Recently, the city reached a landmark agreement that will save $714 million in the next 25 years on health care for city employees when they retire. Let me explain why the people of San Diego should be just as excited about this reform as I am.
First, this is the largest cost-savings measure ever implemented by this city, saving hundreds of millions of dollars that can be used for public safety, libraries, recreation centers and a wide variety of other public services. The agreement, which essentially phases out health care benefits for retirees, will require city employees, for the first time, to contribute money out of their own paychecks toward this expense. And it also reduces the amount of money the city must set aside for each worker.
Paying the Price
Previous administrations promised to provide health care coverage for retired city employees but failed to set aside the money to pay for it. This new agreement with our unions helps the city get control of the mushrooming costs of retiree health care — costs that would have consumed an ever-larger portion of the city’s budget in the next several decades.
What’s more, there’s a provision that allows the City Council to modify or even eliminate the benefit in two years if, for instance, our financial projections change. (I should note that only employees hired before 2005 are eligible for retiree health care; in 2005, the city eliminated the benefit for all new employees.)
Once the agreement is ratified by our employee unions, it will have a dramatic short-term and long-term impact. Buck Consultants, the nationally-recognized consulting firm that has advised the city on this issue, estimates the agreement will reduce our annual payments toward retiree health by about one-third.
Why not eliminate these health care benefits altogether?
Avoiding a Legal Battle
That approach would be a bad idea. We would wind up in a long, expensive legal battle with our unions — a battle that could last a decade and cost the city tens of millions of dollars in legal fees, with only a coin’s flip chance that we would prevail. As City Attorney Jan Goldsmith has pointed out, a loss in court would mean sacrificing the $714 million worth of savings that the city has locked in with this agreement.
Reforming the retiree health care system has been one of my major priorities as mayor. Combined with our pension reforms and other money-saving operational changes, this agreement will help the city emerge from this recession stronger than ever.
Jerry Sanders is the mayor of San Diego.