Tomorrow night, another opportunity for the Davis City Council to work to begin to forestall the budget crisis in the city will slip by as they continue to vacation. Many area residents will undoubtedly not be able to afford to vacation this year as the region continues to suffer from high unemployment, furloughs and other cutbacks that will make money scarce, forcing many who still have employment to continue to work.
The critical issue facing the city of Davis is figuring out a way to cover current future obligations, specifically the growing concern about retirement costs, retiree medical, health premiums, cash-outs and overtime, among other issues.
Take the area of cafeteria cash-outs. Overall, the city pays up to $4 million per year to employees for them not to receive medical coverage. The typical city gives about $500, give or take, per employee, as an incentive to rely on the spouse’s medical coverage and save the city money in cases where both spouses receive medical coverage. Davis gave close to $18,000 per employee.
For most bargaining groups, the existing employees have taken a small decrease. For instance, fire is taking a 5% decrease this year and 10% next year. In addition, new employees will just receive $500. The problem of course is that the city is not really hiring a lot of new employees, so that may become a long-term savings, but not one that we will realize any time soon.
The city would also point out that employees have agreed to cover additional costs to the PERS employer contribution rate, up to an additional 3% for the life of the contract. However, while this sounds good, it’s actually a trade-off for getting a small salary increase. For instance, consider the DPOA contract. “All DPOA employees agreed to cover any additional cost of the FY 2009/10 PERS employer contribution rate, up to an additional 3%, for the life of the contract.” While, “DPOA-sworn employees will receive a 2% cost-of-living salary increase starting July 2011 and a 2% salary increase, effective January 1, 2012.”
In other words, yes they will pay 3% of the PERS increase, but will take two 2% increases in their salary. What would appear to be a savings is, in fact, simply shuffling money around. And the real question is not what happens between now and 2012, but rather what happens between now and 2015 when the real increases kick in. Right now, the rates are projected to go up by nearly ten percent between now and the 2014-2015 year, most of it after this contract expires.
The question is really how are we going to buffer that hit we take. That will require us to do as other jurisdictions are starting to do, and enact a two-tiered system whereby new employees retire later and get a reduced rate. But again, we are not going to have a lot of new employees in the next three years, which means we will have to do far more.
So has the city taken a step? Yes it has taken a step. But that was a step that it should have taken earlier. We needed to take two or three steps.
We have the same problem with retiree medical. The city has put in a vesting period for retiree medical benefits. For example, in the police MOU: “The MOU addresses these principles by proposing 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.”
Sounds good, but how much real money does this save the system? It makes sense to allow the city’s obligation to be proportional to the years of service working with the city of Davis. But that does not address issues such as retirement age, which would greatly reduce the length of time the city needed to pay that obligation.
Bottom line, we can say yes, the city did in fact take steps toward what needs to be done, but not enough steps, not fast enough.
I think we need to keep looking forward to the 2014/15 numbers and remind ourselves of the problems here that lie ahead.
Currently, the city is projecting about $42 million in general fund expenditures by 2014/15, which is only about $4 million more than it is spending now. That means that growth is projected to be pretty flatline for the next four years. That makes sense. We can quibble as to whether it should be completely flat or just mostly flat. I mean, that is about a 2.5 percent annual growth rate, which is pretty close to inflation, which means that we are really looking at flat growth in very real terms.
One of the big questions is whether current PERS-projected increases are accurate, or whether they are underestimating them. Right now, it appears that most of that increase could be in salaries alone. But we are also expected to take on more in PERS fees, despite the 3% that employees are eating up and despite someone financing our unfunded liabilities, which may or may not be a low estimate.
Right now, as we have reported, we have built up a cadre of about $5.7 million in what we might call deferred road-maintenance. Now, if we maintain previous funding levels, by just 2012 that unmet need will increase to $11.7 million. But right now we are looking at maybe $250,000 to $400,000 in spending on repavement the next year. That means that this number will only increase as our roads decay. We have not had to spend money out of the general fund for street maintenance, but that may start happening. If the situation continues to decay, we are looking at crisis levels for road conditions.
Moreover, salaries are not frozen. As we know, about 71% of the city’s general fund goes to employee compensation. All of these MOUs which are supposed to fix the city’s short-term fiscal problem have an interesting caveat, in that they all essentially put in a COLA in the out years. Which means that while the first year’s salary is some degree of a pay decrease, they are given pay increases in the second and, in most cases, the third years. What that means is that a lot of that four million in additional revenue will be eaten up just with COLAs.
The problem with the current MOUs is that they took baby steps to address a problem that is actually not only much more serious, but has a time-certain component if the projected PERS increases hold.
As I attempted to point out last week, economic development will not forestall this problem. Much of our hoped economic development in the area of high tech and green energy will not have revenue components for the city. The city has embraced Target as a means to infuse about $600,000 in revenue. We have argued that number is probably too optimistic, but regardless, we would need a number of those additions to add real money to our budget to close the gap. That simply is not going to be sufficient.
Bottom line, right now the city is perched perilously on the edge. If the state economy continues to teeter or even slip more, or if the impact of furloughs, salary cuts, and other decreases in state employee salary disproportionately impacts Davis, we could be in far more trouble than it appears even now. We have not planned for worst-case scenario, in fact, I would argue that perhaps we have planned for best-case scenario.
It would be nice to know at least that council and staff were working on these issues, but unfortunately it will be dark tomorrow night at council chambers, and the city will let another week slip by without real reform.
—David M. Greenwald reporting
I don’t think we should begrudge our CC a vacation, especially since, unlike our City staff, the Council is paid very very little. There is also a school of thought that says the less time a legislative body meets, the better. Witness the Texas legislature which meets every other year for no more than 140 days. (OK maybe you don’t like Texas but they have kept spending under control far better than California.)
But no doubt you are right about the fiscal issues. What more can we say? I still think we need some proposition limiting spending in some way. Our CC does not have the gumption to do what it takes. WE need to take matters into our own hands and limit spending, especially on salaries and benefits.
Maybe if we do that our CC can take an even longer vacation!
David Greenwald,
I have been trying for 7 years to make reasonable reforms that would eliminate our unfunded liabilities. It would not have taken draconian measures to do so. I argued persistently in closed session for over seven years that if we as cities and counties don’t take those measures, that the voters will take things into their own hands and that we could see the end to all defined benefits and vastly reduced health care. It is clear now that we do, indeed, face that very real possibility.
I have argued vociferously to cut the cafeteria cash-out back to 25 or 30 percent of salary. Combined with a modest contribution for dependent coverage, this should maximize our savings. The difference could well be enough to cover our unfunded health liability.
In fact, it was my public display of frustration over the failure of my efforts that led you to launch the viral facebook and u-tube attack on me over the dispute with Ruth.
A u-tube post was downloaded by Doug Paul Davis, which is your alias, and entitled with the misleading and inflammatory “Davis City Council Erupts with Councilmember Greenwald Calling Mayor Asmundson a Liar” (in fact, I only said she lied about that particular motion, and I made that clear). You managed to take what would have been a significant but passing embarrassment and turn it into something quite different. You chose to launch an attack on the one councilmember who had been trying, for over seven years, to make the reforms you are now campaigning on for.
David, I lost the fight to reform the cafeteria cash-out during this negotiating round. There is nothing the council can do over August to change that fact.
Personally, I have been around working, at a more leisurely pace, on controlling the water/sewer costs, on problems I see with our zip-car liability, and problems I see with the accuracy and wisdom of the particular structure of the Hanlee’s auto subsidy (not the fact of the subsidy, but the quality of the staff report and the structure of the subsidy), so that we don’t make similar mistakes in the future.
That said, I don’t begrudge my colleagues an out-of-town the vacation. The council job doesn’t pay, so many council members work two jobs. All people get vacations. Why on earth would you make an issue of a council vacation, especially when there is nothing concrete that — can be done regarding the labor contracts at this time?
[i]”Right now, the rates are projected to go up by nearly ten percent between now and the 2014-2015 year, most of it after this contract expires.”[/i]
For clarity, what this 10% means is that if it currently takes 28% of salary to fund a 2.5% at 55 pension, it will take 38% of salary by 2015. That is not 10% more than we are paying (i.e., 110/100). That is roughly A 36% INCREASE from what we are now paying (i.e., 38/28).
[i]”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.”[/i]
The interesting question here is why the city’s negotiators did not require all of those 20 years for full retiree medical to be with the City of Davis? There may be a technical answer due to a CalPERS covenant, though I doubt that.
What I wonder is whether our “negotiators” allowed a full retiree medical benefit–which, can be taken as young as age 50 in this contract–because they were protecting the interest of their own class of top managers? It appears they would have a conflict of interest, even if this idea had not occurred to them.
How does this program benefit their class? Most lower- and middle-level City of Davis retirees worked all of their public employment years for the City of Davis. They do not change jobs 5, 6 or 7 times. Maybe they change agencies once or not at all. By contrast, the more ambitious employees who rise to upper management do so over the course of a career by moving from Winters to Woodland to West Sacramento to Solano County to Elk Grove to Davis and so on, as they climb the chain of command. Those folks might come to Davis for their last 5-10 years of work before they retire.
If our new contracts required them to work in Davis for 20 years to get their full medical benefits (to accompany their $12,000/month and higher pensions), they would either have to retire later or accept a partial benefit.
While it may seem unfair to someone who comes here late in his career and then retires to not get full medical care for the rest of his life and his wife’s life and until his kid turns 22 years old, all paid for by the taxpayers of Davis, the real unfairness is what is being done to the taxpayers. We are buying his benefits for 40 years after he worked only 5 years for us. And all those 40 years we are paying for the salary and pension and benefits of the people who replaced him.
[i]Right now, as we have reported, we have built up a cadre of about $5.7 million in what we might call deferred road-maintenance.[/i]
David, do you happen to know if all of the sidewalk repair work going on all over town is being done in places which public works has identified as most in need of repair*? In other words, is the City currently cutting into that $5.7 million deficit? Also, do you happen to know if the money for the current work is from federal stimulus dollars?
*On one end of my street, a company called NorCal has done a lot of work on the sidewalks in the last few weeks. That stretch was, surprisingly to me, identified in the report critically in need of repair. The asphalt paving was not in poor shape, but I guess the concern was that the sidewalks were being pushed up in a few places by the roots of the city’s requisite hackberry trees.
[quote]the more ambitious employees who rise to upper management do so over the course of a career by moving from Winters to Woodland to West Sacramento to Solano County to Elk Grove to Davis and so on, as they climb the chain of command. Those folks might come to Davis for their last 5-10 years of work before they retire.[/quote]
The potential advantage to the city here is that when we hire those management people we will have a larger pool of applicants than if we require all of those years in Davis. We will attract those “ambitious employees” from other cities rather than just people who move up through Davis city service. I do not know, but I presume that department heads and city managers are not in those positions for 20 years.
[i]”The potential advantage to the city here is that when we hire [b]those[/b] management people we will have a larger pool of applicants than if we require all of those years in Davis.”[/i]
I think the likely cost–40 or more years of unfunded retirement benefits for 5 years of work–is far greater than the cost of a few candidates from the outside not wanting to come to Davis.
My belief is that an unfounded myth underlies a lot of hiring among public executives–that there are very few good ones who can do these jobs and thus we better give in to every one of their demands or we will be stuck with crapola for leaders. I believe the truth is that there are a great number of capable people searching for these jobs; and that most of the time, the capabilities of the ones we hire are hard to distinguish from those we bypass. I also think it is the case that we have some very talented people working for the city now who are better fits than anyone we might bring in from the outside* would be.
In my opinion, the right balance is to offer a good salary and benefits for the time the person works for Davis. But don’t get in the habit of sticking the taxpayers of Davis with a bill for the next 35-40 years just so more candidates would apply for a job they will leave after 5 years.
———–
*In 2001, when Davis did a big executive recruitment search for a new city manager, we ended up hiring Jim Antonen, who came to Davis from Moorhead, MN. Just five years later, Mr. Antonen was forced out of his job. I don’t know if we are still paying for his retirement benefits–last year, after working in the private sector for 3 years, Antonen was hired as the Maplewood, MN city manager–but I know that as part of his resignation agreement, the city council gave him full retirement benefits, which included retiree medical for himself and his family.
The reason I mention the Antonen case is to point out that looking far and wide for new executives is not any guarantee you will wind up with a winning choice or one who fits in with the city’s needs. We could hire from within or from without and get a good or bad leader.
“David, do you happen to know if all of the sidewalk repair work going on all over town is being done in places which public works has identified as most in need of repair*? In other words, is the City currently cutting into that $5.7 million deficit? Also, do you happen to know if the money for the current work is from federal stimulus dollars? “
I was told there were some projects being let this summer, some of that may be stimulus money. Basically if you look at the chart, funding $800,000 which is what we have been funding it, the deficit continues to grow. So no we are not cutting into the deficit, we are falling further behind.
David,
I think that it is quite unfair to criticize our city council members for taking a vacation. Why don’t you take a vacation yourself? I am sure most of us will survive without a new email from the Vanguard everyday.
Go discover a different place, talk to different people, climb a mountain, swim in a lake, relax, and come back refreshed and with an open mind. They need a break to maintain their sanity, and you sound like you would profit from one too.
Marc
[quote]I think the likely cost–40 or more years of unfunded retirement benefits for 5 years of work–is far greater than the cost of a few candidates from the outside not wanting to come to Davis. [/quote]
Ok… “likely” cost, in my use means mean/median… PS retirement (if they start right out of college) early age is 50… for rest of city workers, 55-60. Add 40 years (or more)… so Rich is concerned that the mean/average worker will live to be 90-100 (so half will live beyond 90-100). I wish… in any event, the combination of 5 years with City, and meet the “likely” life expectancy are ‘out-liers’. Nothing like hyperbole, eh, Rich?
Similar to Rich’s musings, we have Sue Greenwald… [quote]I have argued vociferously to cut the cafeteria cash-out back to 25 or 30 percent of salary. Combined with a modest contribution for dependent coverage, this should maximize our savings. [/quote] I hope that Sue mis-quoted herself… with maximum cafeteria cash out @ $18,000/year, the current max would be greater than all but a relatively few employee wages (@25-30%). Those on the very lowest edges… ironically, I advocate that the health coverage IS the benefit, and there should be NO cash-out. The cash-out concept came from single/childless/otherwise covered employees, who convinced the City that they were unfairly treated because it cost the City more to cover folks who were married, had children, etc. (yes, you may read between the lines). Will be a big adjustment for employees who have that (cash-out) in their budgets, but…
Marc… je d’accord… paix…
hpierce–yes, thanks. I was in a rush. I meant to say “I have argued vociferously to cut the cafeteria cash-out back by 70 or 75%.
Marc: I’m not criticizing them for taking a vacation Marc, I’m criticizing them for not getting the work done. Sue can rest knowing that she did her job. The rest, not so much.
Sue G.: Limiting cash out to 70-75% of balance of cafeteria not needed for actual coverage is a START. Over a period of 4-5 years, cash out should be eliminated. The benefit should be the ‘coverage’, not the cost of that coverage, IMHO.
HAWKEYE PIERCE: [i]”… cash out should be eliminated.”[/i]
That would be penny wise and pound foolish, Alan. It would give employees no incentive to cash-out. As such, it would save the city no money at all.
What we ought to be looking for is a cash-out provision where those employees who are otherwise covered are marginally better off taking the cash-out.
Up to now we have had a full cash-out policy which, because our benefit is so generous*, everyone who could possibly cash-out does so and by doing so they saved the city no money at all. This was essentially a union grab for more taxpayer money which came with no benefits to the taxpayers.
My guess is that the right cash-out number for the city’s interests is around 25-33%. The maximum medical benefit is now worth $18,137.76 per year. One-third of that is $6,045.92. That is approximately what we should offer those who choose to be covered elsewhere. If someone then cashes out, the city would save $12,091.84 per year.
Take for example a City of Davis employee who is married to someone who works for a private company which provides spousal + dependent coverage. Say that spousal coverage costs the couple $2,400 per year. If the City of Davis offered no cash-out, why would the City employee go on his wife’s plan? He would have no incentive to do so. He would be better off just taking the City of Davis plan. In fact, his wife likely would be better off not taking her private coverage.
By contrast, say we offer him a $6,045.92 cash-out. If he accepts that, the City of Davis saves $12,091.84. And he is better off because, after paying for spousal coverage on his wife’s plan, he has $3,645.92 in his pocket and he has full medical coverage for himself and his wife.
HAWKEYE PIERCE: [i]”Over a period of 4-5 years, cash out should be eliminated.”[/i]
Hpierce is just talking union nonsense when he says the reforms need to be dragged out over many years. The question that has to be asked is: why is the City of Davis better off delaying this kind of reform? It is not in our interest to satisfy the unions. It’s time our city council starting looking after the taxpayer interests. That’s who they are elected to represent.
*(The most important reform the City should be making is downgrading the quality of its employee medical coverage. In 2009, the average annual premium in the U.S. for full family coverage was $6,328. (Source ([url]http://healthinsurance.about.com/gi/o.htm?zi=1/XJ&zTi=1&sdn=healthinsurance&cdn=health&tm=171&gps=178_309_1020_621&f=10&su=p736.9.336.ip_&tt=2&bt=1&bts=1&zu=http://www.ahipresearch.org/pdfs/2009IndividualMarketSurveyFinalReport.pdf[/url]).) It’s insane that our city council has agreed to these gold-plated plans that cost 3 times as much for every employee who walks in off the street.)
Rich (as common) misses my points. I suppose I need to use simpler concepts and completely explain them…
[quote]Hpierce is just talking union nonsense when he says the reforms need to be dragged out over many years.[/quote]
No, I said, …cash out should be eliminated. Rich disagrees with that, and that is fine. I also said, [quote]Will be a big adjustment for employees who have that (cash-out) in their budgets, but… [/quote], and, [quote]Over a period of 4-5 years, cash out should be eliminated. [/quote]. If I had my way, cash out would have been eliminated totally in current contracts. Given the results of those, I simply acknowledged that it probably won’t happen in one year, but should happen sooner than later. And yet Rich’s ‘retort’ is, [quote]Hpierce is just talking union nonsense when he says the reforms need to be dragged out over many years.[/quote] But, at the end of the day, Rich advocates paying single employees over $6300 per year for coverage they do not need. Who is the “union” advocate? Who is fiscally responsible?
BTW… my moniker (know you love ‘lexicon’, Rich) is not based on “Hawkeye” (you liked MASH, Rich?)… nor is my name Alan (nor ‘Bobby’, but at least Rich seemed to get over that).
Rather than bickering about minor details why don’t we try and do something about this.
I had held out some hope that JoRo would be fiscally responsible but it appears instead that we have moved a step back–only Sue is willing to take tough votes.
I have thrown out the idea of a proposition limiting spending somehow a few times but it has gotten no traction on this blog. Its nice to have debates about the minutiae of cash-outs but we won’t get anywhere, I’m convinced, unless we limit the City Council. Ironically if someone proposed such a proposition, the CC people would probably jump to get on the fiscally responsible bandwagon (some might even be sincere).
Otherwise we might as well debate how many angels can dance on the head of a pin.
Dr. Wu… with all due respect… the “angels dancing on the head of a pin” is worth hundreds of thousands of dollars a year. Or would you just like to see a 10-20% pay cut for all city workers (10% for those making 55K or less, 20% for those making over 100K)?