Even after pension reform, costs will surge in coming years 

click to enlarge Even with the extra pension contribution by city employees, San Francisco is set to fall farther behind on its pension liability. - SF EXAMINER FILE PHOTO
  • SF Examiner file photo
  • Even with the extra pension contribution by city employees, San Francisco is set to fall farther behind on its pension liability.

Although San Francisco voters significantly increased the pension contributions of city employees last November, the government’s pension costs are still expected to increase by almost 20 percent over the next 17 months.  

In November, city voters approved a pension measure that increases city employees’ pension contribution rate whenever the city’s contribution rate increases.
But even with that extra money, The City’s $363 million pension burden is still on a pace to balloon by another $72 million by July 1, 2013, according to an analysis by the City Controller’s Office.

The next fiscal year’s pension cost increases are seemingly manageable. The San Francisco Employees’ Retirement Board is expected on March 14 to adopt a 20.7 percent pension contribution rate, which will result in a pension bill of about $429 million. But since city workers will now contribute an additional $55 million beyond their prior contributions, the analysis shows, the total pension tab will only rise about $11 million next fiscal year.

But in the subsequent year, The City is looking at another $61 million in pension growth, for a total of $435 million. And that’s even after factoring in the $77 million extra that city workers will contribute as a result of Prop. C.  

“There’s nothing here that is not unexpected,” said Supervisor Sean Elsbernd, who helped Mayor Ed Lee negotiate the ballot measure with city labor leaders. “Prop. C makes it a bit more manageable.”

However, Public Defender Jeff Adachi, who championed a dueling pension measure on the November ballot, said these new projections show that Prop. C did not go far enough. The Adachi measure included higher rates for city workers, which would have saved tens of millions of dollars more annually.

Pension funds continue to suffer from low-investment returns, Adachi said, and “we know that the train wreck is coming.”

Mayor Ed Lee’s spokeswoman Christine Falvey praised the November ballot measure. “Prop. C is going to save up to a $1 billion over the next decade,” Falvey said. “These are significant savings that will offset losses to city services that we would have otherwise seen and we would be looking at a much more difficult financial picture had it not passed.”

While next year’s pension rate of 20.7 percent is expected, the rates in subsequent years are likely to change depending on how pension investments perform throughout the year. The retirement board recently lowered its investment returns from 7.75 percent to 7.5 percent, indicating concerns about the stock market outlook

Pension costs weigh heavily on The City’s overall budget. The most recent projections forecast a $229 million budget deficit for the fiscal year beginning July 1, and a $364 million deficit in the year after. Budget cuts threaten vital city services, like parks, social services, and street and sidewalk cleaning.  

jsabatini@sfexaminer.com

Proposition C’s fiscal impact

Fiscal year City contribution rate Prior cost Prop. C contribution New cost
2011-12 18.09 % $375M $12M* $363M
2012-13 20.7 % $429M $55M $374M
2013-14 24.7 % $512M $77M $435M
2014-15 27.4 % $568M $77M $491M

Source: City Controller's Office

*This reflects a labor agreement struck between Mayor Ed Lee and police and fire unions where pension rates rose in exchange for pay raises.

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