Good op-ed this week by Rich Rifkin in the Davis Enterprise. He argues that “the city has one overwhelming problem: our unfunded retiree health benefits. In a list of what should be the council’s top 10 priorities, solving this fiasco is No. 1. It’s also Nos. 2, 3, 4 and 5.”
Allow me to quibble and say that is one among three, I would put compensation/ pension issues along with it, along with lack of funds for basic city services such as road repair.
“If the council does not address this looming crisis immediately and with seriousness of purpose, it will be sending a clear signal to the community that once again we elected the wrong people to represent us,” Mr. Rifkin writes. “It really doesn’t matter if you love bicycles as much as Joe; nor does it make any difference that you support Davis High sports as passionately as Rochelle. Those associations get you elected. They don’t prove you belong.”
In fact, I think both Mayor Pro Tem Joe Krovoza and Councilmember Rochelle Swanson understand this problem. The question will be whether they will be assertive enough early on to get it onto the agenda where they can evaluate it, and strong enough to buck city staff who will tell them that everything is under control.
My fear is that both of them got elected in part to change the tone in City Hall and in part to change the way we do business. However, at times those goals are at odds with each other, unless you can finesse it really well, as former Councilmember Lamar Heystek was able to do.
How dire is this problem? According to Mr. Rifkin, “Our retiree medical liability has been growing for 20 years. I first wrote about it in a March 2007 column. It was not until 2008 that the Governmental Accounting Standards Board required Davis to report how much our unfunded debt for this was.”
“Two years ago, the estimate was about $42 million. According to the Sacramento Bee, Davis now has a $65.5 million liability for retiree medical benefits,” he wrote. “The main reason it has ballooned so rapidly is because our previous City Council ignored it. Hear no evil; see no evil; speak no evil.”
Why is our liability increasing? Mr. Rifkin points out that the problem is not simply the fact that council has done little to address this problem.
“The irresponsibility of our City Council is not the only reason this debt has increased by $23.5 million in just two years. Medical inflation is also a contributor,” he pointed out. “In the past six years, the nominal price Davis pays for medical insurance for all of its employees and retirees has gone up by 70 percent. The inflation this year alone was 9.9 percent.”
We like to say that Davis is not the only city suffering from this problem and that many cities are worse off. However, in this case, as Mr. Rifkin points out that may not be true.
Mr. Rifkin writes, “Davis, of course, is not the only government agency in California that has promised far more in retiree medical benefits than it can afford. The state and most cities and counties have been unwise in their labor contracts. However, Davis is one of the very worst in our region.”
How bad? Try second worst. That’s right, only Roseville is worse. “According to the Bee, only the city of Roseville has a greater retiree medical debt per capita than we have. In Davis, we’re now in the red $984 for every man, woman and child. Woodland is near us at $974. Yolo County, not counting Davis or the other incorporated cities, has a medical debt of $107.4 million. That’s another $529 per county resident.”
“There is no painless solution to this problem for retirees, current employees or taxpayers. However, the principal answer is to stop encouraging our young, healthy workers from retiring in their early 50s, as we do now,” he continued.
However, the medical set-aside right now is not sufficient. “For a few years, Davis has been contributing money to a fund it calls its ‘Retiree Medical Set-aside.’ This year the city put in $600,000; last year $450,000. The idea is not to solve our problem, but make it less bad down the road. However, it is not working. At the very same time it set aside $1.05 million, the debt grew by $23.5 million.”
This crisis could be solved if we did one simple thing, discouraged retirement prior to the age of 65. Now it is ironic that a lot of communities are actually using early retirement to save short-term money. They do that by giving incentives for individuals to retire two years early, so they save the full salary spot, which works fine in terms of cutting the number of employees that they pay full compensation for, but it increases the number of people and length of time that they have to provide medical insurance for and so what is in the short-term interest of the community, the long-term trend is a problem.
If the city could just raise the retirement age by five years across the board, they would cut their unfunded liability by a huge amount.
The problem is that the city council really ignored addressing these problems with the last MOUs, so now we have three year contracts on the books for almost all bargaining units without any kind of substantial reform. You will remember that Sue Greenwald and Lamar Heystek voted against these contracts. With Mr. Heystek retired, the council needs to find two votes to step up and make the changes that are needed. It is a lot to ask of two new members to stand up to staff and employee groups, but that is why they got elected, to make these tough choices.
—David M. Greenwald reporting
dmg: “The problem is that the city council really ignored addressing these problems with the last MOUs, so now we have three year contracts on the books for almost all bargaining units without any kind of substantial reform. You will remember that Sue Greenwald and Lamar Heystek voted against these contracts, with Mr. Heystek retired, the council needs to find two votes to step up and make the changes that are needed. It is a lot to ask of two new members to stand up to staff and employee groups, but that is why they got elected, to make these tough choices.”
Am I correct in assuming nothing can be done about this for the next three years, until contract negotiations come up again? Or are there contract negotiations going on now, where this problem could be addressed? (Isn’t the policeman’s union up for renewal/under consideration right now?)
Well they are changing the way it is funded, but the core problem will stay in place until there are changes in the MOU.
Unfunded liabilities: the bane of modern, short-sighted, media-castrated political leadership. The good news is that much of Europe appears to have finally faced up to the problem and their leaders are implementing austerity measures. Even France has begun to move in this direction.
Our representative form of government was designed in part to combat against the proven destructive forces of a pure populist system while also ensuring we would not fall to tyranny. Strangely, at the national level, it seems that we are experiencing both at the same time. However, I think we would benefit from a bit of tyranny at the local level, as populist politics seems to have created an environment that prevents visionary and proactive governance.
95% of humans lack the capacity to envision a future design and are prone to reject delayed gratification. This fact is the reason we see very few employee-run companies, and why professional sports teams require coaches. The template of the left links the national fiscal problems to political campaign dollars flowing from business. However, this does not at all fit with the fiscal problems at the local level… and because of this it is indicative of a larger inaccuracy with the left-standard boogie man. It is more often the media whipping the population into a frenzy of self-ism and group-ism that is responsible for so much weak policy and decision making. Think about it, the Obama administration spends more energy trying to manage the media message than it does actually fixing problems. At the Davis local level much seems similar.
Either we allow our elected leaders to proactive steps and respect them for their boldness, or we wait until a more profound economic collapse like is occurring across most of Europe.
[i]”… the bane of modern, short-sighted, media-castrated political leadership.”[/i]
Hey, I haven’t castrated anything since I worked on a sheep ranch in Elmira when I was in 4H. We used the rubber-band method, fwiw.
Hey, I haven’t castrated anything since I worked on a sheep ranch in Elmira when I was in 4H. We used the rubber-band method, fwiw.
LOL. I did the same for a ranch outside of Rio Vista when I was a teen. At that time I felt sorry for those poor 4-legged boys.
In retrospect, my reference to the procedure seems a bit sexist. Hopefully folks get the metaphor.
The most sensible fix is cut the $16,000 to $18,000 cafeteria cash-out by 70 to 75%, and to put the resultant savings, which would probably come to over $2 million a year, into a dedicated fund to pay down the unfunded liability.
The city’s cafeteria cash-out is highly unusual in the public sector. It allows any employee who is single, a couple with no children, or who can be covered through a spouses insurance, to take home in cash the difference between the cost to the city for full (or very slightly less, depending on bargaining group) medical and related benefits for a family with children and the actual cost of insuring them; i.e., if they have a spouse with insurance, they can take home the entire $16,000 to $18,000 cash every year over and above their salary. The city pays out close to $4 million a year in this unusual benefit, which isn’t even fair between employees. I estimate we could recover at least half this amount, or about $2 million per year, by cutting the cash-out by 70 to 75%.
I voted against the contracts this year which did not make this cut in the cafeteria cash-out. This alone might well solve the problem.
sue greenwald: “I voted against the contracts this year which did not make this cut in the cafeteria cash-out. This alone might well solve the problem.”
Yes, but aren’t we stuck with these contracts for the next 3 years? Can anything be done before then?