Last week, I wrote about how San Francisco is at least $10 billion in the hole, with the hole being much deeper using more realistic assumptions. The sources of that long-term debt are The City’s pension and health care (Other Post-Employment Benefits or OPEB) liabilities. The need to service those liabilities has created, and is widening, our long-term structural deficit, and this widening deficit threatens to consume The City’s budget, requiring a painful combination of a lower level of services and higher taxes.
But today, we are going to focus on the two most important things we can do right now to address this crisis, not short-term gimmicks but genuine solutions.
Before diving in, I must note that this column is not about pensions. That may be a surprise, since I previously showed that the pension liability is even larger than the OPEB liability. But state pension law is in flux because the state Supreme Court is expected to rule within the year on a set of court cases that will clarify what changes municipalities, including San Francisco, can make to benefits that existing employees have not yet earned but expect to receive for future service. The time to discuss pensions will be after those cases are decided.
Now, on to what San Francisco should prioritize right now to ensure we maintain, share and grow our city’s prosperity.
1. CONTROL HEALTH CARE COSTS
The table shows why it is absolutely vital for The City to keep the rate of annual health care cost inflation as low as possible. If long-term health care inflation for San Francisco is just 1 percent less than assumed, The City saves more than $500 million compared to the base value. But if long-term health care inflation is just 1 percent more than assumed, The City loses more than $600 million compared to the base value. (The line item to look at for these comparisons is the bottom one: “Unfunded Actuarial Liability.”)
Those are big numbers!
Controlling health care costs both now and over the long run must be an absolute priority for The City’s government. Here is what each responsible party must do:
— The Controller’s Office has already done its part by explicitly flagging the issue in the 2017 Joint Report by the Controller’s Office, Mayor’s Office and Board of Supervisors’ Budget Analyst.
— The Board of Commissioners for the San Francisco Health Services System (HSS) has immediate responsibility. Here is the name of each commissioner, when her or his term ends and who appointed him or her:
– Randy Scott (President), term ends May 15, 2020, appointed by City Controller
– Willie Lim (Vice President), term ends May 15, 2020, elected by HSS membership
– Steven Follansbee, term ends May 15, 2020, appointed by Mayor Ed Lee
– Karen Breslin, term ends May 15, 2019, elected by HSS membership
– Sharon Ferrigno, term ends May 15, 2019, elected by HSS membership
– Gregg Sass, term ends May 15, 2018, appointed by Mayor Lee
– Jeff Sheehy (Supervisor), term ends Jan. 1, 2019 or upon leaving office, appointed by President of Board of Supervisors
— The choice either to reappoint each commissioner or whom to appoint as replacement must be made by each appointing body with an absolute focus on assessing whether that commissioner will control long-term medical cost growth and holding that commissioner accountable.
— The next mayor must make it a key priority to control health care costs: only the Mayor’s Office has the authority and clout to emphasize this imperative sufficiently to make it happen.
2. PLAN FOR LONG-TERM POPULATION GROWTH
The key insight here is that San Francisco’s pension and OPEB costs are much lower for people hired today than for people hired before 2009. Therefore, as The City grows its population and its overall tax base, the additional city government employees needed to support that growth do not worsen our pension and OPEB liabilities. A larger San Francisco can better support our legacy pension and OPEB costs, and taxes per person will not have to increase as much to maintain the same level of city services.
Of course, this is only a long-term strategy. It will take years for San Francisco to build the infrastructure we need to absorb many more new residents, so near-term focus on costs is critical. But it is equally important to plan now for the future growth that will allow us to meet our pension and OPEB obligations while preserving (and hopefully improving) city services without punitive tax increases.
The imperative to build more housing is generally framed as a cost-of-living issue, and it certainly is. The most important reason housing is so outrageously expensive is there is not enough of it. But the housing discussion, so far, has overlooked another core truth: When San Francisco’s debts are repaid we will all be better off if there are more of us paying the bill.
Anyone who is serious about fulfilling as much of our pension and OPEB commitments as possible while maintaining and enhancing quality of life should want not just cost containment in the near term, but also smart population growth in the long run.
The most far-ranging policy under consideration to allow San Francisco – and all of California – to build the housing we need is Senate Bill 827. Our commitment to honor our pension and OPEB promises is one more reason to work together to get that bill right and enact it into law.
Patrick Wolff lives in the Sunset District. Email him at email@example.com.