On pension reform, a way forward

Pub date February 3, 2010

EDITORIAL Sup. Sean Elsbernd is taking on one of the most complicated and politically tricky issues in San Francisco — reforming the pension fund and health care system for retired city employees. He’s right that the system needs reform — but his measure has some serious drawbacks and needs some significant amendments.

The problems facing the system are so confusing, and the legal and financial aspects so arcane, that it’s hard for anyone to grasp the full situation. But we can sum it up pretty simply:

San Francisco’s pension fund is in far better shape than pension funds in many cities and is a long way from any financial crisis. But over the next few years, thanks to weak stock market performance, the city’s cash obligation — the amount of general fund money that must be paid into the retirement system — is going to rise quickly into the hundreds of millions of dollars.

The retiree health care system is in a lot more trouble — with the rising cost of care, the city will be on the hook for a serious amount of money over the next decade or two. And since the obvious answer — a single-payer system that would cut costs immensely — isn’t anywhere on the immediate political horizon, the San Francisco supervisors need to address the problem.

Elsbernd’s proposed fix is also complicated; the main legislation runs 61 pages. But in essence, he wants to make sure all city employees pay directly into the system; raise the amounts new employees, cops, and firefighters contribute; and set up a rainy-day fund to divert excess pension revenue in good years into a trust that could fund health care pension obligations in down years. He’s also going after a scam common in the police and fire departments where people about to retire get sudden promotions and big salary bumps for a few months, then collect pensions based on the higher pay scale.

The first part is — and should be — almost certainly dead. Members of the Service Employees International Union local 1021 agreed several years ago as part of contract negotiations to give up a pay hike; in exchange, the city agreed to take over the workers’ obligation to pay into the pension fund. Changing that, and outlawing any similar deals in the future, is unacceptable to labor and could drag down the whole proposal.

It’s also tricky to raise pension contributions for “new employees” since Mayor Gavin Newsom has been firing people then rehiring them at lower pay rates. Do those people lose their pension seniority? That has to be fixed.

But given the sweet deal cops and firefighters have, it’s entirely appropriate to ask them to contribute more to retirement. And while some city employees actually get and deserve raises in their final year of work (and the language in Elsbernd’s bill doesn’t address this and needs work), pension spiking is a problem that tends to give extra cash to people who are on the higher end of the pay scale at the expense of lower-paid workers.

And the heart of his proposal — to set up a trust fund for excess money in good years — deserves serious consideration. Yes, it’s a set-aside, and yes, there are legal complications. But the cost of doing nothing is too high to ignore.

Elsbernd should have done this differently — he should have met in advance with all the stakeholders and sought to hammer out a compromise. Even so, there’s a lot for progressives to work with here. If Elsbernd is willing to engage with labor and the board majority, and the progressive supervisors are willing to acknowledge the problem and look for amendments that make this bill acceptable, there’s a way for the city to come out ahead.

Sup. David Campos has moved to “split the file” — that is, to turn the Elsbernd bill into two identical measures. The move gives the progressives a chance to make amendments even if Elsbernd doesn’t want to go along, and could wind up giving the supervisors a choice between two competing measures. We’d prefer that Elsbernd work with his colleagues on a measure everyone can back. But in the end, the best option is a charter amendment that fixes the problems Elsbernd has identified — without being unfair to city employees.

And if Elsbernd and the progressives can come to a deal, there’s a lesson here for the mayor: if you try to work with your opponents, you can actually get things done.