employer-paid benefits. chairperson chu: on that point, 87% of our enrollees -- we are talking about active as well as retired, correct? i believe city college, school board, etc.. >> i believe these percentages, yes. if you want to look at how the city subsidy is to strip it did among different groups and plans, this table is trying to depict that. $448 million in total employer paid health benefit subsidy. $400 million of that providing a subsidy to the vast majority of employees or retirees that are in either kaiser or blue shield. you can see again kind of the

makeup of where that subsidy goes, in terms of subsidizing the active employees, dependents, or retirees. chairperson chu: for this slide, what we are seeing is $448 million in terms of total city costs for the active employees, dependents, as well as retiree members independence. you know what portion the employee cost is? this is our employer cost. what is the employee contribution? >> i do not know of the top of my head the break down. if memory serves, about 90% of costs arps paid by the employer. there are differences in different groups. chairperson chu: but ball park is about 90% of health care premium costs are paid by the

employer and 10% by employees, correct? >> that is correct. looking ahead again over the horizon, and just to give you a feel for the comprehensive chart with produced earlier -- this is showing projections of health benefit costs over the coming 10 years. this is in current dollars. the red line at the bottom is projections of costs for retirees. the blue line is actives. the green line is a rollup. there are implications for us as an employer, as they're all for -- as there are for all employers given federal health reform. i think kathryn can probably talk through those in some more depth. chairperson chu: think you. if there are no questions for our controller, i would like to

invite our department heads to say a few words or supplement the presentation if they like. >> thank you, madam chair and supervisors. i will be very brief. i wish to amplify two points to follow up the controller's report. i like to make publicly, because of the perceptions being formed about the pension system and its costs -- today, it seems to be front-page news. our system is very soundly funded, perhaps the best-funded system in the state and one of the best large systems in the nation. we are running over a five-year smoothing period, as the controller adequately defined. that's moving for major market losses that occurred in 20009.

that is due to extend through its smoothing course by the end of fiscal year 2013. what that says is yes, the employer's contribution costs are going to continue to rise through the end of that smoothing. next year's cost is 18. 09% at the employer rate. when the chair mentioned 28%, that is not a one-year increase. that is through the end of 2013. that is not guaranteed, but we have every reason to believe thawe believe, based on how the fund as been managed, that we realistically believe in the charge on page 11 that the blue

line is most accurate. after the year 2013, if the employer rate gets up to 28%, we believe all things being equal the rates will start to come down again because we have gotten through that smoothing and passed that huge $777 million a year that we have to overcome each year to get to the end of this moving. -- the smoothing. i know you are addressing the budget. fringe benefit costs are going up. my obligation is to protect san francisco employees. when we talk about the costs of the pension, one thing i would like to point out is you are looking at these numbers. these are overall numbers.

they include a variety of factors. the employer's required contribution is the rate that you hear is now 13.5%. if you look back in the years that were known affectionately as the holiday. and saw an earlier draft from 1996, the city was not required to make any required employer contributions and did not. that does not mean the city did not spend any money. it did, through its negotiations with the unions and other circumstances. the city was paying into the pension the employee portion, the employee pickup. it is a cost, but not the employer cost. the city would have still made those payments to the employees in terms of salary dollars rather than fringe benefits through raises. i want to make sure we keep everything in balance when we look at these costs. some of the other costs included

in here -- we see this every time you read an article on costs. the pension and the costs go up. but one sentence after the talk about the pension, you see health care costs and retiree health. they are separate legal entities independent of each other, unrelated to the pension cost itself. you have some portion of pension expense. it does not go into the san francisco system. it is paid into the state system to cover the sheriff's department, district attorney, and other small groups covered underyou also have cost the cits to pay into social security. these are all cost you have to

pay for and i realize you're dealing with a difficult budget, but those are not costs being caused by the san francisco retirement system and wanted to take this opportunity to highlight that and amplify that. supervisor chu: just to comment on the five-years moving -- the idea is we don't and absorb entire losses in one year right after if we were to have to absorb the cost of a 20% or 25% loss in one given year. the contribution rates would spike up exponentially and it would be difficult for the city to manage. the idea is to smooth out any loss or gain over five years so you don't take a hit at one time. that's the general idea of with a five-year smoothing policy is. with regards to the contribution rates, we often talk about the time when the city was contributing zero as required by the actuarial studies. but because of a proposition

that was recently passed, that's not going to be that policy of the city. could you speak on what that is to explain to the public what we would be contributing going forward because of the proposition that was passed? this was the 9%, roughly. >> i want to touch on a couple of things. one thing the comptroller mentioned, he mentioned conservative, i'm never sure of its conservative or aggressive. our stated rate of return is 7.75%. that is very good and if you look -- i left packets for each of you, but we generated 12.5% last year and that on audited, we are at 19.4% right now. >> i was -- supervisor chu: just exploration

at actuarial assumptions that we did not need to contribute the cost trickling forward, because of all was passed by voters, what is the practice going forward? >> that number fluctuates depending on the actuarial report. we have thrown out numbers around 10%. that seems to be standard. it could go up to 28 and it could go back down again -- >> you are talking about proposition d where the contribution to the retirement system went below the cost, that money would be deferred to the of retiree health trust. i am assuming that is what you --

supervisor chu: i just wanted folks to make sure that if the city's required contribution is lower, we would contribute at lower amount because of proposition d, the city would be required to continue to pay the normal cost, which is roughly about 9% or 10%, even if it is not required by the actuaries. that would provide discipline in the budget to make sure we pay a certain level and to our pension every single year. it also allows us to put money into the retirement trust fund with the alternative to put it to the health side if we need to. >> it is a separate trust for that money. any differences between 9% or 10% in the difference would go into the other plan. >> i apologize i misunderstood your question. as part of that same proposition, we had a two-year averaging and an increase in public safety contributions.

based upon our last actuarial report, those two factors were not taken into account because they did not take affect at the close of the fiscal year. starting with the next report, we will see some decline in the rate because of the impact of those two changes. supervisor chu: thank you. if i can ask katherine dodd to come up. >> thank you. i'm director of health service system. i want to take this opportunity to say this is the first anniversary of health-care reform, march 23rd, it was signed into law by president obama. people often ask how much health care a formal cost health services system, because we already cover dependents at age 25, adding dependents of to age 26 was not a significant cost to us.

it's limiting the copays for preventative visits was not a significant cost, but we increased copays the year before. health care reform is not costing san francisco a significant amount. but it will in the long run preserve the medicare trust fund. without that, we would not be able to afford retiree health care. is a celebratory day. in san francisco, we have been providing benefits since 1937. we also provide benefits for the school district, the community college and superior courts. our membership is divided between -- divide between 70% of active member and 30% of retirees. the health service board has been very aggressive in the last two years in terms of keeping costs down. they have done that through the first year when the city budget was in much worse shape, implementing copays on almost everything, so they saved the city $10 million. then forced our retirees into

medicare advantage, sitting in other $2.7 million. the board took seriously the budget deficit and shifted a substantial amount of cost on to the employees in that year. the board did that again this year and increased our copays more strategically by saying if you are going to use a non- formulary drug, you have to pay a higher copiague, driving our members into generic drugs -- a higher copiague, driving our members into generic drugs. the board also, when rates were so high last year, instructed us to do a competitive rfp. we came in with a 3.1% increase that has been the envy of every employer in northern california. northern california has the second-highest health care costs in the country, second only to hartford, conn. hopefully we can keep dust down

through payment reform and accountable care organizations. the other thing we have consistently done as implement eligibility on that. we've done everything any large employer would do to keep costs down and have done an extremely successfully. i shall have the numbers each year we have saved and i can share that with you. our copays our comparative to other counties and large employers, so we are right in line. our packets are no more generous than other counties. but i want to emphasize the only way in the long term to keep that number from rising because health care costs are going to continue to increase is to have healthier employees and retirees. that is going to require championing that issue at the highest level of the board of supervisors and the mayor. every department is required to have a recycling plant and emergency plan, perhaps every department should have a wellness plan to return our

employees back to work and keep them from being ill. i did want to point out specifically that the board, against the testimony at our public meetings the to shift costs to employees to save the city money and we are in line with all our other employers. with that, i am available to take questions and i have the comparisons for you if you like them in terms of other counties and where we save the money. >supervisor chu: i think we can share cost comparisons with the committee. i would like to thank you for the work you did. i think it's beneficial to the city over all and i would like to recognize my fellow commissioners on health service system board. i just want to recognize that you are here and at some point

in time, if we could ask for you to provide more information to us about what the city is doing to prepare for the cadillac tax we expect. from health care reform, we expect certain costs or more expensive plans will be taxed at a certain level, but i think we have yet to understand what that impact might be. that is a tax based on the entire cost of a plan, not what the employer contribution plan or employee contribution is. it is what the overall cost of the plan is. if you can provide an update to this committee and the board about what we project our impacts to be, that would be helpful. >> i think that was reflected in controllers graf, was it? the 2018. we will have hit the $10,500 limit for single employee and

the $27,000 limit for a family. i will point to the fact that many people say between now and 2018, there are 6 congressional elections and two presidential elections and nobody is sure that tax will be implemented. however, just the threat of it has changed how insurers and providers are approaching payment. we would not have been able to negotiate a double care organization which would require greater transparency between hospitals, physicians and insurers, among some cells and others, we would not have been able to implement that if the cadillac tax had not been living out there. i think the intent of congress was to say to providers there is an affordability crisis and you must do something about it. we are engaging before any other local jurisdiction in doing something about it and we will let you know how much money we save going on. supervisor chu: thank you. mr. comptroller, which like to

add to that? >> just one point of commentary to add to the presentation. sometimes lost in this debate at the moment nationally is many things can all be true once. i think this is true in san francisco as well. we can have a well-performing retirement system that is generally beating its peers and seeing significant returns in the investment funds. we can have a health benefit plan taking significant steps to try to control costs in the future. and nonetheless, as a city, we can face significant cost pressures over the next four years and beyond because of the impacts of other things that are at times within our control and up times outside of them. all of these things can be true and that appears to be the scenario we face in san francisco at the moment. supervisor chu: thank you. why don't we open this item of four public comment? are there any members of the

public to wish to make comments on item number one? none? public comment is closed. if i can ask any members of the committee', if we can move to file adhering -- if we can move to file the hearing. >> file? supervisor chu: why don't we get to item number two? >> a hearing for an update on the status ship provisions on the contract. supervisor chu: just to open it up, our intention to bring this item before us in this hearing is to provide a baseline of understanding for the committee members as we go into crafting the budget about where our labor contracts are. some of them are open, some of

them are closed, some of them have certain provisions, so it will be good to have a working knowledge of where that is. >> thank you. good afternoon, supervisors. i'm with -- and the human resources director. i just want to make a comment or two before we go to the power point. our human relations director has prepared it and it gives a good from the 10,000 ft up review of the labor provisions, the contracts open for negotiation, those which we will have next year, upcoming races, and some other elements of importance. -- upcoming raises and other elements of importance. this year, although as you see our negotiations calendar is light, we only have to open, we are devoting our energies to meeting with our labor partners and in an attempt to identify a consensus measure to bring forward to the board for placed

on the november ballot which will have an impact in reducing our pension and health costs both in short and lg term. we are well into that process. we are regularly posting information on our website. we are confident we have a lot of areas of agreement and we will be able to bring you something in short order. i would note that, in the chart, there are a number of raises for safety and health care classifications. these were scheduled initially on the order of four years ago. as the contracts were extended, the raises were pushed out. they are not newly negotiated. what is new are the effective dates. i will ask martin grand to present the information to you. >> good good afternoon. i'm from the employee's relation division from the department of human resources. the first slide on real -- on

page two, we'll start with the basic overview of employees, the number of bargaining units and the number of unions in the city and county. we have approximately 26,000 employees in the city and county. these are budgeted and funded positions. you will find them in the annual salary ordinance which the previously sitting supervisors are very familiar with. the funding for these positions comes from a combination of the city's general fund, along with revenues brought in through our enterprise departments and the breakdown is close to 50/50. 40% general fund enterprises and 52 -- there is nuance as to which departments may qualify as the enterprise funds. there is a bland for departments like building inspection which brings -- which is largely supported by revenues, maybe not entirely so. we have 54 bargaining units.

this is reflected in the employee relations ordinance which was updated last year. we have 33 contracts, collective bargaining agreements, or memoranda of understanding. we deal with 37 different employee organizations. probably a record in the nation, certainly in the state. the larger unions and the number of fte's are set out in the bottom of slide to. the largest group of miscellaneous employees are represented by the service employees international union. they represent almost 10,000 employees. the second-largest is the professional and technical engineers local 21 at about 4500. other bigger unions are represented on the slide.

turning to the next page, we have a representation of some of the unions, particularly unions within the city and county, the health union, the largest would be the per diem nurses, staff nurses and contract, that represents 1500 employees. supervising nurses represented by teamsters local 856, 124 employees. moving to the safety unions, approximately 1700 firefighters, approximately 2500 police officers, and about 950 either deputy sheriffs or employers of the -- employees of the sheriff's union or management union for the sheriff's. then we have a reference to the miscellaneous safety groups.

these are groups largely represented -- whose retirement is kept under calpers. the probation officers, the district attorney investigators, the juvenile probation officers, some of the institutional police officers. last year, we ended up reaching a historic agreement with almost all the city's labor unions. there was an effort led by a san francisco labour council which brought in 30 unions into a concession agreement in which employees gave back a total of $235 million over a two-year timeframe. the members of this labour council group or of the so- called public employee committee is compromised -- comprised of by the unions listed on page 4 and

represented a complete cross section of labour in san francisco. it was a very historic agreement which brought in money in one of two ways. for employees represented by unions that did not have money on the table, so to speak or have scheduled raises, the giveback was in the form of 12 furlough days. this represents a a4.62% concession. over two years, those groups brought in over 9% of a concession toward the city. for employees in unions that had money coming on the table, they largely deferred those raises to equal the savings of 8%. there'll be futures light on those agreements. the labor council also agreed to

reform in the health area. they agreed to a clause that would save the city over $3 million a year starting this year, this upcoming year, a 11- 12, by paying five, 10 -- $5, $10, $15 a year for dental coverage. that is something the city has had to put into its benefit plans, so you will see this savings start this year with that reform. in return, labour received no layoff protection for fiscal year 10-11. there were a number of possible triggers and all the loss of federal monies or state monies. those traders were not polls, so to speak. we have one possible trigger left and that is if the joint report shows a protected deficit of more than $300 million, we can start doing layoffs earlier than july 1st. we assume that will be the case

for the joint report. but we do not currently have a plan to start layoffs earlier than july 1st. supervisor chu: if i could just take a look -- for the unions that are part of the committee you have listed here, we actually have certain concessions from them that were negotiated that are in place for this current fiscal year as well as next fiscal year? >> correct. supervisor chu: so the budget includes those anticipated savings for the next fiscal year, correct? >> yes. supervisor chu: if i understand correctly, on the 12th furlough days, you talk about deferring wage increases or if there were no wage increases, the value of the furlough days were scheduled to go away after that two-year time frame, so one year by one yar