Employee Contracts Are the Last Piece to the Puzzle –
Employee Contracts Are the Last Piece to the Puzzle – Last week, the Davis City Council passed a budget that calls for cutbacks in salary and benefits that equals around 3.8 percent of employee compensation. The raw number is 1.25 million dollars, less than the number that Councilmember Lamar Heystek pushed which represented around 5 percent at 1.575 million dollars. At the same time, it was greater than the 850,000 dollars that the city was proposing.
“However, given that the members of the council who voted to approve the budget last week are the exact same people whose irresponsible policies pushed our city into its long-term fiscal crisis, where we are continually adding liabilities while cutting city services, it’s hard to believe that ‘the council’s budgetary goals’ that may be found in the new labor contracts will do anything to solve the myriad problems this council created.
The council’s goals don’t include reversing the 18 to 36 percent salary hikes they gave out in 2005. They don’t intend to end the practice of awarding all cops and firefighters and upper management personnel retirement packages worth $2 million to $4 million each.”
For those who have been either reading Mr. Rifkin’s columns or the Vanguard for the past year, none of this is particularly surprising. However, the nugget that Mr. Rifkin suggests comes toward the beginning of his column:
“Mayor Ruth Asmundson broke some news regarding the city’s labor agreements.
‘The city is actively meeting with the employee groups and the city is aggressively negotiating to achieve the council’s budgetary goals,’ the mayor said. ‘We anticipate that we will have additional information to announce at the upcoming council meetings.'”
He continues:
“It sounds as if Mayor Asmundson believes terms have been agreed to with the five employee groups whose contracts have expired. It’s also possible changes are in store for the two police contracts due to end in 2010.”
At times there have been an air of optimism that this process will play itself out and enable us to at least begin addressing our city’s fiscal problems. However, as the process has ground on, I have become less and less optimistic about it. Part of that simply comes from watching and reading the public record. The city has blown reform opportunities to a large extent with the Grand Jury report that investigated the fire department and also with Citygate.
Citygate is not a complete loss in that it targets a few of the key myths such as the need and rationale for the five minute response time and a fourth fire station. On the other hand, it firmly perpetuates the myth that we need four fire fighters per station despite the fact that almost all jurisdictions seem to get along fine with three. It also tries to push us towards the battalion chief model that the union has pushed for years.
The biggest lost opportunity was with the budget itself. It simply failed to address key structural issues with the budget and instead focused on surface issues that ended up cutting services to the very people paying the bills. Councilmember Heystek deserves great credit for forcing the city to look again at the budget, we have cuts that we would not have without his efforts and we were able to save some services, but overall this is not a budget to be proud of.
The biggest hint of what is to come were the attacks that Councilmember Stephen Souza and Mayor Pro Tem Don Saylor made on Councilmember Sue Greenwald and I believe they were veiled attacks made on people such as myself. They argued that employees were being denigrated and victimized by this process. It’s an absurd allegation.
As Mr. Rifkin notes:
Heystek is not ‘anti-labor.’ His professional background includes being a union shop steward. His belief is that if we don’t spend the public’s money wisely, if we pour our limited resources into scores of workers making six-figure incomes and hundreds of retirees making even more, the city won’t be able to do its job.
This is not about being anti-employee. I have nothing but respect for the jobs that most of the city employees do on a regular basis. The question though is not one of respect but of fiscal prudence. We simply do not have the resources to continue to pay city employees what we have. We do not have the resources to give out 36% raises in city contracts. We do not have the resources to pay people 90% of their ending salary at age 50 for the rest of their lives. We do not have the resources to find a way to pay for the $41 million in unfunded liabilities for retiree health benefits. This has nothing to do with how good a job these people do or their worth. It has to do with finances.
As Mr. Rifkin writes:
We won’t be able to afford enough police. We won’t be able to repair the streets or prevent grass fires. We won’t be able to have nice parks and greenbelts. We won’t have recreation programs for children or seniors or anyone else.
[Councilmember] Greenwald, who has long argued the pay packages for city employees are unsustainable, compared the modest cut in compensation agreed to by her colleagues to what many Davis residents are facing.
‘It is very hard for me to support a budget which says we are only going to be contributing 3.8 percent from salary,’ she said, ‘when the university’s employees are contributing 8 percent, the state college employees are contributing 10 percent, the state employees are contributing 14 percent – particularly since we start from a much, much higher benefits package,’ Greenwald said.
Unfortunately, all indications I am getting tell me that the council and the city are not going to drive the kinds of employee contract bargains that we need. That it will be a 3-2 vote to approve these contracts and it will be the taxpayers who are left to pay the bills.
Rich Rifkin seems perhaps a bit more optimistic than I do about the prospects at this point. He also notes that the while the negotiations are hashed out in secret, the contracts are ratified in public during public meetings. I have begged council and the city to lay out in advance what the process will be for approving these contracts, but to my knowledge they have not done so. After watching the fumbling of the Grand Jury report and how to make it public, it just does not give me confidence for the way the city will handle this one.
As Rich Rifkin writes:
When the city’s negotiators ultimately announce they have struck new deals with the labor representatives, the contracts don’t go into effect until the City Council approves them. The public will have a chance to look them over and determine how they will affect our city.
It is therefore crucial that citizens pay attention and speak up. Don’t allow this City Council to destroy our future. Make sure the new contracts reform the mistakes of the deals they replace.
The unfortunate aspect of it all is that when a land use issue comes before council, the room is packed. Thus dozens of residents came for the Measure J discussion, the Cannery Park discussion, the Covell Village discussion, and even the Chiles Ranch discussion. But when the budget was discussed, there was a very odd thing. The room as packed on one side of the room. You had the heads of the departments, a few of the typical city staffers, and a number of firefighters.
On the other side of the room, it was empty except for me. The most important decisions occurring in the city and the public did not show up. That sends a message to council that the public simply does not care about this issue and that they can do whatever they want. Unless the council has to ratify the contracts in front of a packed room, they will have carte blanche to do as they choose and do so with impunity.
And that is the final piece of this puzzle–the council majority passed a 3-2 budget last week that will impact the city’s future and no one was watching. So yes, Mr. Rifkin is correct that the citizens can make sure that the new contracts reform the mistakes of the deals they replace, but not if the citizens do not come forward and speak.
—David M. Greenwald reporting
” The most important decisions occuring in the city and the public did not show up.”
Budget is always the most important thing legislative bodies do. Maybe the public doesn’t think it is a problem like the Vanguard and Rifkin do.
. . . 90% of their ending salary at age 50 . . .
Must be great to work in admin or parks or planning or any of a number of other City jobs, eh?
anon is incorrect… admin/parks folks would need to work for the city (or another PERS agency) for nearly 33 years to achieve a 90% unmodified retirement allowance. Assuming a college degree, and entering employment at age 23, they would need to be 56. BTW, an unmodified allowance provides $0 to a surviving spouse. To have an allowance that provides for the same level of benefit for a surviving spouse, the employee would get ~6-7% less than the unmodified allowance.
Is the vanguard making a fimancial gain by using city services funded by the city ?
With the vanguard turning a profit as stated by David greenwald , why isn’t he doing the proper action of paying his own way ? His abuse of not paying is hurting our city budget ,the same budget that he is so worried about .
It’s far worse than indicated in this commentary. Many employees are redirected into higher pay jobs their last year, and/or paid extensive overtime. So the retirement is 90% of a vastly inflated salary.
This amounts to legalized theft of the taxpayers by public employees, aided by our spineless city council.
Awareness of this situation is growing and there will be a tremendous backlash.
Employees who think that their benefits are untouchable under the law will have a surprise coming. Laws can be changed.
inkblot is also misinformed, particularly regarding overtime pay… overtime is not “PERS-able”, i.e. not part of the ‘final compensation’ calculations. As for “spiking” by a final year or so promotion… I believe this has happened, but very rarely.
I should have noted that the 90% figure is only for public safety officials who have worked 30 years and received 3% for each of those years. Other employees received 2.5% per year of service and retire at age 55.
I noticed this in the Sac Bee today:
[quote]
July 10, 2009
Yolo County firefighters get wildland practice Saturday
From Bill Lindelof:
Smoke rising north of Woodland on Saturday more than likely will be from a big controlled burn on the Horgan Ranch where each year firefighters sharpen their skills.
For 25 years, firefighters from Yolo County fire departments have converged on the Horgan Ranch to conduct the burn. This year, crews will gather on County Road 17 near Interstate 5 and the Yolo exit to practice wildland firefighting.
More than 100 firefighters with 16 engines and water tenders will watch over a 400-acre training burn that starts at 8 a.m. Fire departments expected to participate include Arbuckle, Capay Valley, Clarksburg, Dunnigan, Elkhorn, Esparto, Knights Landing, Madison, Robbins, Rumsey Rancheria, UC Davis, West Sacramento, Williams, Willow Oak, Winters, Woodland, CAL Fire, West Plainfield and Zamora.
[/quote]
Now note that we have about every fire department in the county except for the City of Davis. Why is that? I was once told that no one wants to work with the City of Davis fire department. No one would tell me exactly why. But this might illustrate it.
Minor correction… non-safety employees are [u]eligible[/u] to retire at age 50 (at a lower rate), are eligible for [u]2.5% benefit factor[/u] at age 55, but often retire @59 or older. There are very few non-safety employees who retire AT 55.
When the state budget comes down, and the City of Davis gets less than it expected, what then? By that time, Bill Emlen may be forced to lay off some police and firefighters. Wouldn’t that be interesting?
The public employee unions of Davis have the public by the throat. The Council majority (A.S.S.) is owned by the firefighters union. I suspect there is going to be a real showdown over continuation of the parcel taxes. I know I will not support their extension, after the irresponisbility of the City Council majority. What then?
Going forward, there are two things which must be kept in mind with regard to retirement packages:
The [b]first[/b] regards CalPERS. The rates* it charges contracting agencies (such as the City of Davis) will go up on July 1, 2011. Those increased rates will stay high for many years thereafter. Over most of the period we have lived under these unaffordable pension rates (3% at 50 for safety; and 2.5% at 55 for non-safety) CalPERS member [u]agencies have largely not had to pay the full bill[/u].
Why not? Because in the decade 1998-2007 (the period these exorbitant rates came into effect across most of our state) CalPERS was making unsustainably large returns on its market portfolio. CalPERS assumes an annualized return of 7.75%. That is (in non-inflation adjusted dollars) about 1 percent higher than the historic annualized return on the S&P 500. Yet for the last few years, CalPERS has suffered a 25% loss on its investments. That means that even if, from today going forward, CalPERS can start making 7.75% returns per annum (which I think is not likely), its rates will have to be adjusted upward to account for that dramatic loss in the portfolio. In my (somewhat informed) opinion, it is more likely CalPERS will hereafter make returns closer to 7% than 7.75% per annum. And thus, every year they cannot make up that last 0.75% means higher rates to member agencies, like Davis.
The bottom line is taxpayers are going to have a much, much higher bill than we have yet seen to cover the costs of these $120,000 a year and more pensions. That will mean much worse roads, less police and fire services, and things like closed swimming pools.
The [b]second[/b] thing to keep in mind is that retiree medical care is (almost entirely) unfunded in Davis. We are broke and yet we have not seen the real bills for this expense which are coming in a big way.
I would guess that on average City of Davis retirees are much healthier than average Americans and thus can expect to live much longer. That means a much bigger bill going forward for taxpayers in Davis. If you assume just a 5% annual inflation factor for medical insurance — that is much lower than it has been for the last 20 years — the Net Present Value for medical insurance (including vision and dental) for one 50 year old retiree who lives to age 90 and has one dependent is (approximately) $470,000.
*Because member agencies are so worried about the jacked up rates which are due to begin on July 1, 2011 PERS changed its plan slightly to reduce the increase in rates, extending the higher rates over a longer period of time. In Present Value terms, it makes no difference to cities like Davis. However, it will make the transition smoother. This is from the L.A. Times story on the change in rules: [quote]Despite opposition from the governor, the board of the state’s biggest pension fund Wednesday approved part of a controversial plan to temporarily ease pension payments for schools and local governments by spreading this year’s deep investment losses over the next 30 years. CalPERS holdings, currently valued at about $184 billion, have plunged more than 20% since last summer. Without Wednesday’s action, cities, counties and other public entities around the state would have been hit with large increases in their CalPERS contributions next year. So-called smoothing of the losses means that the increases in 2010 and 2011 would be smaller, saving cash-strapped governments millions of dollars in the short term.[/quote]
To paraphrase the old wall street question,
“where are the customers yachts?”
Q: Where are the private sector six figure pensions?
Perhaps they were eliminated, folded, and shut down for the most part because they were not financially sustainable.
Most municipality decision makers may have never put a pencil to paper to calculate the future costs of such liabilities.
Far easier to accept campaign contributions and justify employment compensation packages based upon what the neighboring municipality offers.
Political promises are ultimately paid for by the citizens usually after the politicians state that they take full responsibility for the matter.
Then they ultimately announce that they will be leaving office to spend more time with their family (and lifelong pension).
Often those held to be principals in a private sector entity are held personally liable for employment related contractual promises.
They cannot pass the liability on to the citizens.
Perhaps financial sustainability ought to be an educational requirement in our schools- Can Davis can lead the way?
Most people on here talk about the council majority of Asmundson, Saylor, and Souza (aka A.S.S.). I think we usually get screwed by all of them, Saylor, Heystek, Asmundson, Greenwald, and Souza (aka S.H.A.G.S)
Inkblot hit an interesting truth…public employees do frequently promote to a higher level, better paid position a couple of years before retiring in order to qualify for higher retirement benefits. This happens through out state. county and city, sectors.
An old saying…some beats none. With furloughs and salary cuts happening state wide, I’d think that might give our city a heads up as to what they need to tackle.
Wait and see usually catches folks really short…then everyone hurts.
My sources say that the Enterprise is pulling the plug on his ” Dribble on Budget ” articles . Even the Enterprise editor can’t take it any more . Judging by the number of posts on this blog , it looks like nobody can take it anymore .
“Judging by the number of posts on this blog , it looks like nobody can take it anymore .”
16 posts on a Friday in July when most people are still focusing on the land use debate is not really that few.
A furlough Friday at that which means it might as well be a three day weekend given the number of government employees in Davis.
“Judging by the number of posts on this blog , it looks like nobody can take it anymore .”
Right, the citizens cannot take the tax hit anymore!
“Most people on here talk about the council majority of Asmundson, Saylor, and Souza (aka A.S.S.). I think we usually get screwed by all of them, Saylor, Heystek, Asmundson, Greenwald, and Souza (aka S.H.A.G.S)”
Cute, but off the mark. Greenwald and Heystek have repeatedly pointed out (Greenwald has done so for years) that such high salaries for fire, police, and upper mgt city employees is not sustainable. Now let’s see if they will put our money where their mouth is, and refuse to vote for parcel tax extensions.
[quote]My sources say that the Enterprise is pulling the plug[/quote]Perhaps your sources were drunk on the job? My sources say your sources are incorrect.
Regardless of anyone’s sources, I pulled the plug on Rifkin years ago when I stopped paying for the Enterprise.
So you make stuff up, get called on it and then just make a snide remark.
Pay up for those city funded services you use , for free. !!!!
What are you blathering about now?
To Hey Blog Boy: Anyone in the city of Davis is free to use those services you are referring to. My guess is you are jealous bc DPD has his own radio show, and you don’t! On your way out the door, don’t let the door hit ya where the good Lord split ya! I’m sure no one who reads this blog would miss your “troll” comments…
I’m with Lamar and others. Gonna teach our CC majority not to throw away city tax payer money like they do. The next sales tax, parcel tax on the ballot … watch out for the organized opposition campaign. You knock down the sale tax renewal, you knock down the gold-plated packages that the CC has freely given away. The main target is the horrible waste of money that is occurring in the Fire Department. Let them use their door to door campaign to try and justify the pillaging of scarce public resources. We’ll just show the public the numbers, and we win.
PS, to the one who calls DPD Blog Boy … this means your golden package, buddy. So get ready for the fight.
Very interesting: “Bloggers” are finally beginning to connect the dots.
Time-after-time, as we have passed one tax after another, the Council continues to claim they need even more of our money to pay exorbitant salaries & benefits to public “service” employees.
Why go to college or grad school when you can have the best of all worlds by working for the City of Davis? Obscene!
Mr Entrikin’s comment is interesting… there are many professionals working for the City who have not only batchelor’s &/or master’s degrees, and in addition, their minimum job requirements include the need to have professional licenses… why should such a person work for the City for less than they would get in the private sector?
To Condescending?: The firefighters often have no more than a high school education, and some are making more than $100,000 a year. Get off your high horse and live in the real world.
To My View… fine… then criticize Firefighters with their HS educations (even tho’ most have AA or BS degrees, otherwise they would not be competitive in the job market)… To come out and say it, would you rather have RCE’s, other professionals “on staff”, or rather hire consultants anytime the City needs professional engineers, chemists (WWTP), etc.? YOU get in the real world. (I fully expect this will be censored or subsequently deleted). Most of such professionals make less than, or within 20% of 100 K, but many contributors say that their TOTAL COMPENSATION be 100K or less…
meant to say BA…
“why should such a person work for the City for less than they would get in the private sector?”
The original public service deal was that people would work for less in exchange for more job security and better retirement and health benefits.
“The original public service deal was that people would work for less in exchange for more job security and better retirement and health benefits.”
Exactly. Now, the folks in the public sector are making more than in the private sector, and getting better job security/benefits/retirement…oops, maybe not, if the state takes enough money away from counties and cities so that public employees must be laid off by the droves! But then public employee unions did it to themselves…
Bottom line is we have got to take back the city council and throw out Saylor, Souza and Asmundson that cater to special interests (fire department, police department, city employees) at our expense.
To Rich Rifkin (and David Greenwald since he seems to like to quote you and rely on your flawed logic):
You stated, “…the Net Present Value for medical insurance (including vision and dental) for one 50 year old retiree who lives to age 90 and has one dependent is (approximately) $470,000.”
You also stated, “…cops and firefighters and upper management personnel [are awarded] retirement packages worth $2 million to $4 million each.”
It’s easy to get people all up in arms about things when you flagrantly and irresponsibly make those sorts of statements. Let me provide accuracy and the reality.
On average, police officers and firefighters live less than six years past retirement. (According to the experts, this is due to the physical and emotional rigors of the jobs they do.) So your estimate of Net Present Value (NPV) and pension benefit value are flawed from the start. Certainly some 50 year old, retired police officer may live to be 90, but a lot more won’t be able to retire at that age and get 90%, and then there a whole lot more that won’t even live 6 years after they retire. (That’s how you get a post-retirement survival average of six years.)
So now that we understand that it’s six years we are paying for, not 40, let’s turn to the NPV calculations. Currently the 30-year Treasury Bill yields are in the vicinity of 4.25%. (Using T-Bill yields is the accepted standard for calculating NPV in these scenarios.) Even if you assume the rare exception—a 40 year longevity for a retired cop/firefighter—the NPV of a City of Davis retiree medical plan is less than $300,000, not $460,000.
However, with an average post-retirement lifespan of 6 years, the actual NPV of a City of Davis police officer/firefighter retiree medical plan is about $80,000.
A cop or firefighter retiring at 90% and living, again on average, 6 years, will draw something less than $700,000 in retirement pay, in today’s dollars. The NPV of that is roughly $580,000.
So, the value of a Police Officer or Firefighter pension benefit is about $660,000 a whole lot less than $1 Million and a small fraction of the $2-4 Million that you alleged.
If you are not trained or experienced in calculating NPV, don’t try to use it. Your house of cards arguments will, as now, always collapsed. Practice honesty with your rhetoric. It’s one thing to have a different opinion, but it’s another thing to deceive those that don’t understand by using mythological calculations. Shame on you.
“On average, police officers and firefighters live less than six years past retirement.”
Do you have a link to some reliable source to prove that statement. I frankly find it hard to believe, but I am willing to look if you provide the link.
There have been a number of studies examining police officer longevity statistically, as well as studies on the causation of the reduced life expectancy, but here is one that makes reference to them as a collection:
“Policemen in the U.S. have a life expectancy of 53-66 years, depending on which research one decides to embrace.” — paragraph 9 @ http://www.theppsc.org/Staff_Views/Aveni/Shift-Survival.htm — The Police Policy Studies Council
Now keep in mind all of the blog discussions regarding the 90% pensions that police officers and firefighters get after 30 years of service. A police officer to be at least 51 years old to draw such a pension since you must be 21 years old to be a California police officer. In actuality, the average starting age for police officers is more like 24-25, so, on average, that 90% pension doesn’t start until age 54-55. So, if life expectancy “depending on which research you choose to embrace” is 53-66 years of age, the rough average life expectancy is about 60 or about 5-6 years after the average 30-year veteran retires.
U.S. life expectancy is about 78 years of age—at least 12 years longer than a police officer (if you “embrace” the most optimistic study)—and even longer for non-police officer Americans once you factor out the lower life expectancy of the police officers that are included in the U.S. average. I don’t think the deal that police officers get in exchange for shortening their lives by virtue of their service to their communities is all that bad a bargain for the communities that employ them. The average American male, even if they work to age 65 will enjoy twice as many years of leisurely retirement.
I’m willing to bet that a proper NPV analysis would demonstrate that police officers and firefighters are well behind other professions in the value of their pension benefits.
One last comment to correct Mr. Rifkin’s gross inaccuracy: In one of his response comments he makes reference to a “50 year old retiree who lives to age 90″—referring to police officers and firefighters, insinuating that this is the norm and something to be concerned about. As you can easily see, he is off by 12 years for the life expectancy of the average U.S. citizen, and by twice that–24 years– for the most optimistic average life expectancy of a police officer.
Everyone should take note of the pure fiction that he writes to support his biased and jaded view. (Heck, I’d be jaded too if I believed the sort of tripe he comes up with.) With his brand of wild “just making up numbers” style of reporting, should he even be trusted as a source of information? I would really hope that people start to seriously examine and consider what it is that he has to say. He tries to make it sound like he has sound facts and figures to support his view, and therefore we should trust him. I’ve provided a couple of good reasons why giving him that trust would be ignorant and foolhardy.
To Myth Buster: I read the article in the link you gave. What is interesting about it is that the piece is 10 years old, and essentially shows that the average POLICE OFFICER lives about 7 years less than the average male. Now that makes sense to me, given police officers work dangerous jobs – more dangerous than fireman, I would argue.
However, there are other factors to consider when budgeting for the city. Good policemen are hard to find, and applicants for vacancies are not always easy to discover. Thus the free market place would dictate we pay police a fair wage for a dangerous profession. Not sure we should be paying such generous pensions, but we must offer enough to get qualified candidates. Not super qualified candidates, just qualified candidates.
Yet in the case of firemen, we are paying them so much, that when a vacancy opens, there is no lack of applicants to fill the position. Reason dictates that we can pay much less to our firefighters, and still get qualified applicants to fill open positions. Furthermore, rarely do firefighters fight fires, so their jobs are far less dangerous than that of police.
You may have poked holes in some of Rifkin’s data, but the basic premise that we need to pay less to firefighters really has not been refuted by you. The city has a budget crisis of epic proportions. We are letting potholes go unrepaired, and other services are going to have to be drastically cut, including fire and police, if public safety employees continue to insist on their fat salaries/benefits. If you do not agree, then suggest some reasonable alternative budget cuts. I’d love to hear them…