Voting Yourself into Bankruptcy

San Francisco’s public-sector unions have been gloating following last month’s defeat of Proposition B, which would have required city employees to boost contributions to their generous pension and health-care benefits. The unions’ multimillion-dollar campaign—featuring a TV ad with a mother (presumably a city worker) unable to pay for her son’s medical visit—defeated the initiative by a solid 57 percent to 43 percent margin. But Prop. B’s sponsor, Public Defender Jeff Adachi, is in a stronger position than ever, thanks to another bout of bad news for the city’s economy.

On November 17, Moody’s Investors Service downgraded the city and county of San Francisco’s general obligation bonds, from Aa1 to Aa2. It’s not a dramatic change, but the downgrading will increase the city’s borrowing costs. It reminds us that the benefit-related debt problem isn’t going away just because the city’s political establishment and voters would like it to. Moody’s was clear that the failure of Prop. B was one of the key factors in its decision. Pointing to San Francisco’s remaining FY 2012 budget gap of $394 million, Moody’s wrote: “There are no indications that there is the political will or practical ability to bridge this still very large gap in a structurally sound manner.....