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Let It Bleed 

The city is awash in red ink, thanks to billion-dollar benefit giveaways and our politicians' lack of will.

Wednesday, Oct 20 2010

Page 2 of 5

This city is already spending more than one dollar of every seven toward workers' health care and pensions. By 2013, the city projects it'll shell out $1.37 billion on benefits. To put that number in perspective, it currently spends $1.36 billion to run General Hospital, the fire department, and the police department. 

And yet this is not the doomsday scenario. These grim projections assume that the city's retirement fund nets a respectable return. At a September hearing, Supervisor Carmen Chu repeatedly referred to a 4.5 percent return as the "worst-case scenario." Clearly, she has worked in government too long. When you invest, the "worst case" is that you lose money, not that you have 4.5 percent more of it than when you started. If the city loses money on its investments — and $3.5 billion evaporated from the retirement fund at the onset of the Great Recession — then the supervisors will be facing a truly worst-case scenario.

But what if the city does better than 4.5 percent? San Francisco made just shy of a 13 percent return this year. This is what a lot of people are hoping for; the stock market soars, and happy days are here again. Won't that save us? Pension expert Girard Miller says this is the dream of municipalities across California. "There's still this belief that magical revenue will be coming down from the sky," he says. Barring literal pennies from heaven, Miller says, a quick fix will depend on "magical pixie dust from a pension tooth fairy." But even this divine being — and truly divine returns — wouldn't right San Francisco's ship.

The city is still amortizing its losses of years past. Even a 15 percent investment return won't keep the city's pension contribution from leaping to more than half a billion dollars yearly — and fast. The difference between scintillating investment returns and ho-hum ones is the city doling out $652 million or $717 million to the pension plan by 2014, according to independent actuarial reports of the San Francisco Employee Retirement System. Essentially, it's akin to the difference between insulting bitterly disappointed 49ers fans or a roomful of Hells Angels. Either way, you're in for a beating.

But health care is where things are really ugly. San Francisco's overall costs jumped by 147 percent over the past decade, and are expected to continue skyrocketing. That's about how it went in many cities. But not every city had the obscenely generous policy of awarding lifetime health coverage to any worker with a scant five years on the job. That munificence bit San Francisco on the bottom line — and led to the looming $4 billion shortfall no one has figured out how to address. The city's $993 million spent on benefits this year does not include a single dollar toward that $4 billion gap between the projected costs of health care for future retirees and their families, and the money on hand to pay for it.

No city cost is exploding with quite the megatonnage of health care specifically for retirees, which, according to the Department of Human Resources (DHR), has surged 462 percent since the onset of the decade. That's due in part to an expensive — and charter-mandated — "City Plan" PPO and a retiree-dominated Health Services Board. Because of that minuscule five-year health care vestment, San Francisco has a small army of retirees on its books — and a survey by the Controller's office found San Francisco's health benefit spending per retiree is double that of comparable California cities. Worse, a wave of retirees is anticipated. Fully 20 percent of all current employees are eligible to retire tomorrow — and 27 percent of cops and firefighters can hang it up now if they choose, according to the DHR. Since a retired worker can cost San Francisco nearly 98 percent as much as a working one, goodbye parties are just the beginning of the city's pending expenses.

Obviously the city has to do something. That, at least, was the conclusion of Moody's Investor Services in a recent assessment of the city's finances. "Our Aa1 rating on the city's [general obligation] bonds assumes that the city will prepare a long-term solution to this funding challenge," its assessment reads. Any sober person would assume San Francisco would try to solve this problem. Because we're sane. Right?

If only. Instead, we're doing our very best to prove Moody's assumption wrong.

The road to San Francisco's fiscal hell is paved by a union employee earning top dollar and a 75 percent pension at age 60 — regardless of his or her intentions.

Pension increases were approved by voters in 1996, 1998, 2000, 2002, 2004, and 2008. Also in 2000, the city's five-year vested health care plan was rendered even more generous by Proposition E, capping retirees' payments and allowing them to get dependents into the plan. "That ballot measure has cost us hundreds of millions of dollars," Elsbernd says. "Eventually, it'll cost us billions."

City residents angry that the rec center pool has people living in it and that the city's potholes have potholes are themselves partly to blame. In voters' defense, however, the measures brought to the electorate were crafted and backed by labor and the entire spectrum of San Francisco's relevant political structure — and publicly condemned almost exclusively by token Republican gadflies who decry any expenditure of public dollars as creeping socialism. 

But San Francisco was warned by credible people, too. Former supervisor and state Senator Quentin Kopp wrote in the 1990s that upping pensions would "turn the clock back to an era of runaway expenditures, budgetary gaps, and extraordinary pension plans for a selected few city employees, at the expense of taxpayers and other city employees." Essentially, that's what happened. But with the economy booming, austerity was a tough sell.

While the city was ever-increasing the percentage of workers' final salaries they'd be paid in perpetuity, it was also raising those salaries. Between fiscal 2001-02 and the present, the size of the city's workforce has remained stable — but its budgeted salary jumped by some $566 million. Pensions are based on final salaries, so the combination of augmenting both salaries and pensions is akin to receiving a raise followed by a bonus based on your salary — with a cherry on top. For life. 

About The Authors

Joe Eskenazi

Joe Eskenazi

Joe Eskenazi was born in San Francisco, raised in the Bay Area, and attended U.C. Berkeley. He never left. "Your humble narrator" was a staff writer and columnist for SF Weekly from 2007 to 2015. He resides in the Excelsior with his wife, 4.3 miles from his birthplace and 5,474 from hers.


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