When I was fifteen or so, I had a boyfriend and, for reasons I don’t really remember, I needed to break up with him. (Maybe he didn’t like The Low End Theory - then a terminable offense.) At any rate, the whole relationship thing then was simply too confusing. So, I turned to the smartest person I knew: My Dad. He listened to my concerns about the complex political implications of the various possibilities. Then he said: “You know, the shortest distance between two points is always a straight line.”
I knew he was totally right.
And there was no way in hell I was brave enough to take that advice. I then went to my Mom who offered to help me fake my own death.
Not much has changed since then. Not liking Tribe is still a deal-breaker. Relationships remain baffling. Dad is still the smartest person I know. And problems that seem complicated still have simple solutions if we can just have the guts to face the truth.
Well folks, San Francisco needs to break-up with some of its old financial practices, and the solution will be painful and politically unpopular in the short run.
Our story goes back to at least 1931, when SF voters endorsed a version of the City Charter that went into effect in 1932. Back then some smart person decided to codify City employee retirement benefits in the Charter. It has been amended by referendum from time to time, most notably in 1973 when the current retirement benefits table was added. Today, when a SF City employee (we're not talking about police or firefighters - you can find info on police here) retires (age 50 at earliest) you look at the highest average monthly wage that employee earned any five-year period with the City. The employee is entitled to a certain percentage of that monthly income based on the table at City Charter Section A8.509 times the number of years of service with the City. For example, a 20-year employee who retires at age 60 gets 2% of his highest average monthly pay amount. Assuming that amount was $4000, his retirement income would be 2% of $4k ($80) multiplied by 12 months for the annual rate ($960) times 20 years for a $19,200 per year retirement income. [Note that the fund is annually adjusted for inflation.]
You should know that 2% of highest monthly income is the maximum amount a SF retiree can get and is the lowest of all major cities and counties in California. (The highest is 3% - see chart at bottom.) Of course, this is not why I like the SF retirement system. No, what is good about our set-up is that, because our system provisions are in the Charter, they cannot be changed without a public vote. So, over the years, when some politician(s) wanted to get in good with the unions or recruit talent at City Hall without increasing pay (which would have immediate negative consequences on the budget) they were prevented from increasing retirement benefits as an alternative. As a consequence, our retirement plan is fully-funded.
But there is a benefit that politicians could (and did) increase with blissfully shortsighted abandon: retiree medical benefits for City employees. Currently, after 5 years of service, the City will pay 100% of the employer contribution for the employee and 50% of the contribution for one dependent when the employee retires. Which is by far the most generous of all major cities and counties in California. (See chart at bottom.) What’s even better is that, because the City budget only reflects what we are paying out each year for current retirees (a mere 115 million) the real and total amount of our promises to current and retired workers goes unreported (4 billion) and the appearance of the City’s financial health does not suffer.
But all that is about to come to a screeching halt.
In my next post in this series, I'll be introducing you to something called GASB 45; a new set of requirements for financial reporting that will force the City to come to terms with the full implications of retiree medical promises we have made to City employees. And I am positively giddy to report that some City leaders are actually showing more guts than I had at 15, and may actually be doing something useful to fix this problem.
Still, I have put my Mom on notice.
--Melissa
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