The City’s pension costs will increase by tens of millions of dollars next fiscal year to offset investment losses.
That doesn’t come as a surprise to Mayor Ed Lee, said spokesman Francis Tsang, adding that increased pension costs also are expected in the subsequent year.
In 2011, skyrocketing pension costs prompted Lee to broker a “compromise” with labor unions. The result was the voter-approved Proposition C, which requires employees to contribute more toward their pensions when The City has to as well. Even with that measure, city pension costs will exceed $500 million next fiscal year.
For the current fiscal year, The City’s contribution rate was set at 20.71 percent of payroll, or ?$489 million. An increase in employees’ contribution under Prop. C lowered the cost to $431 million. For the upcoming fiscal year, the rate will increase to 24.82 percent, or $594 million. That decreases to $508 million with higher employee rates under Prop. C. City department payrolls comprise 95 percent of the total pension costs, with the remainder coming from workers in the school district, community ?college district and trial courts.
The 4.11 percent rate increase, approved this month by the San Francisco Employees’ Retirement System board of directors, is necessary to make up for losses blamed on the 2008 economic crisis and lower than expected investment returns for the fiscal year ending in June 2012, according to the retirement system’s March 7 financial report.
“San Francisco, like public pensions everywhere in the country, are still dealing with the dramatic losses of the 2009 downturn,” Tsang said. “We expect fiscal year 2014-15 to be the peak year for SFERS contributions and are expecting to see slight decreases in rates after that.”
Under Prop. C, rate increases vary depending on the type of city worker. Next year the aggregate result will be 11.14 percent of payroll, up from the base rates of 7 to ?9 percent. This compromise measure beat out a competing proposition placed on the ballot by Public Defender Jeff Adachi that would have had government workers contributing more.
Tsang said the mayor’s immediate focus for growing labor costs is not pensions — having addressed that with Prop. C — but rather the escalating health care costs for both current workers and retirees.
The City is facing budget deficits in the coming years. Within five years, costs will grow from ?$123.6 million, which needs to be closed by the start of the next fiscal year on July 1, to $487.2 million, according to the City Controller’s Office’s five-year budget report. The Board of Supervisors Budget and Finance Committee is holding a hearing on the report today.