On Tuesday night, the Davis City Council unanimously passed the 2010-11 budget which while they believe is sufficient, they also acknowledged that more work lays ahead to fix the city’s overall fiscal picture and prevent or reduce future deficits.
This particular budget, closes a nearly million dollar gap in funding, and also restores the general fund reserve, that the city dipped into this fiscal year due to their inability to achieve the cost-savings from the employee bargaining agreements.
While the council may have acknowledged that more work lies ahead, in essence, the council has not dealt with the toughest of issues yet. In fact, one could argue, as I have, that they have set the most difficult decisions off for future councils. The city hardly touched the issues of retiree benefits and pensions in the last round of MOUs. While the situation with DCEA continues to fester, the city is only looking to impose a similar contract on them that the other departments have already agreed to.
The Police Officers, whose contract expired a year after the rest of the bargaining units, have yet to come to an agreement on their new CBA.
In the meantime, two pieces of news that were announced yesterday should be examined closely as they represent potential game-changers and have huge implications for Davis City policies.
The biggest news, as reported by Jon Ortiz of the Sacramento Bee yesterday is that four of the state labor groups have agreed to contract terms with Governor Arnold Schwarzenegger “that roll back pension benefits for new state hires and increase all employees’ retirement contributions.”
This is obviously the beginning of a two-tiered system in which new employees with receive far less than current employees. There is a fairness issue here as well as a sustainability issue at work – in other words, will future employees eventually bargain to increase their benefits. Nevertheless, it is a sign of the times.
The biggest of the groups is the CHP Officer’s Union who receives enahnced 3% at 50 benefits along with the California Department of Forestry Firefighters, the California Association of Psychiatric Technicians and the American Federation of State, County and Municipal Employees (AFSCME), “with the contracts covering 23,000 state employees including patrol officers, firefighters, health and social service professionals and psychiatric technicians,” Mr. Ortiz reported on Wednesday.
These contracts must still be approved by the membership, the Legislature and then signed by the Governor. The membership and the Legislature may not be mere formalities in this process.
“We’re not blind or deaf to the unique times in California. We want to get the necessary discussion of (pension) reform behind us,” said Jon Hamm of the California Association of Highway Patrolmen, as quoted in the Bee article.
According to the Bee, “It’s the first time that several unions have coordinated their negotiations.”
Under the conditions of this contract, newly hired patrol officers and firefighters would now retire at 55, they would still get three percent, but now it would be the average of their three highest years of pay multiplied by years of service and capped at 90 percent of that average wage. That is obviously a good start, but not a huge amount of savings. What it would prevent or at least mitigate is pension spiking.
In addition, all employees in the groups would increase their pension contributions to Cal-PERS from the current level of 5 percent to ten percent.
The City of Davis has been talking for several months about looking into such measures locally. However, given that the bargaining agreements are signed, it is unclear if they can legally implement these changes for new employees outside of the frame work of the collective bargaining process. However, the sense is that with CHP and CDF accepting these reforms, it may help to build momentum in Davis. One group notably absent from this discussion was CCPOA, the correctional officers who probably are among the bigger culprits in this problem.
On another issue of note, Sacramento County officers on Wednesday recommended lowering the health insurance subsidy for most county retirees by about 40 percent.
According to an article yesterday in the Sacramento Bee, the board had tried to do this unilaterally and eliminate the benefit for workers retiring after June 1, 2007. However, “several unions filed complaints, and the Public Employment Relations Board and later an appellate court ruled against the county.”
The County now voted again to reduce the subsidy which would save the general fund about $450,000 starting in July.
The big issue for Davis is now a $40 to $60 million unfunded retiree health liability that the city will owe as they bridge the gap from their retirement age of 50 for public safety employees, and 55 for all other employees until the age of 65 when medicare kicks in. This will cost the city roughly $4 million a year for the next thirty years to fully fund the commitments.
One solution that would save a huge amount of money would be to raise the retirement age. If the state has gotten the CHP officers and CDF to take later retirements, then the city can certainly get the firefighters and police to retire at 55 while other employees could retire at 60. That would save the city one-third of their retiree health benefit costs to safety employees and half of their health benefit costs to non-safety employees. That would be a huge savings without even undertaking the cost cutting measures that Sacramento County is employing.
At the local level, the city has somewhat avoided the huge year budget deficits, but that might be a mixed blessing as it fails to force employees to take the need adjustments to their compensation.
Don Saylor noted that everyone is making sacrifices in the tough economic times. He then said, “We’re in a fairly good position, in relative terms, and we’re only here because of the shared sacrifices of our employees, our community.”
I very much disagree with his comments. First, we have only seen very modest sacrifices in the city. We have not addressed our key issues. We are here right now not because of shared sacrifices but because the city is more immune to the economic downturn. We have over-committed in terms of compensation and retirement benefits. We have used the fact that other communities have also over-committed, often to a greater extent than our own community as a convenient crutch and excuse.
We have not make the kinds of changes that are needed and that will be far more painful than the initial cuts. As we watch the resistance of DCEA, the city’s largest employee bargaining group, we get a glimpse of what lies ahead. That task will be made far more difficult due to the fact that the city is only dealing with modest budget cuts on a yearly basis.
—David M. Greenwald reporting
Oh for the days when you could give the town drunk a nickel to sweep the sidewalk in front of your store. Sorry David, those days are gone, but not entirely forgotten. Workers organized to protect each other from abuse by the employer. While a few may get exorbitant pay and benefits, many more make a modest wage and are retired on subsistence incomes. In Davis, housing costs make it unaffordable for many who serve the public to live in the city. DCEA has bargained in good faith, only to have the city impose an impasse, when they are the missing party at the bargaining table. I see no evidence of threats of violence or even mild mischief by any of the unions, so I must assume that the council thought the previously approved CBAs and MOUs were acceptable. If by,”As we watch the resistance of DCEA, the city’s largest employee bargaining group, we get a glimpse of what lies ahead.” you mean that workers won’t simply roll over and take it, I sincerely hope you are correct.
We are witnessing a long and drawn out soap opera: “As the budget turns.”
One thing to keep in mind is that many cities are in far worse shape: Detroit, Vallejo, Stockton, Athens… The list goes on. Many of these cities are really broke and will have to abrogate labor contracts somehow.
The airline and auto industries have already seen this movie. It does not have a happy ending.
I agree, many cities are in far worse shape and that is going to be a problem particularly the ones that you have mentioned in california (and not mentioned like Antioch and San Diego.)
The numbers I have crunched suggest we will either have to find $10 million in additional revenue within six years or pay out between 25 and 33 percent of our general fund for retirement ABOVE and BEYOND what we are paying now.
[i]”There is a fairness issue here as well as a sustainability issue at work – in other words, will future employees eventually [u]bargain[/u] to increase their benefits.”[/i]
I agree there is a fairness issue. However, that is impossible to solve unless the laws are changed which allow the pension terms of current employees to be reduced once they have begun with them.
I agree there is a sustainability issue. This agreement fails to solve that problem. It’s window dressing.
I don’t understand what you mean by “bargaining.” That implies that the process is honest. Yet in reality there is no bargaining. Democrats take millions of dollars in contributions from public employees. Democrats then give away billions to their patrons. It’s not as if anyone considers the taxpayers.
[i]”In addition, all employees in the groups would increase their pension contributions to Cal-PERS from the current level of 5 percent to ten percent.”[/i]
I’m not sure what this means. Ten percent is higher than the cap allowed by CalPERS.
CalPERS sets the employee and employer contribution percentages. The cap on employee contributions is based on which formula the employee has. For those with 3% at 50, the cap is 9% of salary for employees. The employer makes up the rest, which currently is around 28%. So together, it costs about 37% of a cop’s or a firefighter’s base salary to fund his pension. (If medical benefits were funded, it would cost close to 50%.) For those with 2.5% at 55, the cap is 8% for employees and the employer picks up the rest.
In Davis, all of our cops and firefighters pay their employee share. That is, 9% of their base salaries are deducted and sent to CalPERS. However, non-safety employees (that is, everyone else) has paid no part of the employee share. So someone who, say, worked as a city engineer for the last 25 years, he has not had any money deducted from his check to finance his pension. However, in the new contracts, that is starting to change–but just barely.
What I mean by “bargaining” is a process known as collective bargaining, the process by which management and labor agree on a contract. I suspect that even if employees concede some on retirement, they can regain it later on during the bargaining process.
Mr. Ripskin says:[quote]I agree there is a fairness issue. However, that is impossible to solve unless the laws are changed which allow the pension terms of current employees to be reduced once they have begun with them. [/quote] You’d be a great employer, Richie. “I’ll pay you $7.00 an hour. Pay day’s next Friday”. Friday comes and Richie says “Sorry, it turns out I promised to pay you more than I can afford right now. I can only pay you five dollars an hour for the time you worked.” That kind of attitude was prevalent in the early years of the last century before such behavior was made illegal. Richie has a fondness for the old days when there was blatant disregard for fairness.
And as for bargaining being tainted by political money, I can only assume that Richie also has a fondness for the non-Democratic party forces that really don’t give a damn about the pension system or retirement security for regular people as much as they care about carving all public service out as a privately contracted concession. Undermining PERS and Social Security are part of the single and same agenda to put all that investment into the hands of credit default swappers and father stabbers who will go gambling with it and express their regret when everyone’s and I mean EVERYONE’s future is gone down the toilet.
I’ve paid 25% of my salary into retirement funds for my entire working life and I resent you making it sound like it’s my fault that there is a financial crisis in retirement funding. If you read the background on San Diego, NYC, General Motors, and now the State of California and probably the City of Davis, you will find that it was easy for the employer’s side to defer their share of the bill. That is to say, they promised to pay and didn’t, just like Richie the employer up above. That is what accounts for MUCH of the problem. Another significant chunk is the repeal of banking laws throughout the 1980s and 1990s…a bipartisan effort to be sure that lead to the contraction in the financial sector that affected not just public pension systems, but mutual funds as well. If you noticed, public pensions only became a crisis when the market was destabilized and crashed on everyone. Why is it only now, since 2007, public employees and social security recipients are suddenly the problem?
HI Dave,
Please make your points without belittling other blog participants.
Thanks,
Don
[i]”Richie has a fondness for the old days when there was blatant disregard for fairness.”[/i]
The problem is when the unions bought Gray Davis ([url]http://articles.latimes.com/2002/aug/29/local/me-sbriefs29.2[/url]) and then bought off the CalPERS board ([url]http://online.wsj.com/article/SB10001424052748703315404575250822189252384.html[/url]) and got those [i]ripoff-the-taxpayer-pensions[/i] from the Democrats in the legislature, the law says that can never be reversed. So as long as it cannot be reversed, the only option is to have a two-tiered system, which, as David says, presents an equity question. But there is no better, legal alternative.
It’s queer that you get emotional and try to demean me personally, because what you are defending is indefensible. I think that if you had a reasonable argument, you would stay away from ad hominem attacks. But I’m fine with that. It’s a poor reflection on you, not on me.
[i]”… Richie also has a fondness for the non-Democratic party forces that really don’t give a damn about the pension system or retirement security …”[/i]
The world is not black-and-white. I have no fondness for the GOP, either. They are corrupted by their donors just the same. But the truth is, the unions bought off only the Democratic Party. And Democrats have controlled the legislature almost continuously for many decades, now.
[i]”I’ve paid 25% of my salary into retirement funds for my entire working life and I resent you making it sound like it’s my fault that there is a financial crisis in retirement funding.”[/i]
Twenty-five percent? Whom do you work for? You must not be a part of CalPERS.
No PERS employee pays 25%. The maximum employee share (for all PERS pensions) is 9% — for 3% at 50. But that only funds a small portion of the pension, and pays nothing for the retiree medical liability.
[i]”If you read the background on San Diego, NYC, General Motors, and now the State of California and probably the City of Davis, you will find that it was easy for the employer’s side to defer their share of the bill.”[/i]
Davis has paid every cent it has owed to fund its employee pensions. The problem is that CalPERS, which has been controlled by the public employee unions and overstated its long-term probable returns, is going to greatly raise its rates in the coming years, and the City of Davis has no good way to pay the increased pension rates. The safety employees cannot, legally, pay any more than they are now. Our non-safety workers, though, who have to now paid nothing for their pensions, can pay up to 8%.
Okay, Don, I’ll be good because you asked me to. I’ll start off by reminding Mr. Rifkin that the SB 400 deal he refers to in his ad hominem attack on Gray Davis and CalPERS Board [quote]when the unions bought Gray Davis and then bought off the CalPERS board [/quote] was a result of several years in which CalPERS made double digit gains in its investments. The CalPERS actuary at the time was on solid ground when he told everyone concerned that the fund could sustain the enhancements. State employee unions had gone four years without any cost of living catch up and instead of direct compensation; he offered a mix of very modest pay increases with the retirement enhancement. It was part of a package. Many state workers said they wanted the cash and weren’t all that happy with a retirement promise. Your way of characterizing these things is enough to make anybody go a little “ad hominem”. The other major point about this enhancement is that for a number of years during the 1990s, the CalPERS fund did so well that the state didn’t make contributions at all. That’s why the unions have pushed for so-called smoothing of contributions so that the fund isn’t whipsawed by peaks and valleys in the market. The unions had nothing to do with the decision by the Legislature and Governor not to contribute. So, in that light, I’m not absolutely convinced you are the best source for insisting that all contributions were always made by the city. Maybe they’ve done it maybe not; I just don’t believe you are an authority.
I am a public employee. I pay the matching 7.65% of salary into Social Security. I pay about 5% of my salary into PERS. Because I have to worry about people who think my pension is too rich, I voluntarily contribute another 17% into a deferred compensation account. Add up all those percents and I come up with 29.65% of my salary going toward retirement security. I said 25% because if our pubic employee bashing Governor stops furloughing me three days a month, all my contributions drop as a percentage to about 25%. I don’t cry about how much I have to put away because I believe in being responsible for my own financial future, but I sure don’t take it very well when someone wants to rewrite my compensation down the road, after the fact, as you propose. And yes, I’m a little queer about it because I’ve watched lower paid fellow state employees who have played by the rules, worked hard and have had cars repossessed, lost their homes and had to put up with the mean-spirited crap that gets repeated in the Sacramento Bee and other major news outlets blaming public employees and their unions for things that quite frankly aren’t their fault.