Saturday, July 8, 2017
San Francisco [County] Fooled into Voting for $5.8 Billion Pension Spike
Despite being Ground Zero for social justice warrior elites, San Franciscans always assumed they would never be ravaged by unions and crony liberal politicians spiking unfunded pensions, because the city’s century-old county charter required a public vote for any enhancement of a government benefit.
But when the Governmental Accounting Standards Board (GASB) issued Statements 67 and 68, which required greater public pension liability disclosures by mid-2015, auditors calculated that the national unfunded public sector pension liability for state and local governments had jumped by almost 50 percent to $1.378 trillion. In a surprise to ultra-liberal San Franciscans, their unfunded pension liability spiked to $5.8 billion.
According to a finding by the grand jury’s June 2017 report: “There are several causes for the underfunding of the Retirement System, but the main underlying cause is the retroactive retirement benefit increases implemented by voter-approved propositions between 1996 and 2008.”
The grand jury documented 12 separate initiatives that were put on the ballot by San Francisco’s County Supervisors and dutifully passed by the public between 1996 and 2012 that had some type of impact on retro-active retirement benefit increases.
The grand jury found that 10 ballot initiatives had a “Voter Information Pamphlet” that did not adequately inform voters of what they were voting on. Two of those voter-approved initiatives involved “significant” retroactive pension increases amounting to $3.5 billion.
The other components of San Francisco’s unfunded pension liability impacted by voter-approved initiatives include a $1.3 billion adverse calculation of the Supplemental Cost of Living Adjustments for pension payments and incorrect demographic assumptions. The San Francisco pension plan also suffered investment losses of 1.4 billion.
The grand jury found that over the last decade — after adjusting for inflation — salaries and benefits for San Francisco’s public employees increased by 33 percent. In the same period, after adjusting for inflation, the public pension liability increased by 35 percent, while the pension plan’s assets to pay the future liability increased by only 3 percent.
Public pension plans are generally expected to be funded equally by employee contributions and employer contributions. The grand jury did find that public employees’ pension contributions rose by 83 percent, to $323 million, over the decade; but the County of San Francisco’s annual pension contribution more than tripled to $526.8 million.
The grand jury referred to the spiking liability as a “Pension Tsunami.” It specifically found that between 1996 and 2008, “the Mayor, Board of Supervisors, Retirement Board, and Controller did not fulfill their responsibility to watch out for the interests of the City and its residents.” Some changes have been made since 2008, but the grand jury is warning that the unfunded pension liability will continue to grow rapidly.
Stanford University’s Hoover Institute has commented that if public pensions had to follow the same equivalent market valuation basis analysis as the private sector, the “true” public sector unfunded liability owed to employees and retirees would more than double to $3.846 trillion.
July 4, 2017
By Chriss W. Street