I’ll third that. Excellent analysis!
I second that!!!
Matthew…thank you for that very well articulated analysis. Much appreciated.
From: email@example.com [mailto:firstname.lastname@example.org] On Behalf Of Matthew Murphy
Sent: Monday, August 12, 2013 12:47 AM
To: Aubrey Freedman
Cc: LPSF Activist List
Subject: [lpsf-activists] Re: Ballot Measures for November 2013
I’ve summarized Supervisor Farrell’s retiree-health-care item for others’ review, and suggested some basis for a position on it below. My message is divided into three pieces:
- Existing Law
- Details of the Measure
- Potential LP Positioning
The RHTCF is an existing entity:
It was established by Section 12.204 of the San Francisco City Charter:
The following organizations may participate in the RHTCF:
- Superior Court of California, County of San Francisco
- SF Unified School District
- SF Community College District
- City and County of San Francisco
The full measure is here:
At a high-level, the ballot measure includes the following changes:
The explicit limitation barring disbursements from the Retiree Health Care Trust Fund until 2020 is removed.
The RHTCF is sub-divided into trusts for each participating employer.
The requirement that all employees/employers contribute money toward “Normal Cost” until the RHTCF is fully funded is removed, and the contribution basis is instead determined based on whether that particular employer’s sub-trust is fully funded.
Without this amendment, if say, the SFUSD’s trust was fully funded, but the City’s was underfunded by enough to make the RHTCF as a whole underfunded, SFUSD and its employees would continue contributing their ‘normal cost’ to the fund.
After the amendment, if the same circumstances occurred, SFUSD’s contribution rate would drop, but the City and its employees would still be expected to contribute normal cost.
This solves for a potential moral hazard (socialization of one employer’s under-funding liability among the participating employers), but increases the likelihood that the RHTCF will be underfunded as a whole.
The City and the other employers are barred from making disbursements for health care costs from the RHTCF until their sub-trusts are Fully Funded in the opinion of the City’s actuaries.
The City may disburse funds upon recommendation of the Controller, even if its RHTCF sub-trust is underfunded, if its retiree health care costs exceed 10% of its payroll costs.
The City may disburse funds from its sub-trust according to any formula the Controller recommends, if the Mayor and two-thirds of the supervisors approve it. The Mayor and supervisors may not revise the formula – only accept or veto it.
The other participating employers may disburse from their sub-trusts according to any formula they choose, if their governing bodies approve such a disbursal.
The RHTCF Board makeup is codified to a set of specific officials, rather than being five people chosen by the supervisors.
Potential LP Positioning
I see the following rationales for either supporting or opposing the proposed measure:
The city has under-funded its retiree health care costs by about $4.4 billion, according to current actuarial estimates. It currently pays these costs by raiding the general fund. The RHTCF will be nowhere near fully funded by 2020, when current charter allows it to be tapped. This raises the likelihood that the RHTCF will be perpetually underfunded.
Current law causes the RHTCF to become an open spigot in 2020, by default. Participating Employers, including the city, can raid it at will, even if they have funded it poorly. Under the proposed measure, the Mayor/Supervisors or the leadership of the respective employer for non-city employers, must approve the use of RHTCF funds and those funds must be expended on retiree health care.
The outright removal of the 2020 limitation, rather than supplementing it with the new rules, raises the possibility that the funds could actually be tapped before 2020.
Salary and Wage costs in the 2013-2014 budget are $1.3 billion. If the city’s retiree health care costs exceed $130 million, all it takes is the Controller’s recommendation for the RHTCF to pop open like a bottle of champagne. Bear in mind, under current law, this cannot happen at all. According to the Chronicle, the City’s retirement costs will hit $151 million this year:
That is beyond the theoretical cap under which the City could raid the trust fund, and will likely chew up some of the money the city and its employees are contributing for their own costs.
My Recommendation: Oppose, but engage with Supervisor Farrell (ASAP)
Supervisor Farrell seems genuinely interested in protecting the city’s balance sheet from retiree health care, and may be persuaded to withdraw the measure and try again. After all, we have until 2020 to get something on the books. I suspect the measure will pass if put before voters, as they’re unlikely to understand the nuance of the damage it might do.
The concept of a better funding model than “raid the general fund” for retiree health care is good. However, this proposed charter amendment appears deeply flawed. Supervisor Farrell seems to be banking on the city’s recent reforms to retiree health care (increased service and contribution requirements) to curve the city’s costs down over time. I’d argue that’s anything but certain.
In the meantime, the RHTCF should not be touched for current costs. Its expressed purpose was to be a savings vehicle for future costs, and it was only created five years ago. Barring a significant, unexpected escalation of costs, the city shouldn’t touch the fund until at least 2020, when it was permitted to do so under current law. The allowance for arbitrary disbursals is also troubling, though mitigated by the need to take politically unpopular steps to achieve it.
If we formally oppose this measure, we should note that Supervisor Farrell is welcome to propose a similar measure that:
- Retains or extends the 2020 hands-off date;
- Raises the limits for other-than-fully-funded disbursals;
- Some combination of the above
Hi All! We did not discuss the ballot measures much yesterday, since I did not think they present much for the LPSF to oppose or support in this election cycle. This will be the first year in 3 years that we will not have an argument in the Voters Handbook. Please click on the link below and take a look at the measures. There are only 4 this time around–amazing for the statists in SF. They’re slipping!
Measures B & C considering the development on 8 Washington Street are from opposing sides of the development to either open or close the waterfront–we wouldn’t want to jump in the fray.
Measure D concerning prescription drug pricing for HIV drugs is a more interesting ballot measure. It requires SF government to enter into direct negotiation with drug manufacturers to lower the price of such drugs and to encourage state and national legislators to write legislation to reduce the prices by at least a third. As Libertarians I feel we should oppose such a measure because this is an area the government should stay out of, and we should not encourage more of the same kind of involvement that has led to the outrageous pricing in the first place. Not sure how they came up with the arbitrary one third, but just legislating lower prices is not going to work any better than price controls ever did in the 70’s. There were mixed feelings on this measure from the other core members, and I agree that opposing lower prices for HIV folks would not do anything to improve our image in SF, so I’m content to leave this one alone (and hopefully just oppose it on our website with a short statement of our reasoning along with the other ballot measures).
Measure A just popped up on the Department of Elections’ website a few days ago. Not sure how they can get away with filing it so late when the deadline for ballot measures is clearly stated as July 8, but nevertheless it’s there now and will be on the ballot. It’s called the Retiree Health Care Trust Fund. It’s not a clear cut issue to me. Part 1 calls for limiting disbursements from a trust fund for health care for city/county employees, which sounds good, but Part 2 allows for disbursements from the fund if health care costs exceed 10% of payroll costs, which sounds bad to me since health care costs are getting out of hand these days. Also the measure is a charter amendment proposed by Mark Farrell, probably the most fiscally conservative member of the Board, so that suggests the good intentions of the measure, if nothing else. At the dinner after the meeting yesterday, there was some discussion about this ballot measure that maybe we should oppose it. Please read this measure and advise your thoughts on it. There is still time to write a ballot argument and get it in by Thursday, August 15. I won’t be writing it because I’m conflicted on the measure, but if someone else has a good argument (and the majority of us agree), I will prepare the control sheets and we can go through the process again.
http://www.sfgov2.org/index.aspx?page=2969 (if this link doesn’t work, just go to the Department of Elections website, click on “Campaigns” on the left, and then “Local Ballot Measure Status” to get to the 4 measures.