One San Francisco official hopes to use the ballot box to tighten controls on how the fund that pays for retiree health care for city employees can be used.
Historically, The City has paid retiree health care costs on an annual basis, not setting aside dollars and not worrying about future costs. But as medical expenditures escalate, The City faces $4.4 billion in retiree health care costs during the next 30 years.
In recent years, The City has laid the ground work for transforming this “pay-as-you-go” model into a fully funded model using a recently established Retiree Health Care Trust Fund. This fund is designed to accumulate contributions from both The City and its workers and collect interest, much like the existing retiree pension fund.
However, when the fund was established it came with no spending restriction come 2020. That means the fund could be raided for other San Francisco budget purposes.
Supervisor Mark Farrell introduced a charter amendment Tuesday that would impose a restriction on the spending, allowing expenditures only to offset retiree health care costs that exceed 10 percent of The City’s $2.5 billion payroll, or $250 million.
Current retiree health care costs of $150 million are expected to balloon to $500 million in 20 years.
“This Charter amendment will require no additional employee contribution and will not reduce benefits; it will simply require financial discipline at City Hall,” Farrell said.
Projections for Farrell’s proposal show The City could be spending up to $50 million a year out of the fund when costs exceed 10 percent. Assuming such expenditures, it’s expected the fund will be deemed “fully funded,” adequately covering retiree health care expenses, in 30 years.
Farrell’s legislation builds on previous efforts to lower labor costs, such as the 2011 pension measure Proposition C and 2008’s Proposition B, which created the Retiree Health Care Trust Fund and eliminated some of The City’s more generous retiree health benefit provisions, such as full vesting after five years of service. Both propositions were approved by voters.
Also as a result of those ballot measures, workers hired after January 2009 have to contribute 2 percent of their pay into the retiree fund, with The City kicking in another 1 percent. Workers hired before then will begin contributing 1 percent of their paychecks into the fund, with a matching 1 percent from The City, come 2016.
The Charter amendment needs six votes from the Board of Supervisors to make it onto the November ballot. The measure already has key labor and business support.
Also on Tuesday, the board unanimously approved legislation that, among other things, empowers the Department of Public Health to cite street performers who use loud music. The legislation was inspired by noise complaints in Union Square.
Correction: This story was updated May 23 to correct the amount of The City's payroll, which is $2.5 billion.