News about the ongoing negotiations with the city’s bargaining groups have been slow and quiet. While the Vanguard clearly understands that bargaining cannot take place in a public setting, there also could have been mechanisms put into place to have public updates on the process to hold our leaders accountable for the decision that necessarily have to be made behind closed doors.
The state pension crisis in the meantime is beginning to take on a life of its own. There is huge amounts of political pressure coming to bear to reform the pension system. This is exactly what some of us who remain pro-union but also believe that the current system is unsustainable have feared–a solution that will be draconian and will harm the people who are really not causing the current problem, those who make less than $40,000 and struggle for their meager paychecks and hope for enough to have a secure retirement. It is those people that I worry most about and who are most at risk with the current political culture that will likely throw all the babies out with the dirty bathwater.
“I don’t want to sugarcoat anything,” Seeling said as he neared the end of his comments. “We are facing decades without significant turnarounds in assets, decades of — what I, my personal words, nobody else’s — unsustainable pension costs of between 25 percent of pay for a miscellaneous plan and 40 to 50 percent of pay for a safety plan (police and firefighters) … unsustainable pension costs. We’ve got to find some other solutions.”
The article reported by Ed Mendel in the Capitol Weekly sounded the alarm bells to an already alarmed Sacramento.
By August 18, a week ago today, the Sacramento Bee, already tuned in the problem wrote an editorial “Even CalPERS sees a pension problem.”
As the Bee wrote about Mr. Seeling:
“Seeling is the pension system’s chief actuary, the man responsible for calculating pension costs for 1.6 million state and and local government employees. He has long defended the analysis that went into granting more generous pensions earlier this decade. So this is a huge admission. But he is not alone.”
They also report very notably that Dwight Stenbakken, deputy executive director of the League of California Cities, agrees that government pensions are “unsustainble” both politically and financially.
He told the Bee:
“I just don’t think the benefit levels that are in the public sector can be defended in a public debate.”
Perhaps Davis, with strong allegiances to the League of California Cities, might heed the warning of Mr. Stenbakken even if it ignores the repeated warnings of some its councilmembers.
As the Bee describes:
“It’s not just that public services are being cut to pay for the pensions. Younger public employees are being furloughed or losing their jobs as limited tax dollars go to support another entire class of retired employees.”
The problem faced by the state, but as importantly local governments–cities and counties–is serious.
Last week, in article on the PublicCEO, a site geared toward the coverage of local government across the state, Bob Stern, president for Governmental Studies was quoted saying:
“Pensions are a major issue, because unfunded liabilities could bankrupt a number of cities and counties. The recent rebound in the stock market has eased the pressure on pension funds. But pension funds will have to seek additional payments from cities and counties to cover unfunded liabilities as more employees reach retirement age.”
For those who wonder what the future might bring in this area, look no further than the words of Marcia Fritz, cited in the same PublicCEO article. She is the vice president of the California Foundation for Fiscal Responsibility. That group is backing a possible initiative for the November 2010 ballot that would seek to require existing public employees to increase their contributions to retirement accounts and have new public employees work longer to secure full retirement benefits. California Foundation for Fiscal Responsibility estimates that by making a public employee work an average six years more than they do currently would save $500 billion over 30 years.
For Davis, the miscellaneous employee who receives a 2.5% at 55 pension contributes around 8% to their retirement fund while the city of Davis pays 12.5%. However, for safety officers who receive 3% at 50 pay 9% of their retirement while the city pays nearly 23%. That is with rate smoothing and before the huge increases take effect. As we discussed previously, the pension increases are not being paid at this time and represent an unfunded liability.
I am of course focused on the pensions to those getting 3% at 50 or 2.5% at 55, those making over $100,000 to begin with. The problem is that union leadership has thus far refused to attempt to separate those people from the workers getting 2% at 60 and making less $40,000. The result is that there will be a revolt much as we saw in the late 70s with Prop 13 and the solution will be worse than the disease. The fault will lie not with the stars, but with ourselves. We have seen the problem coming, it will be much better for the unions to agree to the solution themselves through the negotiation process.
That leads us back to Davis. We do not know what is happening, but there has been little impetus on the part of the council majority to be aggressive and proactive and they will likely face the same collapse of the pension system as the rest of the state. That day is coming, it is only a matter of time. It would be far better if Davis led the way to deal with this problem before the voters and Sacramento politicians revolt and impose a far worse solution that impacts all of the workers, not just making far too much.
—David M. Greenwald reporting
I wonder if it could have anything to do with the City Council being on break during August…
Also what is wrong with paying qualified people in competitive positions more than $100,000 per year – in order to live in many of the homes in Davis you need to make at least this amount?
Perhaps an easier approach would be to have cities go to “defined contributions” and simply inform Calpers how much they are willing to contribute and whatever that works out to as far as pension payments is what the public employees receive. If they don’t like it- go get a real job.
David,
There is a huge error in your report. The city pays the ENTIRE share of the pension for all employees except public safety.
Not according to the spreadsheet that Paul sent me. I’ll check with him.
To word it more carefully, the city pays the entire PERS contribution, including the “employee share”, for non-public safety employees.
So the city pays the employee share in addition to the employer share?
Regardless, if Sue is right, and I’m sure she is, the City of Davis obligation is even higher.
Yep. I have been discussing this on the blog for some time. Remember when I added up cost of the unusual “fluffy benefits” that the city pays, and showed that we would be running a surplus without them? One of the fluffy benefits was allowing employees who have a spouse with medical coverage to take home as cash the $17,000 that the benefit would have cost the city. Another was that we pay the full share of the “employee” cost.
[quote]Regardless, if Sue is right, and I’m sure she is, the City of Davis obligation is even higher.[/quote]Sue is 100% right. I’m shocked you did not know this.
In my column, 10 things the council needs to do to reform the labor contracts ([url]http://2.bp.blogspot.com/_-iCrgpX1jNM/SdQ8BiyRLII/AAAAAAAAAIc/-cvLU0eTMOY/s1600-h/10+reforms.jpg[/url]), the very first reform I suggested — and one, which you (David Greenwald) said at the time on Vanguard that you did not support — was to start making the non-safety employees pay the employee share of the pension contribution.
The poverty level income is $ 66,000.00 .Good thing the city does pay an average salary , to it’s employees .
“Good thing the city does pay an average salary , to it’s employees.”
The city doesn’t pay anything. We, the taxpayers in Davis pay.
And we are being taken advantage of.
And I am fed up with paying.
I will not vote for anyone who doesn’t oppose these practices.
Rich:
Obviously I should have, just didn’t register when I wrote it this morning.
As far as my position on this, my consistent position is that people who are earning over 100K should pay more but I’m not inclined to make people who are simple rank and file workers pay more at this point. That could change.
In almost every public agency, employees at least a significant part of the employee share of pension, usually 5% or more. The University suspended contributions when its fund was doing so well,but this was obviously a mistake; it is clear now that they should have been building up a larger reserve for down markets. Now, University employees are most likely going to start paying.
The city is highly unusual in that it has taken over the employee share as a practice, rather than a (perhaps unwise) suspension because of a surplus.
[quote]I’m not inclined to make people who are simple rank and file workers pay more at this point. [/quote]While I understand your not wanting to burden lesser-paid employees, your position ultimately will mean that more low-leverage employees will lose 100% of their income when they are fired and those residents in Davis who depend on various city services will be harmed by a reduction of city-services.
Also, when you consider the NPV of the City’s pensions and the untaxed income of the medical benefits the City gives all full-time employees, there are no low-paid full-time City of Davis employees. If you then add in the NPV of future (unfunded) medical benefits for all City retirees, the lowest-paid City of Davis employees make well more per year than the average DJUSD teacher and more than a junior professor at UC Davis.
“While I understand your not wanting to burden lesser-paid employees, your position ultimately will mean that more low-leverage employees will lose 100% of their income when they are fired”
I would propose finding other ways to save money starting with capping salaries and increasing the employee shares for the higher wage earners as well as finding a way to fix the retirement health system. If we force people to work until they are 65, would we owe anything in retirement health?
[quote]If we [b]force[/b] people to work until they are 65, would we owe anything in retirement health?[/quote] I’m not sure why you use the word “force.” No one can [i]force[/i] an employee to work more years than the employee chooses to work.
The issue at hand is the great (unfunded) expense of spending (as much as) $17,000/year and growing per retiree on his medical, dental and vision insurance (which also covers a spouse and another dependent). If we gave employees that benefit — presuming we can find the revenues to pay the expense — beginning at age 65 (as opposed to age 50, which we now do) the taxpayers of the City of Davis would save a great amount of money. However, the expense would still be substantial.
With rare exceptions*, people working for the City of Davis qualify for Medicare at age 65. Medicare is good insurance, but far below the luxury plan that City of Davis employees and retirees get from providers like Kaiser. Thus, what happens when our retirees reach Medicare age, Medicare will pay about half of the bill. (Melissa Chaney, the City’s Human Resources Director, told me some time ago it’s about $8,500/yr that Medicare pays.) Also, because far fewer retirees at 65 have children (age 22 and under) living at home than do 50 year olds, the City’s expense for covering its retiree’s dependent children’s medical, dental and vision would be substantially reduced. Moreover, it is likely that at age 65 and beyond, more will be widowed than is the case for those 50-64. That means again that the expense for taxpayers in Davis will decline, once a retiree reaches age 65 and higher. Finally, if you assume (for argument’s sake) that a person will die at age 80, then if the City pays for retiree medical beginning at age 50, that retiree will receive the benefit for 30 years, double the time a 65 year old retiree will get it.
Including all factors, my back of the envelope estimation is that if the City of Davis changed its retiree medical benefit so that it would only begin for employees who were 65 and older (or were disabled), the City would save about 75-80% of its ongoing expense.
The question, then, is what would younger retirees do before they reached age 65? The first, and most obvious answer, is not retire until they were 65. Some public safety employees, of course, don’t have that option. However, all cops and firefighters are retiring with HUGE pensions, largely paid for by the taxpayers of Davis. (In their case, the taxpayers have so far funded about 77% of their pensions. With the increased rates at CalPERS, that percentage will go up closer to 85%, because the employee contributions are capped.) Using those $120,000 a year and higher pensions, young retirees should be allowed (in my view) in Davis to buy into the City’s plan, paying for their own insurance until they reach age 65, at which time Medicare would cover X-amount and the City would pay the rest, until the retiree dies.
———–
*This ([url]http://www.ssa.gov/pubs/10043.html#part3[/url]) explains who gets Medicare and at what age.
David, the problem is that we can’t “force people to work until they are 65”. The reason that I so vigorously opposed lowering the retirement age to 55 was that it can’t be changed for existing employees unless every single employee in the bargaining group agrees, and the older employees have absolutely no incentive to agree. The fiscal benefits of changing to system for new employees won’t be significant for decades.
In terms of your suggestion to change retiree health benefits as an alternative to having employees contribute part of their employee share towards retirement: All I can say is –stop and think about it for a minute.
The retirement health system is the most progressive of all benefits. It benefits the lowest paid worker far, far more than it would hurt them to pay an extra 4 or 5 percent of their modest salary to retirement.
And why would capping salaries be preferable to paying part of the employee PERS share? I just don’t get it.
There is no reason not to make employee contributions somewhat progressive, but a $100,000 salary threshold makes no sense and would not solve the problem.
By force, I mean raise the retirement age back to 65.
I just explained that, David. We can’t raise the retirement age back to 65 for current employees, and raising it for future employees won’t help deal with the problem for many decades.
I don’t know if PERS would allow us to implement Rich’s suggestion. It does make sense in terms of providing coverage when people need it the most, and avoiding some of the costs of early retirement.
[quote]I don’t know if PERS would allow us to implement Rich’s suggestion. It does make sense in terms of providing coverage when people need it the most, and avoiding some of the costs of early retirement.
[/quote]It is allowed by PERS, but it’s a little tricky to implement in a labor contract.
First, for current retirees, we cannot do anything to change their system (as far as I know, and I don’t think we ought to change anything for them at this point).
Second, for people very near retirement, we might be able to change it, but it probably would be unwise as a matter of public policy.
That leaves everyone else, now employed by the City of Davis and those who will become employed by the City in future years. My understanding of the PERS rules is this: If we offer retiree medical through PERS (as we do and as I suggest we continue to do), then all qualified retirees (who contractually get our “retiree medical plan”) would get the plan upon retirement, even if they choose to retire younger than 65. However, many PERS contracting agencies require their retirees to pay some percentage of their retiree medical expense, regardless of their age. My notion is that we don’t make City of Davis retirees pay anything from 65 on, but (with the exception of people who become disabled prior to 65), the City of Davis has the right (if it is contractually agreed to) to require its pre-Medicare age retirees to pay up to 100% of the expense it costs to provide their retiree medical benefit. Doing so not only would save the City of Davis a substantial amount of money — again, back of the envelope, I think it would reduce our $42 million liability* by 3/4ths, down to about $10 million — but it would incentivize employees to retire later, which itself would save the City a substantial amount of money.
—————
*I don’t know if the old $42 million figure is still aplicable. I would guess it is larger now.
For Rich… so, if a pre-1996 employee (non-medicare eligible) you would have the City pay 100% of their medical when they reach 65? After possibly being ‘uncovered’ between retirement and 65 & therefore subject to exceedingly high rates or a “no pre-existing condition” clause? Or, since they chose to retire before 65, are the SOL?
[quote]For Rich… so, if a pre-1996 employee (non-medicare eligible) you would have the City pay 100% of their medical when they reach 65? [/quote]I anticipated you might post here on this topic. It seems your great and sole obsession, these so-called Medicare ineligibles. However, I answered your question above: yes. If a retiree (in theory) is not eligible for Medicare at any age, then the City (as I would have the contracts structured) would pick up 100% of the costs once the person reached age 65 (or became disabled prior to age 65). [quote]After possibly being ‘uncovered’ between retirement and 65 & therefore subject to exceedingly high rates or a “no pre-existing condition” clause?[/quote] No. You don’t seem to have very good reading comprehension skills. Before age 65, or before becoming Medicare eligible for 99.99% of City retirees, they would be on the City’s plan, which is available through CalPERS. They would not be buying medical coverage independently. As such, there would be no worry about pre-existing conditions for them. Their rates would be the same as the rates the City pays for each of its employees. The money to cover their early retirement medical would come from their exceedingly high pension payments. [quote] Or, since they chose to retire before 65, are the SOL? [/quote] I think the only person who is SOL is me, having to respond to your nonsensical posts, and re-explain myself every time as if you were mentally challenged.
Some silly discussion at the end yesterday about noise and the name of the blog but today I would suggest that you change the name to The People’s Republican Vanguard of Davis.
I think that you have to end all civil service jobs in Davis. The proposed contract negotiations won’t have an impact on the unsustainable salaries and benefits without a new set of employees. So, just contract out the work; the City can’t afford to continue having employees.
The alternative is to spend more than the revenue that the City anticipates receiving in the next year
[quote]So, just contract out the work; the City can’t afford to continue having employees. [/quote]Assuming for the sake of argument that [i]you are not kidding[/i], Martin, my belief is the privatization of public services or labor is not a long-run money saver. The reason is not because private contractors cannot do jobs cheaper. They almost always can. The problem is that private contractors tend to build up even more political power (though campaign contributions and other avenues*) than public employee associations accumluate, and those private actors tend to convert that political power into inflated contracts beneficial to themselves. There are limitless numbers of this kind of thing happening.
——————-
* An “other avenue” some private contractors use to build political power is hiring former elected officials. That is just what Tahir Ahad has done with his “private” education consulting business.
“You don’t seem to have very good reading comprehension skills…
I think the only person who is SOL is me, having to respond to your nonsensical posts, and re-explain myself every time as if you were mentally challenged.”
This kind of snarkiness is not necessary, and does not add to the discussion. Please, for all our sakes, desist or don’t bother to comment.
So Sue, since we are talking about retirement benefits. How do your retirement medical benefits work from city council? Is there a vesting period? How much do you get?
So Sue, since we are talking about retirement benefits. How do your retirement medical benefits work from city council? Is there a vesting period? How much do you get?