Prop D: The Better Solution to Pension Reform
Prop D, the pension reform measure I am sponsoring, endeavors to tackle the pension problem – arguably the most pressing problem relative to the City's future financial health. Prop D doesn't claim to be a panacea for all the City's financial problems. It is a first, important step, on the road to significantly improving the City's financial outlook.
We are beyond arguing whether it is a good idea for City employees to increase their pension contributions, but rather, how best to do so. Pension reform has become self-evident. The Mayor, all eleven members of the Board of Supervisors, and the leaders of every major City employee union believe City employees need to increase their pension contributions, and the "City Family" pension reform measure, Prop C, requires some additional contributions. My Prop D also requires additional contributions, but saves more money for the City than Prop C does.
We should also dispel the notion that an employee increasing his or her own pension contribution is an attack on, or scapegoating, public employees. These contributions are intended to fund employees' own retirement – much the way those in the private sector fund their own retirement through 401(k)s and the like. Moreover, the City's pension fund is anywhere between $2.5 billion and $7.0 billion underfunded, depending on the pension fund investment rate of return assumption. Simply put, this means the City does not currently have the money to pay out its pension obligations in full to its retirees and current employees through the end of their retirement. Joshua Rauh, a professor at Northwestern University, projects that the City pension fund will run out of money in the year 2032. By contributing more to their pension fund now, City employees are shoring up the integrity of the pension system to help ensure that they will receive the retirement benefits they are expecting. Prop D is a rescue attempt on the City pension system. When you move to rescue a drowning swimmer, does he accuse you of attacking him?
Pension reform cannot unfairly punish the City's low-paid workers and must also address high-paid employee pensions which are taxing the pension system to the detriment of low-paid workers. Prop D does both and that is why it is a superior reform to the "City Family"-sponsored Prop C.
First, Prop D exempts all City employees making less than $50,000 per year and this would automatically exempt over 37% of the City's workforce. Second, Prop D sets employee contribution rates on a sliding scale: the more wages you earn the higher a percentage of your wages you pay in a pension contribution. Prop D requires a contribution up to 18.5% of wages for a $200,000 earner, and Prop D contributions are capped at 15.5%. Comparatively, Prop C caps all employees at 13.5% - a threshold that is far too low. Prop D also caps the pensions of all new hires at $140,000 while Prop D still allows for pensionable income of $190,000.
For these reasons, Prop D generates $1.7 billion in general fund savings in the first ten years and $400 million more than Prop C, according to the Controller. Prop D will generate far more than this $400 million in savings if the pension fund returns do not meet the Controller's lofty projections of 7.75% on average each year. After the first ten years, Prop D will generate comparatively even more general fund savings than Prop C when the $140,000 cap kicks in and the referenced pension reform exemptions Mayor Lee gave police and fire in a backroom deal expire.
The good news here is that we all seem to agree that the City is on a path that is unsustainable, and major financial reforms are required to protect the City's pension system and the critical City services delivered to residents. In the area of pension reform, Proposition D is the best option on the table for the voters of San Francisco.
Jeff Adachi is the Public Defender of San Francisco and the proponent of Prop D
Pension Reform Ballot Measures Omit Salary Reform
The organizations attacking City employee pensions — the Chamber of Commerce, BOMA, and SPUR, among others — are the same guys who routinely attack City services, or alternatively keep trying to privatize City parks and other local government services.
San Francisco’s dueling measures appear to have turned several of our local politicians into embarrassing panderers sucking up to billionaires — billionaires Warren Hellman, George Hume, Michael Moritz, and perhaps Larry Ellison — who claim they’re concerned about the loss of public services.
But ostrich-like, they ignore ever-increasing management salaries, additional long-term debt voters have no control over affecting the City’s credit rating, and the City’s extraordinarily thin cash reserves — the real reasons basic services go unfunded, or are cut from the City budget. Even Moody’s downgrade of San Francisco’s credit worthiness understood this.
Jeff Adachi and Interim Mayor Ed Lee aren’t telling San Francisco voters their dueling “pension reform” measures protect top earners while punishing over half of all City employees.
The big lie from City Hall is the claim that the City’s 27,000 employees average $93,000 in salaries, driving up pensions. That’s simply untrue, on both counts. There were 36,644 City employees in 2010, including full- and part-time employees, not 27,000; the City Controller converts over 10,000 part-time employees into “full-time equivalents,” fudging the denominator.
The average salary for all 36,644 employees is $63,000, not $93,000, but there are some caveats in the averages. Of the 36,644 City employees in calendar year 2010, 18,972 (52%) earned less than $70,000, representing $665.7 million (25.6%) of payroll. Their average total salaries were just $35,091. In stark contrast, the 11,838 employees (32.3%) earning over $90,000 gobbled fully $1.47 billion (56.5%) of payroll. Their average total salaries were $123,874!
Skyrocketing management salaries since 2003 inflate management pensions. These inverted ratios disproportionately penalize 52% of lower-paid employees. In 2003, there were 2,918 City employees earning over $90,000 in total pay, costing $314 million. In 2010, the City’s 11,838 employees earning over $90,000 is an increase of 8,920 such highly-paid employees, a staggering 305.7 percent change since calendar year 2003!
Clearly, the unfunded salary increases affect escalating management pensions — largely driven by overly-generous top salaries — which aren’t addressed in either pension ballot measure, or discussed by City officials. Neither measure reigns in top management salaries, which the billionaires ignore. Salary reform — the key to curtailing excessive pensions for managers — must come first, before pension reform!
“Safety” (police, firefighters) employees recently struck another pension reform deal until 2015, announced only after Interim Mayor Lee officially entered the mayor’s race. The Board of Supervisors unanimously passed on September 13 the contract Mayor Ed Lee negotiated that will exempt police and firefighters if Adachi’s Prop. D passes.
According to both Jeff Adachi and the Employee Retirement System, safety employees contribute 17% of money to the pension fund, but draw 36% of pension payouts. Non-safety “miscellaneous” employees contribute the balance, subsidizing generous “safety” pensions, an inequity unaddressed by either Prop’s. C or D.
“Miscellaneous” employees are not only subsidizing pensions of safety employees, they’re also subsidizing pay raises for safety employees and the 11,897 employees earning over $90,000 in salaries.
San Francisco’s employee retirement system is healthy, solvent, well-managed, and performing well. It earned a 12.55% investment return last year — $1.65 billion — not the 7.75% annual return Jeff Adachi’s and Mayor Ed Lee’s flawed proposals are based on. Our retirement system’s portfolio is a model for other municipalities.
Billionaires helped Mayor Lee’s Prop. C cap “safety” pensions at $183,750 and cap “miscellaneous” pensions at $208,230. The billionaires also helped Adachi’s Prop. D cap pensions at $140,000, even though Adachi initially claimed in last February’s Observer newspaper that his measure would cap pensions at $90,000.
The San Francisco Labor Council joined forces with San Francisco’s Chamber of Commerce, calling Prop. C a “spirit of shared sacrifice” ironically misnamed the “Fairness Float,” since it’s wholly unfair.
Those at the lowest end of City salaries can least afford a 6% pension contribution increase on top of the 7.5% they are already paying, nor can City retirees afford health care increases.
Prop. C’s proposed pension increases discriminate against the City’s lower-paid current employees, requiring a flat 10% pension contribution for those earning $50,000 to $100,000, rather than using a sliding scale. For instance, the 3,579 employees who earned between $50,000 and $60,000 will pay the same 10% pension contribution as the 2,333 employees who earned between $90,000 and $100,000.
Prop D uses a sliding scale, but employees earning below $70,000 may pay up to 13% of their salaries towards pensions, while those earning $100,000 to $200,000 pay only15.5%. Adachi’s sliding scale has five $10,000 ranges for those earning $50,000 to $100,000, each $10,000-step increasing an additional half a percent, but only three $50,000 ranges for those earning over $100,000
Fixed-income retirees will also see their health care costs soar, and will lose their supplemental COLA, which retirees (but not current City employees) are only paid when retirement fund investments yield a surplus.
Similarly, while the City’s pension system data shows 1,218 retirees (6.1%) earned pensions more than $100,000, 41% (8,143 retirees) earned pensions less than $25,000, 32% (6,369 retirees) earned pensions less than $20,000, and 22.5% (4,480 retirees) — nearly one quarter — earned pensions less than $15,000.
Service pensions average $79,347 for firefighters; $70,932 for police officers; and $27,623 for “miscellaneous” employees (inflated by $100,000+ salaries of “some miscellaneous” staff).
Employees earning $60,000 with 13 years of service at age 62 earn small $18,000 pensions. Highly-paid managers and safety employees earning over $100,000 continue collecting six-figure pensions.
The “shared sacrifice” is a myth.
Voters have an ethical obligation, and the right, to reject both measures. Billionaires who bill themselves as champions of City services have no guarantee services will be improved from pension reform, nor do the rest of us.
Monette-Shaw is an open-government accountability advocate, a patient advocate, a member of California’s First Amendment Coalition, a write-in candidate for Mayor, and a city employee. Feedback: firstname.lastname@example.org.