Jolt 45, Part Three: The New Deal

Constant Readers,

I am not sure if this will be my last GASB post. The Charter Amendment to deal with the unfunded medical benefits we have promised to current City employees is up for a vote today at the Board. Its not perfect (I can find fault with anything - its one of my charms) but it makes some sense. Which is why I fear it might not pass. It is sponsored by Supervisors Elsbernd, Peskin, Alioto-Pier, Chu and Mirkarimi. 

It came up before the Board on February 5 and 12, and none of the Supes spoke against it. At first, I thought the silence was owed to the fact that GASB is confusing. But then I remembered that failure to understand a piece of legislation never stopped most Supes from talking before. So, I am hoping that the lack of open opposition means that Peskin made some phone calls, or that everyone can see that this Amendment is necessary. (Hell, even Tim Paulson from the SF Labor Council spoke in favor of it at the February 12 Board meeting!) Either way, I'm keeping my fingers crossed and will be watching on SFGTV. [Update - I'll be damned...it Passed Unanimously! (10-0, Dufty was absent) My Dad would be proud.]

To refresh your memory, below are some excerpts from prior posts here and here:

• our retirement pensions are below par, and retiree medical benefits are way above par, as compared to other cities in California;
• we have about 4 billion in "unfunded liabilities" in the form of promises of lifetime medical care to current City employees and retirees;
• thanks to a new accounting rule called GASB 45, those unfunded liabilities are now reflected on the City's financials in a way that will damage our credit rating (affecting them big 'ol bonds we love like candy); and
• we don't want to end up like Vallejo. (Okay, I just added that one.)

So, what's the solution? In order to bring down our long-term liabilities, here's what the Charter Amendment does:

1. Changes to Medical Benefits

   CURRENT: After 5 years of service, the City pays 100% of the employer contribution for medical insurance for retired employees and 50% of that cost for employees' spouse/partner. (Charter Sec. A8.428.) 

   PROPOSED: For employees hired on or after January 10, 2009 - 50% of employer contribution paid at 10 years, 75% at 15 years and 100% at 20 years (also disability retirees and surviving partners/spouses where the employee has died in the line of duty get 100%). (Amend. Sec. A8.428.)

   CURRENT: Employees do not contribute to the cost of their own retiree medical care while working for the City.

   PROPOSED: Creation of the Retiree Health Care Trust Fund into which the post-1/10/09 employees will pay 2% of their compensation; the City will pay the equivalent of 1% of employee compensation. (Amend. Sec. A8.432.)

ALSO: Employees will have to retire within 180 days of leaving City employment to have access to the medical benefit. (Amend. Sec. A8.428.)

     2.  Increase Pension Benefits

CURRENT: Maximum retirement is 2% of pre-retirement salary multiplied by years of service. Reach that maximum at age 60. (Charter Secs. A8.509, A8.587-2.)

PROPOSED: Maximum retirement is 2.3% of pre-retirement salary multiplied by years of service. Reach that maximum at age 62. (Amend. Secs. A8.509, A8.587-2.)

CURRENT: Annual Cost of Living Adjustment (COLA) of 2% plus an additional 1% if plan assets allow. (Charter Sec. A8.526.)

PROPOSED: Annual COLA of 2% plus an additional 1.5% if plan assets allow. (Sec. A8.526-2.)

NOTE: One big difference between the pension and medical benefits is that the pension increase will apply to all current and retired City employees - changes to retiree medical benefits are for prospective employees only. (Remember, we can't decrease benefits we have promised because they are "vested rights", but we can certainly increase them.) The pension increase will cost about $84 million annually for the next 20 years (page 67).

    3.   Wage Freeze

PROPOSED: A freeze on City employee wages for the 2009-2010 fiscal year. (Amend. Secs. A8.409-1, A8.409-8.) Estimated savings of $35 million (page 67).

While we won't see the serious benefits of these changes for 15 years or so, having the plan in place allows us to report the projected cost savings of the plan on our current financial statements and will therefore be immediately useful.

As with any Charter Amendment, this one must be voted on by Ess Effers. If it passes today, look for it on the June 3, 2008 ballot.

A final note: Because getting City employee unions to agree to roll back benefits is about as fun as giving a cat a bubble bath, send your Thank You cards to Supervisor Elsbernd, who is the real architect of this Amendment. And probably the only Board member who has even read it.

--Melissa

Comments

[Jamie]

Thanks for the break down of this charter amendment. I'm hoping that it passes with flying colors .... It really bothers me that we're voting on set-asides for more affordable housing money when there's a $4 billion liability that the City hasn't set aside a dime to pay.