue to receive their regular pay and benefits. DROP participants would begin accumulating their regular retirement payments, frozen at the level that the officer had earned upon entry into DROP. These payments would be placed in a tax deferred DROP account maintained by the City’s Retirement system. At the end of the DROP period, officers would begin receiving their regular monthly retirement payment, as well as their retirement benefits that had accumulated in their DROP account, in a lump sum. An officer can earn a salary and a retirement pension at the same time from the same employer, a practice some call “double dipping”. For example, a 55-year-old police officer who enters the program while earning $100,000 annually could receive a lump sum of $225,000 after three years. The Proposition provides that the City should not incur any overall cost increase due to the creation and operation of the DROP. This Charter amendment requires periodic evaluation by the City of the costs of the program to ensure its cost neutrality. 4.1. Findings 4.1.1. The Controllers report stated that this program would be cost neutral to the City however, in a letter to the Director of Elections dated October 26th 2007, SFERS management wrote that: “While the initiative states that the program shall be cost neutral, no cost analysis is to be conducted until April 15th 2011. In other words the cost to administer the program has not been determined and the systems necessary to run it, have not been developed. If the Board of Supervisors determines not to extend the DROP based on this cost analysis no further DROP elections will be allowed”.17 4.1.2. To date approximately 80%-85% of systems required for DROP calculations and accounting have been completed17. 4.1.3. There 464 officers eligible for DROP as of July 7th 2009. As of the writing of this report there are 55 officers enrolled in the program, however costs to SFERS or the City have not been determined, and no special Account has been set up as stipulated in the proposition. 4.1.4. Of the 55 officers enrolled in the program all but 4 have a pension benefit of over $90,000/year. The average pension compensation amount is $105,000 per year. 4.1.5. If all 55 individuals leave DROP after the maximum 3 year period, SFERS will pay a lump sum of over $17 million (approximately $300,000 per individual). 4.1.6. A law enacted In California, allows the 20 county systems that operate under DROP. Former Gov. Gray Davis vetoed four state and local DROP bills in 2000-2002, citing the increased cost to the state. 4.2. Recommendations 4.2.1. The City and SFERS should complete all systems required to properly calculate and perform accounting functions for DROP. 4.2.2. The City and SFERS should determine the actual cost of running the program, to determine if the DROP program is economically viable at this point. 4.2.3. SFERS, the City, and the SFPD should not enroll additional individuals into DROP until all necessary systems to monitor and calculate are fully functional, and the costs to run the program are computed and finalized.

R5: Findings, Recommendations and Required Responses RESPONDENT FINDINGS 2.1.1 2.1.2 2.1.3 2.1.4 2.1.5 2.1.6 2.1.7 2.1.8 2.1.9 2.1.10 2.1.11 SFERS X X X X X SFFD X X X X X X X SFPD X X X X X X X SUPERVISORS X CONTROLLER X X MAYOR X RESPONDENT FINDINGS 3.1.1 3.1.2 4.1.1 4.1.2 4.1.3 4.1.4 4.1.5 4.1.6 SFERS X X X X X X X X SFFD SFPD X X X X X SUPERVISORS X CONTROLLER X X X X X MAYOR X RESPONDENT RECOMMENDATIONS 2.2.1 2.2.2 2.2.3 2.2.4 2.2.5 3.2.1 3.2.2 3.2.3 4.2.3 SFERS X X X X X SFFD X X SFPD X X SUPERVISORS X X X CONTROLLER X X X X X X X MAYOR X X X X X RESPONDENT RECOMMENDATIONS 4.2.1 4.2.2 4.2.3 SFERS X X X SFFD SFPD X X X SUPERVISORS X CONTROLLER X X MAYOR X

R6: Task force created against pension fund abuse (Global Pensions May 5th 2009). Thirty-six attorney general's offices are set to create a multi-state task force to explore pension fund abuse across the country, New York State attorney general Andrew Cuomo has said, “The task force is intended to enable states to share vital information to prosecute wrongdoing and facilitate nationwide reform. The task force will allow us to have a unified, efficient method for gathering information as we fight to combat corruption and restore transparency and integrity to public pension funds.”

R8: Present value calculation for SFFD was $107 million and SFPD was $24 million. See

R9: A Lieutenant was temporarily assigned to a rank of Battalion Chief during the course of the last year of before his retirement. This action was authorized by the Fire Chief and sanctioned under the Memorandum of Understanding (MOU) between the City and the San Francisco Firefighters Union (Local 798) dated July 1, 2007 to June 30, 2011. As a result of being assigned to Battalion Chief, the Lieutenant contributed a onetime amount of $1,915 into the pension fund during his last year of employment. This payment increased his pension amount by $25,542 per year. The effect of the “spike” was to increase his pension by 22% a year over the pension amount that he would have received at the rank of Lieutenant. The value of a $25,542 increase over his actuarial lifetime (29.6 years) was calculated to be $296,000. If one deducts his original contribution and the contribution the City made to the fund, the liability incurred by the City and the active members of the SFERS was $293,000. The above example was based on the actual retirement record of a 52 year old Fire Lieutenant, who started his career in 1981 and worked for 26.5 years for the Fire department.

R10: The practice permitted an officer making $88,000/year in his final year of service to retire at an initial pension of $110,000/year, due to an assignment that allowed him to earn a rate of $111,000/year for the last 3 months prior to retirement. Cost of living and other increases in his pension benefits have boosted his current retirement pay to $113,000. This pension benefit is 121% higher that it would have been if he retired without any change in rank.

R11: Email received from SFERS Deputy Director. Final Compensation is defined in Charter citations A8.595-1 and A8.559-1 for “Old Plan” members and A8.596-1 and A8.585-1 for “New Plan” members. There are specific Safety Pay Types that are included/excluded in Final Compensation as outlined in a final judgment to a lawsuit won by SFERS in the Superior Court. We found the Pay Type of “WDO” – Work Day Off was not indicated as a pay type to be included in Final Compensation. We contacted the Executive Director and the Deputy Director of SFERS for an explanation of why the WDO pay type was included in the determination of this employee’s Final Compensation and the resulting increase in his retirement benefit. The Executive Director and the Deputy Director have not responded to our specific inquiry.

R12: Email dated June 19, 2009 from SFERS Deputy Director SFERS.

R14: State of California, Funding Pensions & Retiree Health Care for Public Employees- A Report of the Post-Employment Benefits Commission, 2008.

R15: SFERS Annual Reports – 2003 to 2008.

R16: Dave Umhoefer, “Pension Twist Costs County Millions”, Journal Sentinel Watchdog Report, Milwaukee County, July 29, 2007.

R17: Email From Deputy Director SFERS, July 24, 2009 o “The policies regarding the DROP program have been developed and implemented (see DROP booklet previously provided). The systems for calculation and accounting for DROP are approximately 80 to 85% complete.

R18: SFCGJ Internal Analysis 55 DROP members deferred compensation provided by SFERS.

R19: People’s Advocate Research Report, “30 Ways to Spike your Pension.”

R20: Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions (Issued 6/04)

R21: SFERS administers a 2 tier benefit system. Employees who became plan members before 11/2/1976 are said to be Old Plan members while Employees who became members after 11/2/1976 are said to be New Plan member. Each of the plans have had subsequent voter approved Charter Amendments.

∼ June 30, 2009 — Nonprofits The Good The Bad The Ugly*

50 pages 22 findings 16 recommendations

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Findings & Recommendations 22 findings

F1: There is no coordinated effort to determine overall citywide needs or strategies for distributing funds to nonprofits, other than the Community Development Block Grant (CDBG) funds distributed through the Mayor's Office.

Related Recommendations (1)

R1: City government has established a broad system of collecting community input, with opportunities to provide input regarding goals and priorities for funding of local discretionary dollars.

F2: There are no formal qualifications for individuals serving on the panels that rank competitive grant proposals.

Related Recommendations (1)

R7: Past experience and performance on previous grants are not always considered during the selection process.

F3: Unlike contracts there is no systematic tracking of grants.

Related Recommendations (3)

R4: The Controller maintains a database of nonprofits that do business with the City. Contracts with nonprofits fall under the jurisdiction of the Office of Contract Administration, whereas grants to nonprofits are not tracked citywide.

R12: The Office of Contract Administration should be given the task of tracking the compliance rate on nonprofit grant consolidation across all City departments.

R16: The City should develop a comprehensive software system (modeled on DCYF's CMS) that can monitor and track all grants and contracts citywide. At a minimum, the system should contain three functions: fiscal tracking, program tracking and performance metric tracking. Fiscal tracking and program tracking should be administered by departments but accessible citywide. Metric tracking should be a function of the Office of the Mayor. Monitoring and Performance Measurement 16 17 18 19 20 21 22

F4: The magnitude of money and the lack of tracking and coordination of grants provide a potential for abuse in the allocation of grants.

F5: Lack of coordination and different procedures for each department within and among departments adds to time and overhead for departments and nonprofits.

Related Recommendations (2)

R2: 7. CREATE STANDARDIZED AND SIMPLIFIED CONTRACT FORMS (STANDARDIZED AND SIMPLIFIED FORMS) ✓ Milestone: TBD by Interdepartmental Working Group (In Process) Interdepartmental Working Group will meet to begin evaluating standardized forms (scope of work, budget, invoice, monitoring reports), and begin drafting best practice models to be distributed to other City departments and posted on OCA's website. The Interdepartmental Working Group will develop contract format and forms for outcome driven services that define: (1) language and service definitions; (2) monitoring protocols; and (3) reporting requirements (recommendation #10). ✓ Milestone: Fall 2006 (In Process) The Review/Appellate Panel will review the progress of implementing standardized forms (or development of alternative standardized forms) by other City departments. ✓ Milestone: September 2006 (In Process) The Review/Appellate Panel will evaluate draft best practice model and consider nonprofit feedback. (Done, but need NP feedback.) ✓ Milestone: To Be Determined: (In Process) The Interdepartmental Working Group will develop form for contractors to provide feedback on definitions and monitoring of outcome driven services (recommendation #10). ✓ 8. ESTABLISH ACCOUNTING STANDARDS FOR NONPROFITS CONTRACTORS (ACCOUNTING STANDARDS) - Completed The Controller's Office has published and disseminated a Finance Guide for Nonprofits Attachment A: Milestones 11/03/06 in November of 2004 and provided two training sessions on the Finance Guide for approximately 70 nonprofit contractors in April 2005. In June of 2005, the Controller's Office coordinated another training session on cost allocation procedures, which was attended by over 100 nonprofits. As a follow up to this training, and to further clarify the City's expectations regarding cost allocation practices, the Controller's Office has developed written cost allocation guidelines for nonprofits contracting with the City. The Cost Allocation Guidelines, the Finance Guide and all related materials from these trainings are available online at www.sfgov/controller (see Resources for Nonprofits). 9. COORDINATE JOINT PROGRAM MONITORING (JOINT PROGRAM MONITORING) ✓ Completed in September 2005 (Completed) • Since September 2005, the Controller's Office has been facilitating monthly working group meetings with representatives from DCYF, DPH and HSA to discuss monitoring results and refine standard monitoring procedures. This process is ongoing. Milestone: June 2006 √ • Sixty-seven organizations with multiple contracts across DCYF, DPH and HSA will undergo a standard fiscal and compliance monitoring by June 30, 2006. (Completed) A similar or greater number of contractors will experience this standard monitoring in • FY 06-07 with expanded participation from other City departments who were not participating in the efforts this fiscal year. (This item is separated from the above bullet point for this report.) Milestone: FY 06-07 √ • The Controller's Office will transition the leadership/facilitation of the monthly working group meetings to the departments during FY 06-07. (In Process) √ • HSN will assist to provide feedback to the Review/Appellate Panel from the contractors' perspective, on the experience and efficacy of the shared monitoring process. (Completed) √• Coordinated monitoring will be further enhanced by a shared master calendar and shared access to monitoring forms and reports on COOL. (Completed and On- going) √• Departments will prove timely written notice of at least 14 days prior to the monitoring visit date as well as a timely written report back on the results of the monitoring visit back to the contractor within 30 days, if possible, but not beyond 90 days. If the program report is not completed within 30 days, then the department conducting the monitoring will issue a notice indicating that the program report was not completed as scheduled. (Completed, developed new timelines and procedures) Attachment A: Milestones 11/03/06 10. DEVELOP STANDARD MONITORING PROTOCOLS, LANGUAGE AND DEFINITIONS TO CLEARLY DEFINE CONTRACT REQUIREMENTS (STANDARD MONITORING PROTOCOLS) ✓ Milestone: FY 06-07 (In Process) Upon renewal, each contract will be revised to include clear language and service • definitions, clearly defined monitoring protocols (specifically what will be monitored and when), and clearly specified reporting requirements. The above will be contained in the scope of services document and will be mutually agreed upon by both the funding agency and the service provider. During the period following the renewal (fiscal year) the above revisions will be analyzed to develop outcome driven services to be implemented in subsequent renewals or RFPs. The lengthy service objectives narratives currently contained in many scopes of services shall be streamlined to contain the mutually agreed upon outcomes and methodology for measuring progress towards meeting those outcomes. Protocols for standard fiscal & compliance monitoring were completed and are being used with multi-departmental contractors in FY 05-06; ongoing efforts are focused on program monitoring protocols. The contract renewal/negotiation process should allow departments and contractors to determine what will be monitored and how. Departments should focus monitoring on what is specifically agreed to in the contract, and will adopt findings of Federal or State monitoring, when appropriate. 11. PROVIDE TRAINING FOR PERSONNEL WHO MONITOR CONTRACTS TO ENSURE ADEQUATE KNOWLEDGE AND UNDERSTANDING OF PROGRAMS, SERVICES AND MUTUALLY AGREED UPON PROTOCOLS (TRAINING FOR PERSONNEL) ✓ Milestone: June 2006 (Completed) The Controller's Office, in collaboration with the monitoring working group, will conduct a year-end survey of the 67 multi-departmental contractors to get their feedback on their fiscal, compliance and program monitoring experience in FY 05-06.

R9: The lack of coordination and different reporting and compliance procedures for each department (even within departments) was identified as a key problem in the report of the Nonprofit Contracting Task Force (2003) because it adds time and overhead to non-profit work. Progress was later made to make fiscal compliance methods more consistent between departments.

F6: Billing by Unit of Service could allow budgeted costs, which were not actually spent, to be included in the invoice charged to the City, because the invoice is based on number of clients served (at agreed estimate of cost) not by the actual cost of serving those clients.

Related Recommendations (1)

R8: DPH has a billing method based upon a Unit of Service reimbursement, while other city departments operate under Line Item Cost reimbursement of actual expenses incurred.

F7: Sole Source Waivers issued are tracked by number of waivers issued to a department and not to whom the waivers were given or for what purpose.

Related Recommendations (1)

R5: Only DPH has authority to issue Sole Source Waivers from the competitive bidding requirements of the City without previous consent of the City. The Clerk of the Board of Supervisors has a list by department of the number of Sole Source Contracts.

F8: Targeted Addbacks to the city budget are taking place, even though they are against Procurement Rules: City Charter (2.114. Non Interference in Administration)

Related Recommendations (1)

R14: The Board of Supervisors has violated the Charter by making direct contracting decisions though targeted Addbacks. Through this procedure, the Board of Supervisors has continued the longstanding practice of allocating some City funds directly to specific contractors. Recommendations

F9: Targeted Addbacks are often a result of lobbying by special interest groups.

F10: Targeted Addbacks circumvent the contract process established by the city departments.

F11: Targeted Addbacks negate the expertise of the city departments.

F12: Targeted Addbacks do not follow the budget amendment process established by the City Charter and circumvent the regular competitive solicitation processes that City departments must follow, sometimes causing departments enter sole source contracts.

F13: Targeted Addbacks impede the ability of city departments to hold nonprofit contractors accountable for poor performance. (Partnering with Nonprofits in Tough Times: Recommendations from SF Community Based Task Force, April 2009)

F14: The Board of Supervisors has violated the Charter by making direct contracting decisions though targeted Addbacks. Through this procedure, the Board of Supervisors has continued the longstanding practice of allocating some City funds directly to specific contractors.

Related Recommendations (1)

F15: Consolidation of backroom operations would save the City money.

Related Recommendations (2)

R11: A Consolidated Backroom Unit should be set up with the Office of Contract Administration (OCA) to provide back-office operations for nonprofits. Back Office Operations 15 11

R15: Consolidation of backroom operations would save the City money. Recommendation

F16: The monitoring/oversight of the fiscal component of contract/grants between the City departments and nonprofits has improved since the 2000-01 recommendations identified the problems.

F17: The City Nonprofit Task Force focused on the fiscal monitoring of the contracts/grants between the City departments and nonprofits. Joint monitoring of nonprofits in fiscal matters is efficient for both the City departments and the nonprofits in that staff time utilized is reduced.

F18: The Office of Contract Administration does not track grants made to nonprofit organization.

Related Recommendations (2)

R12: The Office of Contract Administration should be given the task of tracking the compliance rate on nonprofit grant consolidation across all City departments.

F19: DCYF's CMS is admired by other departments and could be incorporated into their monitoring of nonprofits.

F20: There are few performance measurement systems being used by City departments to monitor and evaluate nonprofits' goals and objectives.

Related Recommendations (2)

R13: The Nonprofit Review/Appellate Panel should be given the directive to study the compliance rate on joint monitoring within and among all City departments and to make recommendations to bring compliance to 100%.

F21: DCYF has a system that tracks program goals and objectives on a monthly basis.

F22: Systems have been developed that enable nonprofit performance to be evaluated using common outcome indicators.

Additional Recommendations 3

Not linked to specific findings.

R3: The City "leverages" local money to obtain more federal and state dollars. Many grants come from outside funding sources with their own priorities that may not be in line with local goals and objectives. Most federal and state grants require matching funds from the City.

R6: A contract and scope of work are negotiated with the nonprofit after it has been selected to receive a grant

R10: The Controller expressed concern about the procurement process in the 2003 report "Sole Source Contracts", .

April 29, 2009 — The Numbers Have Something to Say, Is Anybody Listening? Performance Measurement (pm) in San Francisco City Government

19 pages 1 findings 15 recommendations

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Findings & Recommendations 1 findings

F1: through 15 1 and 10 15

Related Recommendations (1)

R1: through 14 8 13.b and 13.c [P.C. 933.05(a)] requires a response to each finding of either: “agree with the finding”, or “disagree wholly or partially with the finding” with appropriate explanations and corrections. [P.C. 933.05(b)] requires a response to each recommendation of either: “has been implemented”, “will be implemented”, or “will not implement”, with appropriate summaries, times and explanations.

Additional Recommendations 14

Not linked to specific findings.

R2: The Mayor should establish key metrics for key departments and report quarterly to the citizens on progress.

R3: Annual staff evaluations should be based on PM metrics.

R4: The Mayor should ensure that heads of departments reduce the number of metrics used within their departments to a manageable number that support the goals the Mayor has given to the department.

R5: The Mayor should delegate PM leadership to his Chief of Staff (COS).

R6: The COS must be educated in Performance Measurement to drive the PM program.

R7: A CPO should be appointed from within the existing PM qualified staff, reporting to the COS.

R8: The CPO should select two assistants from within the existing qualified staff.

R9: All three PM professionals must be fully dedicated to PM and not have any responsibilities to the Controller.

R10: The Mayor should appoint a Performance Measurement review committee to include at least the COS, the Controller and the PM Unit.

R11: The reporting chain could look like this MMaayyoorr CChhiieeff ooff SSttaaffff CCPPOO PPMM SSttaaffff PPMM CCoommmmiitttteeee BBiigg DDeeppaarrttmmeennttss SSmmaallll DDeeppaarrttmmeennttss UUnniittss

R12: The CPO should write a Performance Measurement plan for the City, derived from best practices in PM from around the country.

R13: The PM plan should include at least these components: a. The use of Efficiency Plans such that strategic goals, plans and programs give rise to metrics that can be included in the PM system. b. Metrics that are set by the Mayor for department heads, by department heads for their managers, and by managers for their staff. c. Metrics that reflect the Mayor’s goals for departments. d. Metrics that are for the fiscal year and are not to be changed. e. Reviews of large departments by the PM Committee in formal session at least monthly and smaller departments not less than every six months. f. Training for department heads and line managers in PM practices.

R14: The Jury recommends changes to these metrics that are related to PM: a. The 311 system should be tied into the PM system to establish targets for City services. Pending automating that process, the data should be entered manually. b. Managers should link PPA objectives to PM metrics where that makes sense. c. MEA bonuses should be rolled into regular compensation.

R15: The Jury recommends this Performance Measurement implementation schedule a. The CPO should implement an abbreviated PM Plan containing at least metrics assigned by the Mayor to department heads by 31 December 2009. b. The CPO should fully implement PM by 1 July 2010. Responses are required from: The Mayor The Controller Director, Human Resources

* This report's PDF did not contain easily extractable text and required Optical Character Recognition (OCR) for analysis. There may be minor errors in the extracted findings and recommendations due to OCR limitations with scanned documents.