Unfunded pension and healthcare liabilities threaten the financial stability of San Francisco and many cities. By utilizing joint powers agreements, cities could share costs for services and alleviate budget shortfalls.
Jana Ašenbrennerová/For the S.F. Chronicle
California’s cities face a perfect storm: soaring unfunded pension liabilities, aging infrastructure and pressure to preserve essential public services, especially police and fire protection.
Forced to balance their budgets, cities debate whether to raise taxes, cut services or both. Fortunately, California law offers a third alternative. A practical and proven tool to address the mounting fiscal crisis that afflicts cities across the state: the joint powers agreement, which allows them to combine their resources to jointly provide more cost-effective services, while preserving local representation and oversight.
Unfunded pension and healthcare liabilities threaten the financial stability of many cities across the state. According to the California Policy Center, the combined local and statewide long-term debt has soared to nearly $1.4 trillion.
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In many Bay Area cities, retirement costs consume a significant share of general fund budgets. Mill Valley’s pension costs alone account for about 18% of its general fund operating budget, with an additional 3.7% allocated to retiree health care costs. In San Jose, retirement costs constitute 28% of the city’s annual general fund spending. Combined pension and retiree healthcare obligations range from 20% to 28% of general fund budgets in many Bay Area municipalities. San Jose’s pension costs triggered a fiscal crisis in the 2010s, and while the situation has stabilized, the city still carries a heavy debt load, facing unfunded pension liabilities of roughly $3.5 billion, around $10,500 per taxpayer.
San Francisco’s latest Employees’ Retirement System Annual Report reveals the city’s net pension liability is nearly $4 billion, around $12,800 per taxpayer.
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Oakland’s net pension liability of roughly $2.5 billion leaves its taxpayers even more exposed — nearly $20,000 per taxpayer. Facing a projected $130 million deficit in the 2024-2025 fiscal year, Oakland was forced to close fire stations, draw down reserves and rely on one-time revenues to avoid insolvency. Officials warned that further cuts are coming as rising pension obligations continue to outpace revenue. Despite being part of a single, integrated metropolitan region with overlapping service demands, Bay Area cities like Oakland still operate largely independently. They are not alone.
California’s municipal landscape is highly fragmented. Dozens of cities across each metro area maintain separate police departments, fire departments, administrative divisions, procurement systems, training facilities and capital assets. Most cities also negotiate separately with unions, manage their own pension obligations, and finance their own equipment and infrastructure.
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Fragmentation is expensive, and duplication drives up costs, especially for labor-intensive services like police and fire protection. With taxpayers already stretched thin, local governments search for ways to deliver needed services without raising taxes or cutting critical programs.
That’s where the joint powers agreement comes in.
The law authorizes cities to coordinate services, lower borrowing costs and reduce duplication through joint powers authorities. The model is already widely used for water systems, transportation and waste management, and it could be transformative for public safety. Regional authorities offer two key advantages: lower costs and better services.
Cost savings can be achieved through economies of scale when larger agencies spread fixed costs — training academies, dispatch systems and specialized units — across a wider population. Since regional entities can typically access capital markets on more favorable terms than individual municipalities, jointly funded infrastructure projects, such as 911 systems or fire stations, further reduce costs for participating cities. The Orange County Fire Authority, which serves 23 cities, achieved significant savings through shared procurement and streamlined operations.
Regional joint powers authorities can also improve service quality, enabling cities to share specialized units such as SWAT, arson investigation and hazardous materials response teams. They can also reduce costly overtime spikes — an issue that impacts Oakland, where overtime has often exceeded budget projections by tens of millions of dollars.
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The Bay Area already offers several examples. The East Bay Regional Communications System Authority consolidated emergency communications across jurisdictions. The Central County Fire Department provides fire protection and emergency services to Burlingame, Hillsborough and Millbrae. The Alameda County Fire Department serves multiple cities and unincorporated areas.
Joint powers authorities are not a silver bullet. Governance is often the most delicate challenge in forming an authority. Participating cities must agree on representation, voting rules, cost-sharing formulas and long-term accountability — decisions that can become contentious when communities differ in size, risk exposure or fiscal capacity. Legal exposure is another consideration: authorities can face lawsuits from contractors, member agencies, third parties or employees, and pending litigation may complicate finances, strain interagency relationships or deter prospective members from joining. The Transbay Joint Powers Authority in San Francisco, for example, has been entangled in litigation since 2018 with the general contractor that filed suit over the Salesforce Transit Center — a case that required the authority to approve spending up to $23 million in outside legal fees.
Guest opinions in Open Forum and Insight are produced by writers with expertise, personal experience or original insights on a subject of interest to our readers. Their views do not necessarily reflect the opinion of The Chronicle editorial board, which is committed to providing a diversity of ideas to our readership.
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Although governance complexities, union negotiations and political resistance are real barriers, compared to the alternative — service cuts or tax increases — joint powers authorities deserve serious consideration.
In the face of mounting fiscal challenges, regional joint powers authorities can provide a practical path and critical lifeline to preserve public safety. They won’t eliminate unfunded pension liabilities overnight, but they can help slow their growth, improve service quality, cut costs and bring greater stability to municipal budgets.
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Francois Melese is a professor emeritus of economics at the Naval Postgraduate School and vice chair of the California Arts & Sciences Institute.