Skyrocketing employee costs will deal a $100 million blow to San Francisco coffers next fiscal year despite wage concessions.
Pensions rank among the most escalating labor costs for San Francisco. Less than a month after voters rejected Proposition B, which would have increased employees’ pension contributions, a $379.8 million deficit projection was released this week. It shows The City’s annual pension investment will grow by $37.1 million next fiscal year.
The labor costs — salaries, health benefits and pensions — will force government expenditures to increase by $101.1 million in the fiscal year that begins July 1, according to data from Mayor Gavin Newsom’s budget office. Labor costs are one-third of The City’s projected $293.4 million of increased spending for the upcoming fiscal year. Also, San Francisco officials project a loss of $86.4 million in revenue.
The escalating labor costs come even though unions agreed to give up a total of $250 million during the span of the current and upcoming fiscal years. And the number of San Francisco public employees is the fewest since 1998, with 26,107 on the payroll.
Wages alone are increasing by $34.8 million. That figure would have been $134 million if there were no concessions, according to Newsom’s budget director, Greg Wagner. The increase is due to about a 6 percent pay raise for police, 5 percent for firefighters and a raise for nurses. The other salaries are frozen.
“One hundred million dollars is a lot. But a big chunk of that is in benefits that are set by a formula based on charter requirements,” Deputy City Controller Monique Zmuda said. “So unless there is some meaningful reform, we can’t really do anything about it but pay it.”
Health benefit costs are expected to increase $15.3 million for retirees and $9.2 million for workers, due to the ever-increasing cost of medical care and more services being used. Retirees and employees made $110 million in health care contributions in 2010 while The City tossed in $548 million.
Pension costs continue to drain city coffers as San Francisco has to make up for its investment loses. Last fiscal year, The City’s pension costs were 9.5 percent of salaries at a cost of about $200 million.
Voters rejected one method that could have reduced labor costs by rejecting Prop. B on the November ballot. The measure would have increased city workers’ contributions to their pensions to at least 9 to 10 percent, up from 7.5 percent, and require The City to not “pick up” more than 50 percent of the costs of health benefits for city workers’ dependents, such as spouses and children.
Public Defender Jeff Adachi, who led the campaign, said it would have saved The City more than $100 million annually.
Opponents blasted the measure for being proposed without consulting labor groups and for increasing health costs for struggling families.
The measure’s defeat, however, is not the end of the debate. City officials and labor leaders are said to have begun discussions about other ways to draw down labor costs.
Meanwhile, city officials are already in discussions about making budget cuts at the end of year. A proposed balanced city budget must be submitted to the Board of Supervisors for approval by June 1.
Where the money is going
More than $100 million of San Francisco’s projected $379.8 million deficit for the fiscal year that begins July 1 is a result of increasing labor costs.
9.49%: Salaries city paid into pensions in FY2009-10
13.56%: Salaries city paid into pensions in FY2010-11
16.5%: Salaries city expected to pay into pension in FY2011-12
$37.1M: Amount by which city pension costs will increase in FY2011-12
$34.8M: Salary increases for fiscal year 2011-12 as a result of raises for police, firefighters and nurses
$15.3M: Increase in health costs for retirees
$9.2M: Increase in health and dental costs for employees
$4.7M: Other salary and benefit cost increases
$101.1M: Total projected labor cost increases for FY2011-12