SF pensions: conservative trendsetter

Hoping to solve some of their pension problems, historically conservative San Diego and Orange County have copied the retirement system of the famously liberal San Francisco.

It’s power to the people.

Leading Republican politicians, San Diego Mayor Jerry Sanders and Orange County Supervisor John Moorlach, pushed successful ballot measures that require voter approval of increases in pension benefits for local government employees.

The move to be more like San Francisco, stripping the power to raise pension benefits from elected officials and the collective bargaining process, came in San Diego in November 2006 and in Orange County last fall.

The Orange County retirement system was seriously underfunded. The San Diego system had been hit by scandal after a whistleblower exposed a closed-door deal that raised benefits while cutting contributions to the pension fund, creating a crippling debt.
Meanwhile, the San Francisco Employees Retirement System had a surplus, enjoyed an eight-year contribution “holiday” that ended in 2004, and was winning awards for good management.

The thing that seemed to set the San Francisco system apart was the requirement for voter approval of pension benefit increases, a “home rule” provision that had been in the charter of the unique consolidated city and county since 1889.

San Francisco, a hotbed of community activism, likes direct democracy. Voters rejected three attempts in recent decades to let the board of supervisors set pension benefits, each time by a wider margin.

Proposition A in June 1966 was rejected by 60 percent of the voters; Proposition F in November 1993 by 63 percent, and Proposition E in November 1996 by a resounding 72.6 percent.

The 1996 proposal was pushed by a new mayor, Willie Brown, who argued that city officials could efficiently negotiate with labor unions on retirement benefits, avoiding “costly and time-consuming charter amendments.“

Former state Sen. Quentin Kopp, D-San Francisco, argued in the ballot pamphlet that the measure would lead to higher retirement costs for the city and had a minor provision that would end civil service protection for managers, allowing “spoils jobs.”

For San Francisco voters, making retirement system decisions is routine. Since 1928, the retirement system calculates, there have been 118 retirement ballot measures, 78 of which were approved.

“On average, we would have proposals at least every other year and on average two-thirds of those would be accepted by the voters,” said Clare Murphy, executive director of the San Francisco Employees Retirement System.

A few of the retirement measures have been initiatives, placed on the ballot by the gathering of signatures. But most of the measures are the result of groups persuading supervisors to place the issue before voters.

A measure aimed at the November ballot usually has to be introduced no later than mid-May, allowing a 30-day public display period before the supervisors begin their deliberations.

Then comes a cost-benefit analysis, a plain-language description of how the measure works, a history of the supervisors actions, and an actuarial forecast of future pension costs.

“It is very full of sunshine, very available to all interested parties to review, to comment,” said Murphy. “There is room on the ballot for all of the proponent and opponent arguments. I believe the process is the antithesis of behind closed doors, smoke-filled rooms.”

One criticism, said Murphy, is that voters also must be asked to make technical changes. For example, voters approved a measure last fall that allows employees to purchase pension credit for parental leaves, if there is no additional cost to the system.

The San Francisco system pays retirees benefits that are, for the most part, below average. Many police and firemen in California can retire with full benefits at age 50, but in San Francisco it’s age 55.

Murphy said surveys done by labor groups and others show that “our benefit structure is at the lower end of the middle tranche of benefits for general members and is about at the median for safety (police and firemen) officers.”

Last June, San Franciscans approved a measure ending a costly benefit — lifetime retiree health care after five years on the job. Now new employees must work 10 years to get half of their health care costs covered when they retire, 20 years for full coverage.

A governor’s commission estimated last year that state and local governments have an unfunded retiree health care obligation of at least $118 billion over the next 30 years. The estimate for San Francisco is $4 billion.

Measure B approved by San Francisco voters last June requires new employees to contribute 2 percent of their salary to a new retiree health care fund, and the agency they work for to contribute 1 percent.

(Some other local retirement systems also are taking small steps to pay for future retiree health. A fund created two years ago by the California Public Employees Retirement System had $584 million from 115 local agencies at the end of last year.

(State Controller John Chiang reported earlier that state government could save money in the long run by setting aside some money now to begin paying for its future retiree health care obligations, an estimated $48 billion.

(Gov. Arnold Schwarzenegger’s plan to begin prefunding retiree health care with savings from negotiating lower-cost health plans for state workers, an estimated $236 million in the first year, was opposed by unions and is not in the new state budget.

(“We’ll be assessing next steps,” said H.D. Palmer, the spokesman for the governor’s finance department.)

Measure B also increased benefits for San Francisco employees who delay retirement at age 60, a change that could reduce the system’s retiree health care costs if more persons wait to retire until they are eligible for federal Medicare.

Murphy said the increased benefit costs in Measure B are the main reason that the employer contribution is scheduled to increase from 4.99 percent to 9.49 percent of payroll on July 1.

That’s still well below the average employer contribution, said by some to be around 16 percent in California public employee retirement systems. On the other hand, the typical San Francisco employee contribution, 7.5 percent, is above average.

The San Francisco pension fund was hit hard by the stock market crash, down 22 percent to about $12 billion by the end of last year, said Murphy. A Boston College retirement center estimated that the average state pension fund lost 30 percent.

Murphy said San Francisco, funded at a level of 103 percent last June, has an investment portfolio allocation “carefully and regularly reviewed” to withstand difficult times, though not of this magnitude.

“However, having started with a stronger funding circumstance we believe that we will be in a position to grow back as the market stabilizing begins growth patterns in the future,” she said.

Murphy, who has been executive director since 1985, announced several years ago that she plans to retire next January. The pension system has begun a search for her replacement.

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at http://calpensions