City should trim employee health care costs to reduce deficit 

The budget outlook for the city and county of San Francisco is vastly improved compared to previous years. But serious systemic budget problems still need to be addressed.

In many ways, San Francisco and California are in the same boat when it comes to budget forecasting. State lawmakers started this fiscal year with a balanced budget, which was based on voters approving tax increases.

Voters backed Proposition 30, which was heavily promoted by Gov. Jerry Brown, and the state’s fiscal bleeding was stopped — at least for now.

San Francisco’s latest budget projection, highlighted by Mayor Ed Lee’s budget instructions to department heads this week, is also rosier than in recent years. Last year’s budget shortfall projected a $375 million hole in the 2013-14 fiscal year. But voter-approved pension reforms and tax reform have brought the latest two-year shortfall down to just $134 million in the $7.5 billion annual budget.

And while both city and state governments have seemingly halted more cuts for the immediate future, neither has done much to reverse the cuts that occurred in recent years. Such belt-tightening was necessary, but cuts to education and social services mean that some programs are starting to show strain.

Schools are the most notable example. The San Francisco Unified School District needs money for programs to help students who are at risk of not graduating. But state cuts leave the district with its hands tied to set up new programs, and city officials seem reticent when it comes to giving more money to an agency not technically under their control.

At the statewide level, additional financial reforms are likely to proceed on a twin track of increasing revenue and bringing down costs. Calls for more revenue revolve around bringing in more money without creating new taxes, and reforming the rules surrounding Proposition 13 is one increasingly popular approach. Officials also need to be looking at pension and health benefit reform, which could free up more money for the general fund.

In San Francisco, the gorilla in the room is The City’s ever-increasing personnel costs, which are growing at a rate of $90 million per year, according to documents from the Mayor’s Office. Much of that growth is the increasing cost of health care for workers, their dependents and retirees.

As we witnessed with the federal reforms now popularly called Obamacare, the task of reforming health care in this country is a colossal task, and it would be unreasonable to assume that San Francisco officials will be able to come up with a silver bullet to bring down health care costs. But The City must take action to rein in its runaway personnel costs.

Just a few years ago, it looked like rising pension costs might bring down San Francisco’s budget. Yet a collaboration of city officials, business leaders and labor leaders grudgingly sat down and, after fits and starts, came up with a ballot measure that was palatable to everyone involved in the process. Voters agreed, and The City is now enjoying the fruits of the tough work. Although it may be necessary to some day revisit that effort, the cooperative approach ensured meaningful progress was made.

The state could take a lesson from San Francisco when considering its own pension problems. Meanwhile, The City should continue to be a trailblazer in cost control by coming up with a broad-based plan to reduce health care costs.

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