San Francisco must avoid $104 million money grab and refund unspent health funds

As San Francisco businesses struggle to survive COVID shutdowns, worker shortages, supply chain issues and inflation, The City finds itself sitting on a $104 million surplus business owners have paid into for a city-mandated health care fund for employees.

The problem: Many employees have failed to use the funds, and now city bureaucrats are plotting to divert the windfall into their own coffers. Unsurprisingly, some business community members object to the money-grabbing scheme, according to a story by The Examiner’s Sydney Johnson.

The jaw-dropping excess of funds is an unintended result of The City’s praiseworthy and progressive efforts to extend health care benefits to workers. In 2007, then-Mayor Gavin Newsom launched Healthy San Francisco, which aimed to provide universal health care to uninsured city residents. It requires employers in The City to pay into a fund to subsidize health care for workers.

“In 2008, San Francisco launched the City Option program as one way to meet the employer spending requirement,” wrote Johnson. “That program includes a medical reimbursement account (MRA) as well as a pool account where money is stored for new employees who have yet to set up personal accounts.”

City Option now covers nearly 4,300 employers and 500,000 employees. But not all of the employees are using the money in their medical accounts. With unspent funds stacking up, the San Francisco Health Commission Finance and Planning Committee last week approved a plan to deactivate accounts that have been idle for three years and hand the funds over to city bureaucrats.

Some in The City’s beleaguered restaurant industry are pushing back.

“I’m not sure why The City gets a ‘pass’ and gets to reclaim the money after three years,” Laurie Aaronson, president at AOC SF, Inc., a restaurant consultancy firm, told Johnson. “The City should contact those businesses that contributed over the last three years and offer them either a refund based on their pro-rata share of contributions over the last three years, or a credit against future contributions … that sure would help many businesses get back on their feet post-COVID.”

The pandemic wreaked havoc on the restaurant industry in a city not known for caring too much about the struggles of its small businesses. The shutdowns hit local restaurants and bars hard, forcing layoffs and losses in an industry where many were already struggling with thin margins. Many local restaurants closed for good, unable to survive the pandemic.

Those that survived did so by shifting to take-out only models or building parklets to allow patrons to enjoy outdoor dining on sidewalks or streets. With things slowly returning to normal, city officials have cracked down on parklets, many of which they constructed hastily during a public health emergency.

“As the parklet program transitions into a permanent fixture on San Francisco streets, tensions are bubbling between city agencies that need to impose some semblance of order to what’s been a largely ad-hoc system and merchants who are still only beginning to recover from the pandemic,” wrote The Examiner’s Carly Graf on Nov. 8.

City inspectors have been threatening restaurant owners with fines of up to $500 a day, adding to the woes of local businesses that spent thousands of dollars building structures they may now need to tear down unless they comply with new guidelines.

“The notion was that this was built in order to help small businesses and now what it’s going to do is destroy small businesses,” Hanna Suleiman, owner of Caffe Greco in North Beach, told Graf.

Laurie Thomas, executive director of city trade group Golden Gate Restaurant Association, estimates that as many as 90% of parklets will need to be removed or significantly changed to meet the guidelines, which span more than 60 pages, reports Janelle Bitker of the San Francisco Chronicle. “Though restaurants have a June 30 deadline to come up to code, many businesses are already being warned that they will be assessed hefty fines if they don’t make these changes within weeks,” Bitker wrote.

A spokesman for Mayor London Breed told the Chronicle she is working to delay fines and enforcement. That’s good news, but The City must do more to help struggling businesses.

For starters: Instead of creating a system in which excess money defaults to San Francisco’s General Fund, The City should refund the money directly to the businesses — like restaurants and bars — that earned it in the first place.

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