San Francisco Voters Approve Pension Cutbacks

By: - November 10, 2011 12:00 am

San Francisco voters on Tuesday overwhelmingly approved a labor-supported plan to scale back retirement benefits for current and future city workers, a year after rejecting a pension-cutting proposal that public employee unions had opposed.

The election outcome in San Francisco presented a new twist in the ongoing effort by state and local governments to roll back public pension benefits and increase contributions from employees. It showed how labor, business, and civic and elected officials can trim rising public pension costs when the leaders cooperate on a solution and present a united front to the community.

“The lesson for other cities is you can have a consensus process that involves labor and business and other leaders,” political scientist Corey Cook of the University of San Francisco said Wednesday on KQED public radio.

Nearly seven in 10 San Francisco voters approved the pension proposition, which was a win for appointed Mayor Ed Lee, who led the coalition supporting the pension ballot measure and who appeared headed towards victory in a 16-candidate race for mayor. One of Lee’s campaign rivals, public defender Jeff Adachi, sponsored a competing pension reform plan calling for higher employee contributions. Voters rejected it.

New year, different result

A year ago, San Francisco was the only one of nine California cities and counties to defeat a ballot measure trimming retirement benefits, largely because of union opposition. After that vote, Lee, the Board of Supervisors, the chamber of commerce, labor leaders and city employees worked together on a comprehensive package of pension cuts and higher worker contributions to put before voters in the November 8 election. The plan also requires city employees to contribute to the health care coverage they receive when they retire.

California has the most union members of any state, and labor leaders have been successful heading off major public pension cuts by two governors and the Democrat-led Legislature. As San Francisco proved, though, union officials are willing to compromise on cuts at the city and county level when they can be persuaded they have a self-interest: Their current jobs, pay and future retirement checks depend on a financially secure local government.

“Many of these [union and civic] leaders are traditionally at odds…but they came together and stayed at the table to hammer out a 280-page proposal,” Lee said .

Critics of Lee’s proposal said the projected savings of .3 billion over 10 years would fall short of reducing the city pension fund’s billion unfunded liability and that more cuts may be needed. They said the union support guaranteed that retirement benefits would not be cut as deeply as necessary.

“The election went as expected, but the pension reform plan will not go far enough to fix the city’s overburdened pension system,” Steven Greenhut of the Pacific Research Center said in an email Wednesday. “It was a half-measure at best. Now the unions and the rest of the so-called ‘city family’ will say that pensions have been reformed. But these absurdly high pensions for city workers will continue to deplete the budget and suck the life out of other public services.”

Corey Marshall, a director of the San Francisco Planning and Urban Research Association , countered on KQED public radio Wednesday that the fact voters could choose among two pension reform proposals was an acknowledgment of the seriousness of the need to roll back public pensions. “I don’t know if it kicks the can down the road,” he said. “It is a first step in a broader conversation and there’s much more work to be done.”

Growing pension payments

In the flush years before the Great Recession, San Francisco could manage its pension payments because employee contributions and double-digit investment gains were more than enough to pay for benefits. Because of benefit increases and investment losses from the recession, the city’s share of the pension costs almost tripled from million a year in 2000 to million in 2010 and is projected to exceed million by 2020. The city says it cannot afford to keep up with those increases without drastic cuts in services, programs and jobs.

California local governments have been particularly active in scaling back public pension benefits, which is why other California government officials were watching the outcome in San Francisco. San Jose and San Diego officials are trying to place pension-cutting measures on the ballot next year. In the state’s largest city, Los Angeles Mayor Antonio Villaraigosa negotiated a contract agreement in March with labor leaders calling for higher pension and health care contributions from city workers, but L.A. voters did not have to approve it because it did not require a change in the city charter, as was the case in San Francisco and other cities.

Also Tuesday, voters in Modesto — a 90 minute drive east of San Francisco — approved a ballot measure asking them to support scrapping the city’s traditional, fixed benefit pension plan and replacing it with a 401(k)-style plan. The vote was advisory only and unlike in San Francisco, public employee labor unions opposed the ballot measure there.

On the state level, two self-styled pension reform groups last week filed ballot initiative proposals to submit to voters in 2012. Governor Jerry Brown recently proposed creating a hybrid retirement plan for newly hired workers that combines features of a defined benefit pension and a 401(k) defined contribution plan. The legislature, rather than the voters, will take up that plan.

Referendums such as San Francisco’s offer a rare window into public opinion on retirement benefits for public sector workers. Unlike the state, where lawmakers alter public pension benefits, cities and counties in California usually have to ask voters for permission to cut retirement benefits because it requires changing the city charter. Recent statewide polls in California show that most residents believe public pension benefits are too generous; San Francisco voters agreed.

San Francisco’s vote also showed how cities, like states, are attempting to limit the annual cost-of-living increases paid to current retirees. Freezing, reducing or eliminating cost of living increases for workers currently receiving the benefit is attractive because it produces immediate budget savings, in contrast to pension cuts for newly hired employees that take years before showing their value.

Detroit and the Florida city of Hollywood have limited cost-of-living increases this year and Omaha, like San Francisco, is asking for higher pension contributions from current employees. Colorado, Maine, Minnesota, New Jersey, Oklahoma, South Dakota and Washington State have voted to limit cost of living adjustments and Rhode Island and South Carolina lawmakers currently are weighing similar proposals. Unions are challenging the reductions in many places, but district court judges so far have upheld the cost of living cuts because the judges say those are not part of the core pension benefits protected from changes by contract law.

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Stephen Fehr

Stephen Fehr is a senior officer with Pew’s government performance portfolio. He is a lead writer on many of the products generated by the portfolio, specializing in state and local fiscal health.