Interview by Adam Lashinsky, senior editor at large
FORTUNE -- One of the problems San Francisco interim Mayor Edwin Lee inherited when he took over for now Lt. Gov. Gavin Newsom was the city's underfunded pension system (see: San Francisco's Pension Smackdown). Backed by billionaire venture capitalist Michael Moritz, San Francisco Public Defender Jeff Adachi has been pressing an independent initiative to require public employees to contribute more to their pension plans. Labor unions opposed to Adachi have worked with billionaire financier Warren Hellman on a parallel proposal. On May 24, Lee announced a coalition plan supported by the unions, business groups and most of the city's board of supervisors. He discussed his plans, as well as his efforts to keep San Francisco-based Twitter from moving to the suburbs, in an interview on May 27. An unedited transcript follows.
ADAM LASHINSKY: So, Mayor Lee, San Francisco is not unique among American cities with grievous pension problems. Can you characterize what the problem is in San Francisco briefly, and then how you're attempting to deal with it?
MAYOR EDWIN LEE: Well the problem is basically that we haven't paid attention to it, and for years our pension program--well it's a modest program, it's not a very rich program, but really it came about in the 2008 stock market crash, the Lehman days, where all of our costs went up. But including when the investments didn't return, then, by law and by our agreements, the city contributions had to increase.
What we didn't do was take a close look at rules and regulations in our pension system that had been there for many, many years, where we didn't get corresponding increases in contributions from our employees, and also where there were formulas that were built in over many years, that caused a lot of the increases, so that we were looking at this year an increase of $125 million in one year just based on the pension increase cost.
ADAM LASHINSKY: And this is a fund that's approximately $16 billion in assets, a little bit less than that?
MAYOR EDWIN LEE: That's right, that's right.
ADAM LASHINSKY: And some of the formulas and things baked in that you're talking about, examples of this are overtime formulas or retirement formulas that allow certain civil servants to earn a lot of money based on what their most recent salary was when they retired?
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