San Francisco is facing the ominous burden of a $4 billion health care liability for its retired public employees over the next 30 years. With costs for medical care and insurance coverage rising uncontrollably, The City’s unfunded obligation will continue expanding into full fiscal meltdown if something is not done to stop it.
In 2000-01, San Francisco spent only $17 million on retiree health care, but last year’s contribution ballooned eightfold to $135 million.
The City also operates under some bizarre, over-generous health coverage policies. For example, a 55-year-old municipal retiree is currently entitled to free lifetime health coverage after only five years of California public sector employment — not necessarily consecutive years and not necessarily all spent working for The City.
In addition, recent rule changes by the U.S. General Accounting Standard Board require local jurisdictions to report all future liabilities for which no dedicated funding source exists. So San Francisco’s $4 billion obligation for retiree health care would likely worsen its bond rating, thus making it more expensive for The City to borrow money.
These ever-worsening potential consequences were enough to finally push the problem onto the front burner. And the result is Proposition B, a sweeping reform of city retiree health care that is projected to save $49 million over the long term. Proposition B is a classic product of negotiated compromise — a rare and welcome throwback to what politics used to be before rigidly excessive partisanship took over most statehouses and Washington, D.C.
What The City gains from Proposition B: For the first time, future city employees would have to contribute salary deductions towards their retirement health benefits — 2 percent of gross pay with a matching 1 percent city contribution. Full coverage benefits would commence after 20 years of actual city employment, not today’s five years of California public service work.
And highly important as The City enters a major deficit period; there is to be a de facto two-year wage freeze through the end of 2010.
What The City gave in exchange: Pensions for non-public-safety city employees will permanently increase from 2 percent to 2.3 percent per year of service at highest salary. But the maximum pension payouts would begin at age 62 instead of 60.
This looks like less of a giveaway when you consider that, surprisingly, San Francisco’s 2 percent rate today is the lowest in California. And The City’s independent pension fund is more than 100 percent funded.
There is no reason to vote against Proposition B unless you like seeing unfunded liabilities continue to balloon out of control. This charter amendment does not shrink The City’s existing $4 billion unfunded health liability, but it is a vital first step that halts the burden from growing even worse.