Proposition B - City Retiree Cost of Living

Voter Guide
March 1, 2002
This measure appeared on the March 2002 San Francisco ballot.

 

What it does

This charter amendment would guarantee cost of living increases to the pensions of about 13,000 city employees, which could otherwise be revoked if the retirement fund lacks sufficient earnings on its investments. The San Francisco Retirees Association proposed this charter amendment and the Board of Supervisors placed it on the ballot.

Why it is on the ballot

The current procedure for cost-of-living adjustments (COLAs) for retirees was established by Proposition C in 1996. (SPUR opposed this measure, which passed). Under Proposition C, retirees receive a flat 2% annual COLA. In addition, if the return on the Retirement System's investment in any given year reaches a certain level (currently between 8 - 9 %), retirees receive an additional 1% COLA for that year. As long as the Retirement System continues to meet or exceed that specified level of return on its investment from year to year, the 1% annual COLAs are cumulative.

However, if the Retirement System's investment earnings are insufficient in any one given year, the cumulative 1% annual COLA benefits awarded since 1997, when Prop. C took effect, would be eliminated for that year. In other words, if the system's investments yielded a low return in any year, retirees would have their pension checks reduced to the pre-1997 COLA level, as though the 1% adjustment had never been granted. Once the Retirement System's earnings again meet or exceed the set level, retirees are granted a new 1% COLA and pension checks once again reflect the cumulative COLAs from years past. The effect is an "all or nothing" scenario, where either the total cumulative benefits from years past are granted, or none is granted at all.

Pros

Those who support Proposition B state:

  • The change would eliminate the possibility of a severe decline in pensions, particularly for older retirees.
  • If retirees faced a reversion of the pensions to the pre-1997 1% COLA level, there would political pressure to maintain their pensions, possibly resulting in risky short-term investments or changes in actuarial findings.
  • San Francisco's cost-of-living benefit would be supposedly brought more in line with other public pension plans in California under the proposed changes. However, SPUR has not seen any data to either confirm or deny this assertion.

Cons

Those who oppose Proposition B state:

  • The city has not prepared a "total compensation" report that would enable voters or elected officials to evaluate whether this or any charter amendment, ordinance, or union contract memorandum of understanding fairly compensates employees or retirees in comparison to others in the public or private sectors.
  • At almost every election, voters are faced with one or more charter amendments or ordinances to enhance current and retired city employees' compensation and benefits. Due to lack of data, this "piece-meal," special interest-driven approach does not allow elected officials or voters to consider a proposed enhancement rationally.

SPUR's analysis

This measure would apply to non-uniformed retirees of the City, School and College Districts who receive pension checks from the city Retirement System.

Under Proposition B, if investment earnings are insufficient for the 1% COLA, only the increase for the current year will be withheld. Pension increases previously granted would not be reduced. However, future 1% COLA adjustments would be dependent on the Retirement System having sufficient excess investment earnings.

The Retirement System is projected to have excess investment earnings for about 15 years. However, this depends on the market, and in the long run, of course, the city's General Fund is obligated to provide funding to the Retirement System at whatever levels are necessary to meet its obligations. The automatic annual 2% COLA is not affected by this proposition.

The amendment rectifies the consequences of the poorly drafted 1996 Proposition C that could cut current retirees' pensions. However, SPUR has called on the city for years to provide the information needed to fairly evaluate proposed increases in benefits for city employees. Various groups frequently propose ordinances to the Mayor and Board of Supervisors or place measures on the ballot to increase one or more elements of the compensation package of various categories of city employees. Without information about the overall costs of increasing benefits, and comparisons of those benefits with other city employees, other Bay Area municipal employees, and private sector employees, neither the Mayor, the Supervisors, nor the voting public can properly evaluate the fairness and justification of proposed increases in compensation.

In order to make this information available, SPUR proposes that the Board of Supervisors adopt an ordinance that requires the city's Human Resources Department to provide:

The base pay, overtime rate, retirement benefits, medical and welfare benefits, vacation, and all other compensation benefits for all grades of an employee category. This should include the cost of each to the city and the contribution, if any, made by the employee toward those benefits; the minimum time in service required for each grade; the number of employees in each grade; and the actual aggregate base and overtime pay currently being paid to the highest, lowest, and average employee in each grade of the category.

The same data, to the extent of its availability, for the other principal categories of city employees, the same category of employees of other cities and counties in the Bay Area, and the same or comparable category of employees in the Bay area private sector.

This information would provide a context within which to evaluate proposals to increase benefits. As part of its mission to educate the public, SPUR will press the Board of Supervisors to pass such an ordinance. Armed with this information, our elected officials can govern more effectively and San Franciscans can make more informed choices at the voting booth.\

SPUR recommends a "Yes" vote on Proposition B.