[credit provider=”Alain Picard via Flickr” url=”http://www.flickr.com/photos/alainpicard/4175214747/”]
San Francisco’s budget deficit is on track to triple over the next five years if the city doesn’t do something to get its spending in check, according to a new financial plan from Mayor Ed Lee.Mandated by a 2009 ballot initiative, the report lays out a five-year financial strategy to balance the city’s budget. San Francisco faces a budget shortfall $306 million next year. That deficit is projected to grow to $829 million by 2016, as the city’s operating costs steadily outpace revenue.
According to the study, the single “largest driver” of the projected shortfall is the ballooning cost of employee wages, benefits and pensions, which are expected to grow by $648 million over the next five years. The mayor’s proposal calls for $25 million in wage and benefit cuts next year, followed by $100 million in fiscal year 2013-14 and $200 million the following year.
But those cuts depend on getting a pension-reform measure on the city election ballot this fall. The proposed reform initiatives would dramatically increase the amount employees contribute to their pension and healthcare benefits.
San Francisco’s public-sector unions initially put up fierce resistance to pension reform, but have recently indicated they would get behind a ballot initiative if the city agrees to proposed accounting changes for the pension fund, the Bay Citizen reports.
The changes would allow the pension fund to “smooth” its recent losses over 10 years.
Experts say the proposed changes are legally questionable and could cost the city more in the long run.
Girard Miller, a former member of the Governmental Accounting Standards Board and an authority on public retirement plans, said the unions’ plan “Ponzi funding” – any pension fund contributions the city might be excused from making in the near term would result in its having to pay double the “saved” amount by 2020.
A side deal on the accounting issue could be the best – and perhaps only – way to ensure pension reform passes in November. But if ratings agencies agree with Miller, the unions’ “smoothing” plan could hurt San Francisco’s credit rating, making the city’s budget problems a lot worse in the long run.