Where are we now? Not very far. In fact, other cities are leading the way on reform and we are arguing over whether the current contracts are even a step in the right direction. They are not. It is August, we will not have another meeting for a month in a half, time to regroup and put forward bold new initiatives.
So far it is six labor groups – CHP, firefighters, craft and maintenance workers, physicians, psychiatric technicians, and health and social service professionals.
The agreements would change the pension formula for future state employees: miscellaneous and industrial employees’ retirement benefits would be reduced from 2 percent at age 55 to 2 percent at age 60; benefits of new public safety employees will go down from 2.5 percent at age 55 to 2percent at age 55; future CHP officers and some firefighters would get 3 percent at age 55, instead of the current 3 percent at 50.
Furthermore, pension benefits would no longer be on the final year of compensation, instead it would be on the average of the three highest years’ compensation in order to reduce spiking.
That is a good start. But in terms of cities, Palo Alto might be the way to go. Palo Alto has reduced their non-safety pension formula to 2% at 60 for all new hires. Current employees get a more lucrative 2.7% @ 55.
That would be a good start. What we have done is instead is punt for two years rather than move the ball down the field.
As I explained in yesterday’s column, there are only two things in my estimation that will save us fiscally and the current contracts do not do that. The city somehow is under the impression that they can implement reform for new-hires outside of the collective bargaining situation. No way. There is no way that can happen. Even the Governor had to bargain with the unions to get those concessions.
In order to save this city, we need our workers to retire at a later age and we need them to get less benefits. Even the Governor’s plan and the Palo Alto plan would not really save Davis. Why? Because it is only dealing with new employees. How many new employees will we have in five years? Not enough to change the facts on the ground.
Rich Rifkin lays out the problem in a comment to yesterday’s column. “Yet another huge problem is looming, one which begins to kill us July 1, 2011. The employer rates — due to market losses for CalPERS — are going to go up. I am not certain by how much they will rise, though it seems likely (over a few years) by at least another 10%. That means that to fund the pension for our $100,000 a year employee, it will cost $8,000 for the employee share ($6,000 from the taxpayers) plus $22,480 for the employer share,” he writes.
“We have no money to cover this added expense. It will either come from cutting back on services — which means firing a substantial portion of the city’s workforce — or reducing total compensation. There is no other choice,” he concludes.
It is actually a good deal worse than this. We can expect that by 2013/14 the non-safety rate will jump up to at least 14.4% and the safety rate will jump from the current 22.85% up to about 31.5%. That is directly from the city budget, and that includes a good deal of rate-smoothing. The way to look at this is, for every $100,000 we pay in employee salaries, we will be paying $31,500 to non-safety and $14,400 plus about $6000 to non-safety employees, or about $20,400 to fund their pensions, and realistically we may be looking at more like $22,000 as Rich Rifkin suggests.
Currently the city is projecting about $42 million in general fund expenditures by 2014/15, which is only about $4 million more.
How is that going to work? Well,it means we have to absorb at least $10 million in pension contributions, and that figure may be low. Another $4 to $5 million in payments for retiree health benefits. That means already more than one-third of our budget will be subsumed with retirement, to pay for people who will not be working. Add in a growing deficit in road maintenance. That’s at least another $6 million, maybe more. That is over half of our projected budget for 2014/15 and we have not even dealt with a single city employee’s current compensation.
That means that we are probably going to have to shed $10 million in costs. That is a quarter of our current budget just to pay for retirement obligations and unmet needs that will grow critical. We are not going to be able to do this by raising revenue. It would take 20 Target stores at current projections just about to get to $10 million and we would exhaust any marginal increase in taxes long before we even approached that number. We could raise our sales tax another 1.6% but by that point, we would probably drive a lot of business out of town.
That is why I view our window as a five-year window. All of the current contracts now expire by 2012/13. That means we now need to fix that problem within a three-year window. We cannot simply piecemeal this anymore. Nor can we fix the problem that our city faces by putting the pension reform on the backs of new employees. We will not have enough new employees between 2012/13 and 2014/15 to make the difference.
This is why the current round of MOUs was such a monumental blunder on the part of the past city council and city staff. And this is why we have to be very concerned about the current round.
But the council and city staff do not seem to see the urgency in these numbers that some of the rest of us do. We are not being creative and we are not taking the lead. I am willing to give the new council the benefit of the doubt right now, but the clock is ticking and 2014/15 is not as far away as one might think.
—David M. Greenwald reporting
Getting CC to step up will probably require some political action. AS many have commented Jo and Ro are counting on the fact that most people will not care much about this, except for the unions, who care a lot. Even if they are not as beholding to the unions as Saylor they still probably want to avoid a showdown.
Unless some heat is applied to Jo and Ro it may very well be business as usual.
This whole thing reminds me of the US auto industry. Everyone knew they had a pension/benefits problem but management and the unions just kicked the can down the road…until there was no road left except bankruptcy. The unions are being very short sighted (and selfish) here and politicians always are very myopic. Unfortunately Jo and Ro are no different (Sue is).
dmg: “This is why the current round of MOUs was such a monumental blunder on the part of the past city council and city staff. And this is why we have to be very concerned about the current round.
But the council and city staff do not seem to see the urgency in these numbers that some of the rest of us do. We are not being creative and we are not taking the lead. I am will to give the new council the benefit of the doubt right now, but the clock is ticking and 2014/15 is not as far away as one might think.”
I am completely baffled at why you want to give the two new Council members the benefit of the doubt, when you clearly disagree w what they did. IMHO, ACTIONS SPEAK LOUDER THAN WORDS…
Elaine:
“I am completely baffled at why you want to give the two new Council members the benefit of the doubt”
Really? You are? What difference does it make right now whether I do or do not? There will be plenty of time to judge them before their next election comes up. So I can either write them off a month into their term or hope to push them in the right direction.
dmg: “Really? You are? What difference does it make right now whether I do or do not? There will be plenty of time to judge them before their next election comes up. So I can either write them off a month into their term or hope to push them in the right direction.”
Like I said, ACTIONS SPEAK LOUDER THAN WORDS…
[i]”Unless some heat is applied to Jo and Ro it may very well be business as usual.”[/i]
I heard from half of the Ro and Jo Show this morning. Nothing worth reporting. No explanation of the DPOA vote. But this new Ro and Jo meme does give me a chuckle. I wonder, though, if RoJo might be better. Any thoughts?
I like RoJo, Rich. My fave of all time is Filliam H. Muffman.
RoJo sounds better though Jo won more votes so maybe it should be JoRo.
If this cc cannot get its act together it may be necessary to have a ballot measure at some point. I would think changing retirement percentages, contributions, limiting pay raises, perhaps bringing in a negotiator–essentially taking a lot of the power away from a CC which has been fiscally irresponsible and mandating a more fiscally conservative stance.
I think such a measure would win. Of course the unions would oppose but their own self interest would be obvious. The measure might also force people, at least regular voters, to look at how bad our city’s finances could become. I think even the threat of such a measure could have some impact.
JoRo are counting on voter apathy on the subject. Its up to us to show them otherwise.
We have slowed growth and not become flooded with developer projects (imho) because of Measurers J, X, P, R. It may be time for a fiscal responsibility measure to keep our CC’s hand out of our cookie jar. I’m sick of these clowns promising everything and delivering little or nothing.
[i]”That means already more than one-third of our budget will be subsumed with retirement, to pay for people who will not be working.”[/i]
In the big picture, my often spoken complaint with the large number of paid holidays (which means double time for cops and fire) and very long paid vacations given to City employees is small potatoes compared with rising pension costs and unfunded retiree health costs. However, it is a part of the same thing–paying ‘for people who will not be working.’
The City of Davis — presumably like most other California cities, counties, the state, etc. — gives all of its employees 3 weeks of paid holidays. That is roughly triple the normal number for the private sector. And Davis gives 5.5 weeks of paid vacation to all employees here 20 years or more. And Davis gives a large number of employees (not just the very highest few) 2 more weeks of paid time off for ‘management leave.’ (Most of these ‘managers’ have no subordinates to manage.)
Added together, that is (for some) 10.5 weeks of paid time off in a 52-week year. (Never mind the firefighters who barely work at all.) In other words, we have to backfill roughly 20% of the workforce to cover for those not there (or we pay those, like cops, who must work “holidays”) twice what they should cost us on those days.
Arguably, these kind of lax working conditions were won by the labor reps in negotiations. They certainly will not just be taken back, even if they are not justifiable.
City employees should have paid holidays and paid vacations (though management leave strikes me as total b.s.). Yet my feeling is that our negotiators* (long ago) gave away too much; and the result is higher labor costs (from this time off) than necessary.
*The fault really lies with our elected officials who approved the contracts. But I would imagine that when our city employees, who bargain on behalf of the city, were told that the employees wanted all that extra paid time off, our negotiators did not respond with “no effing way, Jose.”
[quote]And Davis gives a large number of employees (not just the very highest few) 2 more weeks of paid time off for ‘management leave.’ (Most of these ‘managers’ have no subordinates to manage.)
[/quote]
What is “management leave?” Not a term I’ve heard elsewhere.
[quote] But this new Ro and Jo meme does give me a chuckle. I wonder, though, if RoJo might be better. Any thoughts?[/quote]
Depends on which one turns out to be alpha. I’m thinking it will be Ro.