San Francisco Retiree Healthcare Trust Fund, Proposition A (November 2013)
|Voting on Local|
|Local Ballot Measures|
|June 27, 2014|
|Original Case study|
|San Jose & San Diego|
- 1 Election results
- 2 Text of measure
- 3 Proposed changes
- 4 Support
- 5 Opposition
- 6 Controller's analysis
- 7 Path to the ballot
- 8 The Health Care Fund
- 9 Related measures
- 10 See also
- 11 External links
- 12 Additional reading
- 13 References
Proposition A was authored by supervisor Mark Farrell and was designed to help eliminate the $4.4 billion shortfall in the city's retiree health care fund, without adding to employee or taxpayer contributions. Proposition A sought to change the health care fund, which was approved by voters in 2008 and implemented by the city in 2009, from a pay-as-you-go model to a fully funded, solvent account by 2045. The expressed goal was to have retiree health care funds coming from the fund's investment returns instead of from the city's general budget. According to Farrell, the retiree health care payments cost the city's general fund $150 million in 2013 and this amount would grow to $500 million per year over the next 20 years.
74.05% of city voters approved Proposition B, an increase in city and employee contributions to retirement pension and health care funds in 2008. However, according to Farrell, Proposition B had a flaw: "The problem is, it [Prop. B] allowed the trust fund to be raided in 2020, which negates the long-term vision of what the retiree health care trust fund is set up to do. Prop. A is a simple solution to a complex problem."
|San Francisco Prop A|
- These final, certified results are from the San Francisco elections office.
Text of measure
The question on the ballot:
Before the approval of Proposition B, retiree health care costs were taken from the City and County General Fund. In January of 2009, the Retiree Health care Trust Fund was established to keep and invest money for future retiree health care costs, which were, according to city reports, expected to increase substantially in the future. This system was designed to allow participation by many agencies of the city and county, including school district employees. Each agency would have its own separate fund.
Proposition A was designed to only allow the city retiree health care costs from the city's account to be used under the following conditions:
- The City’s account balance in any fiscal year must be fully funded. The account is considered to be fully funded when it is large enough to pay then-projected retiree health care costs as they come due;
- The City’s retiree health care costs exceed 10% of the City’s total payroll costs in a fiscal year. The Controller, Mayor, Trust Board and a majority of the Board of Supervisors must agree to allow payments from the Fund for that year. These payments can cover only retiree health care costs that exceed 10% of the City’s total payroll costs. The payments are limited to no more than 10% of the City’s account; or
- The Controller, Mayor, Trust Board and two-thirds of the Board of Supervisors must approve changes to these limits.
Proposition A restricted other agencies from spending money from their Fund accounts unless:
- The agency’s Fund account is fully funded; or
- Two-thirds of the agency’s governing board and a majority of the Trust Board approve.
- Yes on A
- Author, Mark Farrell, member of the board of supervisors
- Mayor Ed Lee
- Board of Supervisors
- Carmen Chu, City Assessor Recorder
- District Attorney George Gascon
- San Francisco Chronicle
- San Francisco Examiner
- San Francisco Bay Guardian
- Bay Area Reporter
- Sing Tao
- San Francisco Police Officers Association
- Alliance for Jobs and Sustainable Growth
- IFPTE Local 21
- IBEW Local 6
- LiUNA! Laborers Local 261
- Municipal Executives Association
- San Francisco Deputy Sheriff’s Association
- San Francisco Firefighters Local 798
- San Francisco Labor Council
- San Francisco Veteran Police Officers Association
- UA Local 38
- Union of American Physicians and Dentists
- Alice B. Toklas LBGT Democratic Club
- Asian Pacific Democratic Club
- Bernal Heights Democratic Club
- Building Owners and Managers Association of San Francisco
- Chinese American Democratic Club
- City Democratic Club
- Coalition for Responsible Growth
- Committee on Jobs
- District 3 Democratic Club
- District 5 Democratic Club
- District 11 Democratic Club
- Democratic Women in Action
- FDR Democratic Club
- Harvey Milk LBGT Democratic Club
- Log Cabin Republicans
- Noe Valley Democratic Club
- Plan C
- Potrero Hill Democratic Club
- Protect Our Benefits
- Raoul Wallenberg Jewish Democratic Club
- Retired Employees of the City and County of San Francisco
- Richmond District Democratic Club
- San Francisco Association of Realtors
- San Francisco Chamber of Commerce
- San Francisco Council of District Merchants Association
- San Francisco Democratic Party
- San Francisco for Democracy
- San Francisco Republican Party
- San Francisco Women's Political Committee
- San Francisco Young Democrats
- Small Business Network
- Westside Chinese Democratic Club
Bob Muscat, who was the executive director of the International Federation of Professional and Technical Engineers Local 21 union in 2013, representing engineers in San Francisco, said that Proposition A received support from most city workers, who saw it as a way of securing their benefits, as well as the San Francisco Democratic and Republican parties.
Muscat pointed to the difference between Proposition A and the proposed solutions to retiree health care funding in San Jose, where city officials are discussing the elimination of retiree health care entirely.
He said, "The interesting thing about Prop. A is when people started talking - and Supervisor Farrell was really good about reaching out, bringing everybody to the table - it really required the business community to separate fact from fiction. When you talk about $4 billion liability and solving it and not charging employees more, some people wanted to, but it wasn't really necessary. ... All this does is make sure the money is going to be spent the way it's supposed to be used."
Arguments in favor
Proponents of Proposition A, including the board of supervisors, published the following arguments in the official voter guide:
- Proposition A would prevent the City from taking funds from the Retiree Health Care Fund for other uses.
- Proposition A would eliminate the city's $4.4 unfunded liabilities in about 30 years.
- Proposition A would move the retiree health care fund from a pay-as-you-go model to a fully funded model.
- Proposition A would ensure the city does not pay retirement benefits on credit, passing the cost on to future generations.
Further paid arguments in favor of Proposition A proposed the measure as a way to guarantee retirement health benefits that city employees depend on, while providing a method of dealing with the city's hugely over drawn retirement health care accounts.
The San Francisco Veteran Police Officers Association argued that Proposition A solves problems and flaws found in Proposition B, which was approved in 2008. According to the association, Proposition B would have allowed the health care fund to be raided in 2020, and the fund would have likely been drained at that time. The Association further claimed that Proposition A protects the fund beyond 2020, leading towards solvency.
- Service Employee International Union (SEIU) Local 1021
- Libertarian Party of San Francisco
- San Francisco City Employees and Retirees For Responsible Governance
San Francisco members of Service Employees International Union (SEIU) Local 1021, a labor union representing about 11,000 city workers, voted to oppose the measure, according to Alysabeth Alexander, vice president of politics for the union.
Alexander said, "We've faced so many attacks on long-term benefits, and there is a lot of confusion and a lot of questions among members: What does this do; what does this not do? What kind of loopholes could this possibly create? There are a lot of concerns about anything changing. The overall sense is that we don't want to deal with the question of benefits with the wider public - we want to be able to bargain over them."
Brenda Barros, who was the president of the San Francisco General Hospital chapter of Service Employees International Union Local 1021 when Proposition A was voted on, opposed Proposition A and expressed concerns about possible loopholes that could allow money to be taken from the retiree health care fund. She had this to say about possible problems with Proposition A:
They say the money is locked up, but then they built into it rules that say as long as the mayor and supervisors agree, they can change the rules.
People are voting for one thing that can end up as something absolutely different.”
The Libertarian Party of San Francisco prepared the following arguments against Proposition A for the official voter pamphlet:
- Proposition A does not keep funds safe enough from withdrawal. Without Proposition A, trust fund moneys are off limits entirely until 2020 and Proposition A does away with that requirement.
- Proposition A allows withdrawals from the Retiree Health Care Trust Fund when the city's retiree health care costs exceed 10% of payroll costs, or about $130 million. According to the SF Chronicle the city will likely exceed this 10% threshold every year for an indeterminate number of years.
- Proposition A does not protect taxpayers from ballooning health care costs for retirees and does not guarantee the elimination of the $4.4 billion in city retiree health care debts unsupported by city assets.
- Health care plans for retirees are extravagant and too expensive.
- Proposition A makes funding these retirement benefits a priority over city services and other more important areas of funding.
The Libertarian Party of San Francisco also pointed out in the official arguments against Proposition A that Proposition A contained a clause that is not mentioned in the ballot question, namely:
In the event that the contribution rates set forth above do not cover the entire Normal Cost, the Employer shall contribute the balance into the RHCTF (Retiree Health Care Trust Fund)."
The official argument said that this means if health care costs are not provided by up to 2% of city employee salaries, the employer - which means the taxpayer - will have to cover the cost.
The San Francisco City Employees and Retirees For Responsible Governance also issued a paid argument against Proposition A in which they said the proposal has the following flaws:
- Proposition A allows the Board of Supervisors and Mayor to easily change the rules and withdraw money from the fund before 2020, even though Proposition A claims to lock funds away for longer.
- Even if the trust fund money is not withdrawn for other city needs, Proposition A puts the weight of paying for retiree health care on the shoulders of tax payers for as much as 30 years while the fund money is locked away and the fund is building to a size that would provide for self-sufficiency and solvency.
Below is an impartial analysis of Proposition A by the City Controller, Ben Rosenfield:
Should the proposed Charter amendment be approved by the voters, in my opinion, the City’s ability to withdraw from the Retiree Health Care Trust Fund (the “Trust Fund”) would be restricted. The restrictions would ensure that the Trust Fund more rapidly accumulates sufficient funding and investment earnings to pay for required City retiree health costs and would therefore reduce the burden of these costs on the City’s annual budget.
The City currently pays for the health care benefits of retired employees through the annual budget. These expenses are now approximately $150 million annually, or about six percent of payroll expenditures, but are expected to grow over time to approximately $250 million, or about ten percent of payroll expenses. Instead of bearing this cost in the annual budget, as a sound financial management practice, employers can instead set-aside funds during a worker’s career and use investment income from those funds to pay for the benefits.
Through earlier Charter amendments, the City established a Retiree Health Care Trust Fund into which both the City and employees are required to contribute funds. Deposits are now required on behalf of employees hired after 2009 and, beginning in 2016, will be required on behalf of all employees. No withdrawals are currently permitted from the Trust Fund until 2020, ensuring that the balance will grow until that time, however no such prohibitions are in place following that date. The City’s most recent actuarial analysis estimates that the cost of health benefits already earned by current and future retirees as of July 1, 2010 is $4.4 billion, of which only $3.2 million has been set-aside to date.
The proposed Charter amendment would prohibit withdrawals from the Trust Fund until sufficient funds are set-aside to pay for all future retiree health care costs as determined by an actuarial study. Limited withdrawals prior to accumulating sufficient funds would be permitted only if annually budgeted retiree health care costs rise above ten percent of payroll expenses, and would be limited to no more than ten percent of the Trust Fund balance. The proposed Charter measure allows for revisions to these funding limitations and requirements only upon the recommendation of the Controller and an external actuary, and if approved by the Retiree Health Care Trust Fund Board, two-thirds of the Board of Supervisors, and the Mayor.
The City’s external actuary has estimated that, given these proposed provisions, the Trust Fund would be fully-funded in approximately 30 years. At that time, the City’s annual costs would drop to approximately $50 million in current dollars or about two percent of payroll expenses. Current and future projections of the benefit costs and of the Trust’s status are dependent on assumptions of future medical inflation, investment returns, and other trends, which will likely differ from those assumed. Higher rates of medical inflation or lower rates of investment returns would delay the shift to a fully-funded Trust Fund.
The proposed Charter measure also; (1) further clarifies the required segregation of moneys within the Trust Fund into sub-trusts for other participating employers such as the School District, (2) limits withdrawals from these sub-trusts by other participating government employers until their governing board has adopted a funding strategy by a two-thirds vote, and (3) allows the Treasurer, Controller, and General Manager of the Retirement System to serve on the Trust Fund Board, rather than appoint members to the Board.
Path to the ballot
Proposition A was authored by supervisor Mark Farrell. On July 16, 2013, the Board of Supervisors voted 11 to 0 to place Proposition A on the ballot.
The Health Care Fund
According to the voter pamphlet:
Retiree health care costs are currently paid from the General Fund of the City and County of San Francisco (City) as they come due each year. In January 2009, the City established the Retiree Health Care Trust Fund (Fund) to set aside money to pay for future retiree health care costs, which are expected to substantially increase. A five-member Trust Fund Board (Trust Board) administers the Fund. The City and its employees make contributions to the Fund. The Trust Board may not use these contributions to pay for retiree health care costs until January 1, 2020. The San Francisco Unified School District, San Francisco Superior Court, and the San Francisco Community College District can also choose to participate in the Fund. Currently, the Community College District is the only agency, besides the City, that participates in the Fund.
- Marina Times, "Proposition A: A solution to San Francisco’s $4.4 billion unfunded retiree health care liability," October, 2013
- the San Francisco Appeal, "Mayor Kicks Off Campaign For Ballot Measure To Manage $4.4 Billion Health Care Tab," September 18, 2013
- SFGate, "Vote on S.F. retiree health care shortfall solution," October 6, 2013
- San Francisco Voter Pamphlet and Sample Ballot for November 5, 2013 election, accessed October 17, 2013
- Yes on A campaign website
- the San Francisco Appeal, "Mayor Kicks Off Campaign For Ballot Measure To Manage $4.4 Billion Health Care Tab," September 18, 2013