By Joel P. Engardio
When you see the words “unfunded liability” please think of cat videos, sex or any other Internet obsession.
Don’t click away because “unfunded liability” is boring. The future of San Francisco needs you to crave this topic like it’s a cronut.
Here’s the problem: City Hall can’t afford the expensive health benefits San Francisco has promised 108,000 workers, retirees and their dependents. The Controller’s Office says we’re short $4.4 billion. That’s the “unfunded liability.”
You should care because your tax dollars will end up paying for San Francisco employee health plans instead of the parks, schools and public transportation that all residents need.
How did this happen? Public employee unions donate more to political campaigns than you do. And promising better benefits is a convenient way for politicians to offer something now, leaving the bill for later.
Plus, no one wants to ask heroes to pay more. Politicians will always give firefighters and cops free health care. Will bus drivers be viewed as favorably? While politicians don’t want to risk upsetting any unions, the most fair and fiscally prudent policy would require all city employees to pay for a reasonable portion of their health care -- just like the vast majority of American workers have to in the private sector.
We’re doing OK when it comes to funding city pensions, but health care is killing us. Not long ago, all San Francisco workers got free health care for life after just five years on the job. We wisely changed that unsustainable policy, but didn’t go far enough.
San Francisco workers hired before 2009 still get free health care. In 2019 they will have to pay just 1 percent of their salary for it. Everyone hired since 2009 pays only 2 percent.
To compare, the Affordable Care Act expects an American making $46,000 to pay up to 9.5 percent of their income for health care.
City Hall offers stellar benefits to attract public servants who could make more money elsewhere. But is this incentive still necessary? Average city compensation -- $87,000 base wage, or $130,000 with benefits -- has become comparable to many private sector salaries. It might seem like every tech worker on the Google bus is a millionaire, but most are not.
Lack of employee contributions isn’t the only threat to City Hall’s retiree health plan. Current law lets politicians raid our health care trust fund in 2020 for any purpose. Supervisor Mark Farrell had the good sense to put Proposition A on this year’s ballot to close that loophole and lock up what savings we have.
But nothing on the ballot addresses the biggest threat to San Francisco’s solvency. City Hall assumes we’ll get a 7.5 percent return on our investments for the next three decades, and that’s a problem.
The credit rating agency Moody’s recently warned San Francisco that we should count on getting just 5.7 percent. The difference between 7.5 and 5.7 percent is billions of dollars in deficits that will jeopardize the city’s ability to provide adequate services for all.
Don’t be mollified by this year’s bull market. The average return of the S&P 500 has only been about 5.7 percent since 1871. Should we bet against the returns of the last 140 years?
Politicians cling to the 7.5 percent fantasy because it makes everything add up nicely, letting us avoid the tough and unpopular choices that reality requires.
We need responsible leaders to ask city workers to pay more for health care. We also have to wonder if a population of 825,000 actually needs 27,000 employees (one for every 30 residents).
Voters should start asking questions like: “How does the city of San Jose and Santa Clara County have a combined workforce smaller than the City and County of San Francisco while serving a million more people?”
Or: “Why are you selling me a 7.5 percent return when Moody’s says to only expect 5.7 percent? Do you think I’m that gullible?”
Thanks for reading about “unfunded liability.” Now let’s go enjoy a cronut.