San Francisco: A Flex Plan for Pensions, Flexible With Labor

How mayors Ed Lee of San Francisco and Angel Taveras of Providence, Rhode Island instituted pension reform in their cities with the agreement of unions, and voter support.

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One of the things at the top of Mayor Emanuel’s to-do list has been pension reform, but he’s stuck waiting for the state legislature to do… whatever it is the state legislature is going to do. That’s not to say that progress hasn’t been made; there’s a reasonably narrow list of options that are likely to end up a final bill.

The real trick is making sure it’s constitutional. As I explain in this month’s column, it’s a tough trick to pull off. There are options, none of them remotely a sure thing, and even deciding which option is less unlikely to make it through the courts is a guessing game.

The other option is getting union and employee buy-in: perhaps infernally difficult at the state level, but shown to be possible at the city level, even the metropolis level. One mayor who pulled it off is San Francisco’s Ed Lee; a post on The Atlantic Cities explains how he went about it.

Throughout the summer and fall, Lee’s office fostered extensive negotiations between the city, the private sector, and powerful labor unions—which had rejected past reform efforts—to build a consensus initiative. Pension reform in San Francisco requires amending the city charter and, therefore, must receive a majority vote in a public referendum. “The [negotiating] process worked so well,” Lee said, “that it was many of these groups that asked me to continue to run for mayor. I was surprised at that kind of support.”

It’s similar to what happened in Providence, Rhode Island, whose mayor, Angel Taveras, began 2012 with some unions on board for his pension cuts, but opposition from the firefighters union. By May, Tavares pulled them into the fold on COLA freezes, benefit caps, and a move from city health care to Medicare, with premiums paid by the city. After the agreement was reached, Moody’s gave them a pat on the back.

Lee took a similar approach, and his proposition to reform the charter and bring down the city’s future liabilities passed with 68 percent of the vote—with financial support from unions, which backed it to kill off a worse deal.

And Lee’s proposal itself contains flexibility; rather than the hard-and-fast numbers set by most pension reform bills, Lee’s rules change with the economy:

In bad economic years, when the city pays 35 percent or more of salaries into the pension fund - because investment returns aren’t keeping pace with what actuaries say is needed to meet obligations - employees earning $50,000-$100,000 would pay an extra 4 percent, those earning more than $100,000 would pay an extra 5 percent and public-safety workers would pay an extra 6 percent.

“Bad economic years” simply refers to years when investment returns fall, requiring the city to spend more to meet required contributions. It took some flexibility from the cities, unions, and the bills themselves, but both Taveras and Lee seem to have avoided the courts.

 

Photograph: dbking (CC by 2.0)

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