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New Numbers Could Propel SF Budget Solution

Study commissioned by Warren Hellman shows union group's benefit proposals may be almost enough

As most San Franciscans know by now, the city is in a financial bind. The budget deficit for the coming year is estimated to be $380 million. Layoffs seem unavoidable, and city employees are girding for continued belt-tightening.

But a new study suggests a solution might be closer than we think. 

A privately commissioned actuarial report estimating the cost savings of a number of proposed changes to city employee and retiree benefits was presented at a private meeting Wednesday afternoon attended by leaders of the city-employee unions and Warren Hellman, an investor and philanthropist who convened the group to come up with a consensus plan to help solve the city's financial crisis. (Hellman is chairman of The Bay Citizen's board but plays no role in editorial operations).

Impatient with the long time it was taking for the city to assess the financial impact of the group's proposals, Hellman hired David Hilko, an actuary with Deloitte Consulting LLP in Chicago, to come out and run the numbers more quickly, according to union officials. 

The Deloitte analysis, which was obtained by The Bay Citizen, shows that the combined savings of the proposals on the table might possibly approach the $300 million to $400 million in annual savings that Hellman, in an interview last month, said would be necessary. Mayor Edwin M. Lee, in an separate interview last month, agreed generally with Hellman's target and said that the city could be bankrupt in five to 10 years if the group is not successful.

As a political matter, however, it is unlikely that the unions will support all of the changes that were priced out. The huge SEIU Local 1021, which represents about half of the city's employees, is undergoing a leadership upheaval and is seen as less than enthusiastic about the entire effort. 

The largest single source of near-term savings would be to end the supplemental cost-of-living adjustment, or COLA, that retirees receive if the city's pension fund exceeds certain return targets. Eliminating that benefit, which this year cost the city $170 million, would save $119 million. (All of the annual cost savings are estimated for the fiscal year ending June 30, 2013).

Every 1 percent cut in the basic COLA that retirees receive would save $83 million in 2013. Increasing the percent of their salaries that all active employees contribute to the pension fund by 1 percent would yield $25 million. Requiring employees to contribute an extra 4 percent of their salaries to the pension fund would generate another approximately $100 million.

Health care costs are larger and more complex than pension costs, and savings here seem more elusive. Of the eight ideas the Hellman/union group asked Deloitte to price out, total savings from health care proposals amounted to only $96 million by 2013. But those changes would be extreme. One proposal was to eliminate the City Plan, the most-expensive health insurance option for city employees. That would save just $8 million in 2012, but would reduce the city's actuarial liability by $308 million over the next 30 years. There is some question whether, as a legal matter, the city can eliminate the City Plan, which is mandated in the city charter. 

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