Examiner Editorial: City benefits, pensions bleed budget dry 

The Examiner has been warning for years that the ballooning “unfunded obligations” of public employee pensions and health benefits at local governments throughout California are a financial disaster waiting to happen. Now San Francisco’s disaster isn’t waiting any longer, as an ominous combination of recession revenue shrinkage and out-of-control health care costs batter The City’s budget.

Ten years ago, some 23 percent of city workers’ salaries were benefit costs. We spent $383.7 million on health insurance for active and retired workers, retirement contributions and Social Security. In the current fiscal year, that bill jumped 132 percent to $890 million. Three years from now costs could hit $1.4 billion — at least 52 percent of the citywide payroll by fiscal year 2013-14, according to the Department of Human Resources’ latest report.

Even as San Francisco faces a $522.2 million budget shortfall next fiscal year — with more of the same to come — our budgets must find $3 billion for retiree health during the next 30 years. That means slashing more funds needed for current services and capital expenses.

San Francisco’s pension investment fund took a 20 percent hit in 2008 when the economy plummeted, so The City had to contribute $200 million to pension costs this fiscal year. City Hall could be paying double that in three years, according to the most recent projections. Pension fund investments were so profitable in the 1990s that The City didn’t need to contribute anything extra.

Meanwhile, health benefit costs for active workers and retirees, along with those contractual pensions, are increasing much faster than The City’s revenues.

Clearly something needs to be done without delay. Supervisor Sean Elsbernd and Mayor Gavin Newsom introduced a charter amendment in December that might significantly stabilize The City’s pension collections — if it gets approved by voters in a June election.

The proposed legislation would have all city workers contribute more to their own pension costs. It would also increase newly hired public safety workers’ pension retirement contributions from 7.5 percent to 9 percent, and calculate pensions based on average salary for the past 36 months of service, not just the final 12 months.

Probably even more significantly, it would require The City to set aside 9 percent of every year’s budget into a retiree health care fund — keeping San Francisco caught up with its obligations instead of pretending that pension investment earnings can pay the entire liability forever. The Examiner distrusts set-asides and does not endorse city measures until a final draft appears on the ballot. However, the Elsbernd-Newsom amendment looks like good sense, and pension obligations must be paid — with or without a set-aside. Certainly doing nothing is a worse option.

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Staff Report

Staff Report

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A daily newspaper covering San Francisco, San Mateo County and serving Alameda, Marin and Santa Clara counties.
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