Shrinking revenue and exploding compensation costs are threatening to blow up San Francisco’s government, and officials are debating politically charged solutions that could shape the services residents and visitors get for years to come.
Balancing the San Francisco budget to ensure open recreation centers, clean and pothole-free streets, reliable public transportation, adequate police and fire protection, and an array of health and substance abuse services has become a daunting task in these years of a weak economy and skyrocketing labor costs.
Huge projected budget deficits “as far as the eye can see” are driving emotional debates about how to keep government operating in a manner residents expect.
Two November ballot measures targeting workers’ compensation were placed on the ballot through signature-gathering campaigns.
Voters will decide if city workers will contribute more to their pensions and to their dependents’ monthly health premiums in a measure put forward by Public Defender Jeff Adachi. It has drawn fierce opposition from organized labor and Mayor Gavin Newsom, among others.
Gabriel Metcalf, director of the public-policy think tank San Francisco Planning Urban Research Association, said the generous promises to labor unions are bills The City can no longer afford and there needs to be a “rolling back.”
“Here in San Francisco we’ve had a dynamic in place for a long time where you can’t be elected mayor without promising the moon to city workers,” Metcalf said. The labor costs are front and center in the ongoing Board of Supervisors debate about placing tax measures on the November ballot.
“I don’t particularly want my children’s park and rec funding, my daughter’s basketball program in the Mission, to be cut when I know that the money is getting sucked out of San Francisco in pensions to Novato, to Placerville, to Reno, to wherever God knows people are retiring to,” Small Business Commissioner Michael O’Connor said during a June 28 commission hearing on a proposed November tax increase measure. “We are looking at bigger deficits next year. Why is that? Pretty much all of us know why that is, and a lot of it has to do with pensions.”
But Board of Supervisors President David Chiu says The City has addressed reform: Labor union workers agreed to give up $250 million in pay during the next two fiscal years; voters approved a June ballot measure that will save The City up to $500 million during 25 years in pension costs by increasing pension contribution rates for newly hired public safety workers; and government has about 2,000 fewer workers than two years ago.
Chiu has said tax measures should be part of San Francisco’s budget equation.
“We have budget deficits that are as far as the eye can see,” Chiu said Friday. “This year we are looking at a budget [deficit] of almost a half billion dollars. Three years from now we have a budget deficit that is close to $800 million.”
“The significant driver of the deficits over the next few years is not revenue shortfalls,” Supervisor Sean Elsbernd said. “It is pension increases.”
Chiu said he is willing to tackle pension costs — just not in Adachi’s manner. “We all share the hope that City Hall working with experts in this area, working with our labor unions, working with San Francisco leaders, that we can in the coming months come up with a better pension reform proposal [than Adachi’s] that will end up helping to save money.”
Tim Paulson, head of the San Francisco Labor Council, said “People have short-term memories. ... City workers just gave up a quarter of a billion dollars to make sure that gardeners, firefighters, nursing assistants and librarians are going to continue to be able to serve the public. We are going through a difficult time. And workers in San Francisco stepped up to the plate and to further attack them is irresponsible.”
“All the burden of making sure that this great city continues to work should not be only on the backs of the workers,” Paulson said. “Most pension funds are getting healthier. Wall Street is coming back.”
But Elsbernd insists pension reform is needed to clear San Francisco’s budget deficit.
“Our pension costs I used to say are a ticking time bomb,” Elsbernd said. “The bomb has exploded. It’s no longer ticking and The City’s cost associated with our pension obligations have eaten up our general fund budget and will continue for years to come. With the increased life expectancy, increased number of city employees, increased overall city salaries, promises made on pension are simply not sustainable.”
The Adachi measure would save The City up to $170 million annually, he says, leaving benefits that are “still a pretty good deal” for city workers.
Newsom’s spokesman Tony Winnicker said, “The mayor also believes pension reform will happen in steps, and we have to immediately take another step, which is why we’ve already convened key city staff and union leaders to begin the next step at pension reform.”
The other measure dealing with workers’ pay placed on the November ballot through a signature-gathering campaign would eliminate a charter provision that ensures Muni operators are among the second-highest paid compared to other transit agencies in the nation. The Muni measure, developed by Elsbernd and SPUR, doesn’t directly address pension or health costs, but provides management with more leverage to create best-practice work rules through labor negotiations by eliminating automatic pay levels — making salary a part of negotiations. Muni operators were the only labor group to reject concessions; the deal would have saved the agency $15 million.
Laws affecting compensation
Sustainable City Employees Benefits Reform Act
Proponent: Jeff Adachi, public defender
Measure will be brought before voters on Nov. 2 through a signature-gathering campaign.
- Increase employee-contribution rates for pensions to 9 percent or 10 percent for existing and future city workers. Currently, employees pay 0 and 7.5 percent.
- The City would “pick up” no more than 50 percent of the costs of health benefits for city workers’ “dependents,” such as spouses and children.
- Dental benefits: The City would only contribute 75 percent of the costs for an employee and 50 percent for an employee’s dependents.
Muni Charter Amendment
Proponent: Sean Elsbernd, District 7 supervisor
Measure will be brought before voters on Nov. 2 through a signature-gathering campaign.
- Eliminates charter provision requiring Muni operators to be paid at least the second-highest wages compared to other transit agencies in the nation. Compensation would be negotiated.
- Gives management more leverage to negotiate work rules blamed for inefficiencies and waste, like use of part-time operators, overtime and discipline.
Retirement Benefit Costs, Proposition D
Approved by voters
June 8, 2010
- Employees of fire and police departments contribute 7.5 percent to pension; increased pension contribution to 9 percent for public safety workers hired on or after July 1, 2010.
- Currently, pensions are based on the highest pay earned in a year. New formula calculates it on the average of the highest two years.
- City savings are estimated between $300 million and $500 million during a
25-year period, “depending on future wage and benefit rates for employees and other factors,” according to the City Controller’s Office.
Changing Qualifications for Retiree Health and Pension Benefits and Establishing a Retiree Health Care Trust Fund, Proposition B
Approved by voters June 3, 2008
- Increased years of service required to qualify for employer-funded retiree health benefits for city employees.
- Raised cost-of-living increases for retirees.
Police and firefighters retirement benefits, Proposition H
Approved by voters Nov. 5, 2002
- The maximum retirement benefit police and firefighters could receive was 75 percent of their salary at the time of retirement. This measure increased it to 90 percent.
What SF pays
Cost to San Francisco for health insurance of active workers and retirees, retirement contributions, Social Security:
FY 1999-2000: $383.7 million
FY 2009-10: $890.3 million
10-year growth: 132 percent
FY 2013-14: $1.4 billion
Projected four-year growth: 61.5 percent
Historical and projected costs of employer contribution to retirement:
FY 1999-2000: $300,000
FY 2009-10: $200.5 million
10-year growth: Infinite
FY 2015-16: $613.9 million
Projected six-year growth: 206.2 percent
*Per San Francisco Employees’ Retirement System in January 2010, assumed investment returns
San Francisco city and county budget:
FY 2009-10: $6.586B
FY 2010-11: $6.482B, pending approval by Board of Supervisors
Salaries and wages: $2.488B
Fringe benefits: $767M
Salaries and wages: $2.481B
Fringe benefits: $935M
Salaries and wages: $2.363B
Fringe benefits: $984M
Source: Mayor's 2010-11 proposed budget
Benefits of government work
City workers’ health benefits as a percentage of their salaries:
* Projections. These neither include recent labor concessions nor passage of June ballot measures.