San Francisco Pension Reform, Propositions C and D (November 2011)

Pension Reform
Topic	Pensions
Status	On the ballot

Proposition C and Proposition D were on the November 8, 2011 ballot in San Francisco. They presented voters with two different pension reform options.

• Proposition C was approved.
• Proposition D was defeated.

Proposition D was supported by Jeff Adachi. Proposition C was a rival measure supported by Mayor Ed Lee and all the San Francisco County superintendents.

Since Adachi and current San Francisco mayor Lee were both running for mayor and had differing views on pension reform, pension reform became a key issue in the November 8, 2011 mayoral contest in the city.

If both propositions had received a majority vote, the one with the most votes would have gone into effect. However, any parts of the measure that received the smaller majority vote that were not in conflict with any parts of the measure that receives the larger majority vote will also take effect. However, since Proposition D did not receive even a majority of the vote, no considerations have to be given as to how to reconcile the two measures.

Propositions C and D were both proposed amendments to the San Francisco City Charter.

Election results

See also: 2011 ballot measure election results and Local ballot measure elections in 2011

Proposition C

See also: 2011 ballot measure election results and Local ballot measure elections in 2011

San Francisco Pension Reform, Proposition C
Result		Votes	Percentage
a Yes		129,554	68.91%
No		58,460	31.09%

Proposition D

San Francisco Pension Reform, Proposition D
Result		Votes	Percentage
d No		124,051	66.55%
Yes		62,358	33.45%

Election results are from the San Francisco elections office as of 5:30 a.m. PST on Thursday, November 24, 2011.

Other notable 2011 local ballot measure results can be found here.

San Francisco's pension costs

San Francisco has 26,000 current and 28,000 retired employees.

According to Heather Knight and John Coté, writers for the San Francisco Chronicle, "Pension reform is a sizzling topic among voters, who are angered by seeing their own retirement plans limp along with the struggling economy while public employees' pensions rise."

A number of studies and analyses of the problems with the current San Francisco pension system and its underfunding have been produced. The consensus is:

• Pension costs paid to retired city workers will be about $423 million in 2011, at a time when San Francisco is facing an annual deficit of about $400 million.
• "San Francisco owes $4.476 billion in pensions to its employees but only has the money to pay roughly three-quarters of that cost."
• The $423 million in pension costs in 2011 is about $109 million more than the pension costs in 2010.
• The unfunded pension liability in the city is about $35,000 for every household.
• "The pension investment fund took a $4 billion hit [in 2008], and The City was forced to start contributing hundreds of millions of dollars to pension costs using its annual revenues that pay for basic services such as police, fire, parks and roads."
• Projections indicate that pension costs will double to about $800 million in 2014, or about 31% of the city's payroll.
• According to Gabriel Metcalf, executive director of the San Francisco Planning and Urban Research Association, "Many factors caused us to be in this [pension] mess. It’s been incredibly tempting for a succession of elected officials to offer very rich pension benefits to city employees."
• Some retired city workers are receiving pension benefits of $22,600/month, which comes $271,200/year.
• 7,266 retired city workers are receiving monthly checks between $2,000 and $4,999.
• More than 600 retired workers receive more than $108,000/year in retirement benefits.

Proposition C

Proposition C is 280 pages long.

Proposition C, if approved, will:

• Eliminate a current benefit under which city employees who leave after five years get paid back all of the money they paid into the retirement system — plus interest — as well as a 100% match from the city.
• Require existing employees to begin contributing a small percentage of their salaries to a fund offsetting their future health care costs.
• Alter the composition of the Health Services Board, so that four of the seven members are chosen by the city.
• Require city workers to pay 7.5% of their salaries toward their pensions. This percentage could rise, for the city's highest-paid workers, to a maximum of 13.5% during years when the city is required to pay large amounts into the pension fund because it is earning a low rate of return on its investments.

Supporters

Proposition C is supported by Mayor Ed Lee, Supervisor Sean Elsbernd, and labor unions in the city.

The official ballot guide arguments for Proposition C were signed by:

• Ed Lee
• All 11 members of the San Francisco Board of Supervisors
• The San Francisco Chamber of Commerce
• The San Francisco Labor Council
• The San Francisco Police Officers union
• The San Francisco firefighters union
• Dennis Kelly of the San Francisco Teachers Union

The San Francisco Chronicle's editorial board is in favor of a "yes" vote on Proposition C.

The editorial board of the San Francisco Examiner is in favor of a "yes" vote on Proposition C.

Arguments in favor

According to the arguments presented in the official voter guide, Proposition C is a "comprehensive plan that will fix the City’s broken pension and health benefit system and save $1.3 billion over 10 years."

Donors

Donors to the "Yes on C" campaign effort include:

• Billionaire Warren Hellman. In addition to paying $200,000 for an actuary to provide data, he has donated (as of early October) $100,000 to the "Yes on C" campaign.

Ballot question

Proposition C: "Shall the City amend its Charter to adjust pension contribution rates for most current and future City employees based on the City’s costs; reduce pension benefits for future City employees; limit cost-of-living adjustments to pension benefits; decrease City contributions to retiree health care costs for certain former employees; require all current and future employees to contribute toward their retiree health care costs; change the composition and voting requirements of the Health Service Board; and make other changes to the City’s retirement and health benefits systems?"

Path to the ballot

The San Francisco Board of Supervisors voted unanimously on Tuesday, July 19, to refer Proposition C to the November 8, 2011 ballot.

Proposition D (the "Adachi Initiative")

Website banner of the "Yes on D" campaign

See also: San Francisco Pension Reform, Proposition B (November 2010)

Proposition D will require city workers to contribute more to their own pension costs.

Specifically, if approved, Proposition D will:

• Require most city workers to pay at least 7.5% of their salary toward their pension.
• Police officers and firefighters would be required to pay 10%.
• In years when the city's pension fund is earning a low rate of interest, the percentage that city workers would have to pay in could increase.
• Those earning less than $50,000/year would never pay more than 7.5%.
• Those earning $200,000 or more could pay up to 16%, in years when the pension fund is earning a low rate of interest.
• Set a cap on the total pension payout to any individual.
• Limit so-called "pension spiking," where workers are promoted to higher-paid jobs at the end of their careers to receive higher pensions.

Proposition D does not address how the city handles health care for retired workers. According to Adachi, "[Healthcare retirement benefits and pension reform] really are two separate problems and they should be dealt with separately both for political and practical reasons."

Arguments in favor

Arguments made in favor of Proposition D include:

• "The spiraling, unsustainable costs of [retirement and health benefits for city employees] will require massive cuts in city services and the elimination of city jobs."
• "The cost of pension and health care benefits for the City’s 26,000 employees and 28,000 retirees and their 47,000 dependents now consumes one out of every seven tax dollars."
• "In the next five years the cost will consume one out of every four dollars. Within five years, these costs are projected to rise to $1 billion annually. At that level, San Francisco could entirely eliminate the Police Department, Fire Department, Sheriff’s Department, District Attorney’s Office, and the Juvenile and Adult Probation Departments and still not have enough money to cover its pension and health care liabilities."
• "Even assuming optimistic rates of return, San Francisco is unlikely to meet its pension obligations to retirees. If the pension fund collects a generous 7.75% return on its investment each and every year, there is still a 67% chance that it will fail to provide the pension benefits that city employees and retirees are counting on."
• "Without significant changes in policy, there is a zero probability that San Francisco will be able to meet its health care obligations to retirees."
• "San Francisco currently has $4.364 billion in unfunded health care obligations. In other words, there are over $4 billion in health care benefits that city employees are expecting to receive but that the city — despite its promises — literally cannot afford to provide."
• "Every year the city increases its spending on retiree health care. Since 2000, San Francisco’s expenditures for retiree health care have increased by more than 500%, from $23 million to $156 million. Despite that, the city’s unfunded liability is growing. By the city’s own admission, by 2028 it will be $9.5 billion short of paying the retiree health care costs that city employees are counting."
• "If City employees don’t begin contributing more towards their pensions, the City will go broke, and this will lead to more layoffs of City employees. This year, with a $379 million deficit, City employees are facing a large number of layoffs, which in turn, will weaken the pension system, since there will be fewer people contributing to it. If the pension system continues to lose more value, it too will eventually collapse and City workers won’t get their promised pensions."

Donors

Donors to the "Yes on Proposition D" campaign include:

• Michael Moritz, who has contributed $250,000. Mortiz is a partner in Sequoia Capital.
• George Hume, who has contributed $250,000. Hume is the president of the San Francisco Opera Association.

Opposition

San Francisco County Supervisor Sean Elsbernd believes that even if voters prefer Proposition D, the courts in California won't allow it, whereas (Elsbernd believes) the courts in California will allow Proposition C. Elsbernd says: "We believe we have pushed the legal limits (of pension reform) as far as they can be pushed, and Jeff has far exceeded anything that California courts have allowed."

Advertising restrictions

On August 25, the San Francisco Ethics Commission issued an advisory ruling saying that the Proposition D campaign cannot use Jeff Adachi's name or likeness in its campaign materials because Adachi is running for mayor.

Ballot question

Proposition D: "Shall the City amend its Charter to increase pension contribution rates for most current City employees based on the City’s costs; reduce contribution rates and pension benefits for most future City employees; limit cost-of-living adjustments to pension benefits; prohibit the City from picking up any employee’s contribution for pension benefits; and make other changes to the City’s retirement system?"

Path to the ballot

As an initiated city charter amendment, Proposition D required 46,559 signatures on petitions to qualify for the ballot. Its supporters submitted 72,640 signatures on July 11. This was 26,000 more signatures than were required.

Comparison

A July 19, 2011 report by the San Francisco City Controller said that over 10 years:

• Proposition C would save the city $1.29 billion
• Proposition D would save the city $1.6 billion.

Feature	Current pension system	If Proposition C is approved	If Proposition D is approved
Pension formula for police/firefighters	3% of final salary (average final two years) X years of service at age 55.	3% of final salary (average final three years) X years of service at age 58.	2.7% of final salary (average final five years) X years of service at age 57.
Pension formula for other city employees	2.3% of final salary X years of service at age 62	2.3% of final salary X years of service at age 65 (change applies to new hires only)	2.3% of final salary X years of service at age 65 (change applies to new hires only)
Employee pension contribution formula for non-public-safety employees	7.5% of salary	Between 2.5% and 12.5% of salary. Varies depending on city's ability to pay into the pension fund from rate of return it earns on investments.	Between 7.5% and 15% of salary. Varies depending on city's ability to pay into the pension fund from rate of return it earns on investments.
Employee contribution to retirement health care	No contribution for employees hired pre-2009. Post-2008 hires contribute 2% of salary.	Pre-2009 employees contribute 0.25% of salary starting in 2016, increasing by 0.25% of salary annually to a maximum 1%.	No change to current system
Maximum annual pension	No limit on maximum	No limit on maximum	Maximum of $140,000/year

Polls

Legend      Position is ahead and at or over 50%     Position is ahead or tied, but under 50%

See also: Polls, 2011 ballot measures

A poll of 551 registered city voters conducted by Bay Citizen/University of San Francisco between October 7-13 showed Proposition C in the lead.

Proposition	Pollster	Date of poll	In favor	Opposed	Undecided	# polled
Proposition C	Bay Citizen/University of San Francisco	October 7-13	45%	19%	36%	551
Proposition D	Bay Citizen/University of San Francisco	October 7-13	36%	23%	41%	551

Voter guide

The San Francisco voter guide for the November 8, 2011 election includes paid political advertising.

In that voter guide, Proposition C has:

• 10 paid ballot arguments in favor.
• 11 paid arguments against.

Proposition D, in the voter guide, has:

• 14 paid arguments in favor.
• 14 paid arguments against.

External links

Suggest a link

• November 8, 2011 San Francisco Voter Guide
• SF Pension Reform, website supporting Proposition D
• Text of Proposition C
• Text of Proposition D, the Adachi Initiative