City and Management Group Agree to New labor Contract

While the agreement still falls short of what is needed, it goes much further than the firefighter agreement in beginning to address the long-term sustainability issues the city faces.  There is still a good deal of spin that the taxpayer will have to cut through.  As was the case with the fire department, the amount of savings was factored from the original baseline rather than from the actual budgeted amount from year zero.  According to the city’s release,

“The Management MOU provides both immediate savings for the current fiscal year (FY09/10) in the amount of $340,000 and $744,000 less spent over the original baseline during the three-year life of the contract. In addition to the above savings, which come primarily from continuation of furloughs, the City projects an additional $10,000 to $40,000 in annual savings as a result of the capping the cafeteria cash-out provision for employees. Further long-term savings are expected from changes to the retiree medical benefit and from a cost-sharing plan between employees and the City for future rate cost increases.”

The individual terms are as follows:

• Term. The proposed MOU is for a three-year agreement commencing July 1, 2009 and ending June 30, 2012 and supplements an interim labor agreement that was implemented between July 1 and December 1, 2009.
• Furloughs. The MOU requires seven (7) furlough days to be taken in FY09-10 between December 2009 and June 30, 2010; six days in FY10-11; and three days in FY11-12. These furloughs supplement the five (5) furloughs previously agreed to via the interim agreement between July 1 and December 1, 2009.
• COLAS. The Management Group will receive a 1% cost of living (COLA) salary increase starting July 2010 and a 2% cost of living increase effective July 1, 2011. These modest increases were a trade-off for the large number of structural benefit changes impacting employees.
• Retirement Benefits. Employees agree to cover any additional cost of the FY 2008/09 PERS employer contribution rate, up to an additional 3%, for the life of the contract. For Fiscal Year 2009/10, employees will pick up 0.453%. (Employees agreed to pick-up the 0.453% retirement contribution increase for FY2009/10 as part of the interim agreement).

It would appear that the management group accepted a salary increase during budget deficit times in exchange for covering increases in PERS rate, up to an additional 3% during the course of the contract.  The problem is that this is once again phantom money, as it is with the fire fighters, as we know that PERS is rounding increases in its premiums to cost smooth and experts fear an unfunded liability.  Given this is only a three year contract, it really does not address the long-term issues.  And once again it places the onus on future rather than current councils.

However, unlike the fire fighters, the management group is looking at possibly including a reduced second-tier retirement benefit for new employees as early as July 1.

From the release:

“One of the City’s Council’s objectives during the negotiation process was to explore differential compensation packages for future employees. Included in the MOU for the Individual Management Employees is language that acknowledges the City’s intention to implement a reduced second-tier retirement benefit for new employees, as early as July 1, 2010. The City expects to engage in discussions with other cities within the region which have an interest in implementing standardized, sustainable retirement plans for their local government employees. The City anticipates taking steps to establish a reduced retirement benefit formula, with minimum required employee contributions, for all new non- safety employees during the term of the contract.”

While this is the beginning of the right approach, the fact that this was not done for fire harms whatever reform efforts are underway for the management group.  The city has the most leverage during these negotiations because of the short-term economic crisis, in three years the climate will likely be very different in terms of economic outlook but the pension crisis will continue.

The release continues:

• Retiree Medical Benefit. The MOU proposes to implement the standard CalPERS vesting for current and future employees for retiree medical benefits. Once an employee has ten years of service with a PERS agency or agencies, a minimum of five of which must be with the city of Davis, then the employee receives 50% of the benefit level. The percentage paid by the City increases 5% with each year of service after that, until the full benefit is attained at 20 years of service with a CalPERS agency/agencies, at least 5 of which must be with the city of Davis. This benefit is in line with the standard state CalPERS benefit. In addition, benefit levels will be determined based on the employee and their dependents, rather than defaulting to the highest cap amount. Currently, there is no vesting period for retiree medical benefits if an employee is already vested in the CalPERS retirement system. The proposed change allows employees to earn additional retiree medical benefits based on years of service with the city of Davis.
• Health Benefit. The current contract provides a cash payout to any employee not taking the full health insurance allowance. The new contract would cap the cash-out provision for current employees at the 2009 levels for the duration of the contract. New employees hired after the implementation of this contract would receive a maximum cash-out provision of $500 per month. The City and employees will also participate in a cost sharing plan for increases in future health premiums.

The key change here is that for new employees, there is a maximum cash-out provision reducing the payout to $500 per month, as opposed to the firefighters provision which is nearly two-and-a-half times that.  The vesting period provision is similar in the management to that of the fire department.

Bill Emlen, City Manager gave his spin in the release:

“A number of the changes to the Management MOU are structural and long-term in nature. Their strength is in the long-term, cumulative savings and stability they provide the City.  I am pleased that we were able to negotiate a contract that strikes a balance between the needs of the City and those of the employees.”

First, again the city insists on using fake money as an analysis point.  They argue that the current baseline annual cost is $8.638 million.  With the current contract in place, the costs over a three year period would be $26.414 million from 2009/10 through 2011/12.  With this contract it is actually $25.67 million.  That they argue is a 2.8% savings over the projected baseline contract or $744,000.

Using these figures, we arrive at the following:

2008/09:  $8,638,000.00
baseline: $8,804,666.67
new MOU:  $8,556,666.67

That would produce an average savings of $81,333.33 per year or $244,000 in real money over the course of the contract.  And again the large savings are in Year 1 and the lowest in Year 3.

The big advantage of this contract are the beginnings of two-tiered plans or at least the announced goal.  That is a huge step up from the fire contract (where this plan was desperately needed).

Here’s the actual language though, it seems a bit vague in specifics:

“The EMPLOYEES acknowledges the City’s intention to implement a reduced second-tier retirement benefit for new employees, as early as July 1, 2010. The City expects to engage in discussions with other cities within the region which have an interest in implementing standardized, sustainable retirement plans for their local government employees; provided, the City may move forward to implement a second tier retirement benefit notwithstanding any decisions on the issue reached by other cities within the region..

The City anticipates taking steps to establish a reduced retirement benefit formula, with minimum required employee contributions, for all new non-safety employees during the term of the contract. This provision does not affect the City’s rights to pursue a second-tier retirement plan for new employees and the parties understand that the city is not required to meet and confer regarding implementation of a second tier retirement benefit for new employees.”

The other advantage is the much more liberal cafeteria plan cap for new employees.  Unlike in the fire contract where there was a 20% reduction across the board, this one caps the provision for current employees to 2009 levels.  That is probably not the best deal for the taxpayers but it does reduce the cafeteria cap out in the future to $500 per month.  Basically the current employees threw their predecessors under the bus somewhat on this, but at least it is the beginning of real reform unlike the fire contract.

The bottom line here is that this contract is illusive in current savings and vague on long term savings except on the cafeteria cash-out.  It is a large step up over the fire contract in part because these people have not contributes tens of thousands to council candidates, but also because as management they probably wanted to set the example to other bargaining groups. 

The city made a huge and strategic error–they should have completed this contract the first and then used it as leverage to get a better deal from fire.  They have let fire off the hook by being first and the outcry that they faced from council means fire once again will get the best deal.

—David M. Greenwald reporting