The City of San Francisco faces a $99M deficit next fiscal year, with $42M of that shortfall driven by rising pension costs.

Despite the city's strong economy giving its coffers a boost, pension costs have continued to grow as more Baby Boomers retire and start to draw on their benefits. The city attempted to curb pension spending through Mayor Ed Lee's (above) Prop C in 2011, which voters passed with 68% support.

Prop C eliminated a benefit where city employees who left after five years would be paid back all they had put into the retirement system plus interest and a 100% match from the city; and it asked employees to contribute to their pensions and future healthcare costs. It was expected to save the system $1.3B over 10 years, according to the San Francisco Business Times.

One reason for Prop C was that the city's pension fund investments were yielding a lower rate of return than anticipated. That remains a problem, with investments bringing in a 4% return compared to the 7.5% expected by the city. San Francisco is looking at the need to cut spending by city agencies by 1.5% to 3% during the next two years. [SFBT]