If you believed that the Great Recession and the lessons of Bell and Vallejo would force wiser heads to prevail, then you like me were apparently fooled into complacence. Earlier this week, we reported on the hiring of the new city manager in Sacramento, a city that has cut law enforcement and other services, and yet somehow manages to justify giving the new city manager a huge raise over the previous one.
We believe that these contracts will continue the “arms race” of top management salaries, and even in a bad economy, the trajectory appears to be going up.
The Sacramento Bee weighed in today with a scathing editorial.
They write, “The exorbitant salaries for CEOs in the corporate world and at California’s universities are now widely infecting local governments.”
Actually, I think they are wrong here. Cities have been doing this for at least the last decade. The difference is that now we know it is bad policy, and still the cities cannot help themselves.
They write, “These lucrative pay packages are wrong. In this era of austerity, when employees are being laid off and residents are having services slashed, they are particularly out of place.”
The Bee continues, making a point that could be made easily enough substituting Steve Pinkerton’s name into the sentence: “You can’t begrudge new City Manager John Shirey and new County Executive Brad Hudson for looking out for their financial well-being. The blame lies with elected officials who signed off on these contracts and who should be far more protective of taxpayers’ money.”
They add to the point that we have been making: “To make matters worse, it will make the managers’ jobs even tougher. One of their biggest challenges will be trying to bring payroll and pension costs under control through concessions from employee unions. How do they now argue for shared sacrifice with any credibility?”
That is exactly the problem that we laid out two days ago.
The danger is clear. As with Mr. Pinkerton, who is paying 8% of his own contributions on the employee side and leading by example, there is also a good point in Mr. Shirey’s Sacramento contract, in which “he becomes the city’s first senior management employee to pay into the CalPERS system, about $18,000 a year for him.”
However, as the Bee points out, “But the rest of his deal undermines that positive step. The firefighters union voted Saturday to become the city’s first public safety local to contribute to pension costs, but a leader told council members that the ratification vote would have been far different if firefighters had known about Shirey’s pay package, which wasn’t made public until Monday.”
This is our fear in Davis, as well. We have a situation where we will either lay off 20 employees on September 30 or they will have to agree to contractual changes. How are we going to convince them that they need to share in sacrifices when their boss did not perform his own.
I disagree with the Bee in part, in that this is not on the new city manager – Mr. Pinkerton was well aware of the implications of his contract, he had to recognize the problems it could create, he knows he must lead this city by example and yet he still chose to put himself and the Davis City Council in an impossible position.
I am pleased to see that, despite her skepticism about Mr. Pinkerton’s contract, as of yesterday Sue Greenwald still believes that Mr. Pinkerton will “prove to have been an excellent choice.”
Nevertheless, as we wrote two days ago, the alarm bells will sound from Sacramento because it is a big city that everyone is watching, but what this really shows us is that even now, when revenues have not rebounded, when the economy is teetering back on the brink of another recession, cities have not been able to find ways to stop the arms race.
The problem, of course, is twofold. First, a city like Sacramento or even Davis will justify the higher rate, arguing that they need to hire a quality individual to lead the city, and they can rationalize that the general fund hit caused by $35,000 is minimal compared to the size of the budget.
Neither Davis nor Sacramento will break their budget based on the salary of one city manager. However, it is an illusory justification. The salaries at the top inevitably will pull the rest of the salaries with them. Moreover, they send the message to employees not to cooperate.
Indeed, the idea that there will be an easy fix to our fiscal problems is crashing down to earth. First, we have already seen, in our botched effort to impose impasse on the DCEA (Davis City Employee’s Association), that such measures are tricky.
Now we see that even declaring bankruptcy is a less than ideal tool, at best. This week, Ed Mendel of “Calpensions.com” reported that Vallejo exited bankruptcy paying more for pensions.
Wrote Mr. Mendel, “Vallejo got court approval to exit from bankruptcy last week with a plan that includes a sharp increase in pension payments to CalPERS – the opposite of what many expected when the city declared bankruptcy in May 2008.”
He continued, “Unions feared that bankruptcy would be used to overturn labor contracts covering pay and pensions. Legislation to curb municipal bankruptcies by requiring approval from a labor-friendly state commission stalled last year, but is back this year in a new form.”
“Vallejo’s experience may do more to dissuade than persuade other California cities that bankruptcy is an option for dealing with severe labor and financial problems,” Mr. Mendel reported.
So, bankruptcy did not solve Vallejo’s problems. As Mr. Mendel reported, it was not needed for the deep staff cuts, and deep cuts in spending on streets, building maintenance and other programs
Indeed, that is obviously the point as a Bank of America report made clear, “The city paid roughly $10 million in legal fees and wound up with no changes to it’s [sic] labor costs, which was the impetus for filing.”
However, despite declaring bankruptcy, the city managed to negotiate new labor contracts with four bargaining groups, including one that gave police a seven percent raise in July of last year.
Reported Mr. Mendel, “Bankruptcy enabled Vallejo to delay and reduce some debt payments. Union Bank, after guaranteeing debt repayment to investors, was owed $50 million but will receive about 40 percent of the amount, the Wall Street Journal reported in May.”
He added, “Bankruptcy also may have helped Vallejo begin negotiating cuts in health care costs for current and future retirees, dropping from full payment of insurance to a limit of $300 a month. The Journal said some retirees have been receiving about $1,500 a month.”
But the new labor contracts are similar to the cost-cutting contracts bargained by cities not in bankruptcy. For example, “The new Vallejo contracts raise the pension contributions of current employees and, with the exception of police, give lower pensions to new hires represented by firefighter, electrical worker and mid-manager unions.”
The more things change, the more they do not change. We believed that business as usual was over, but we see now that these practices that got us into hot water in the last decade will continue and there is no doubt that once this crisis passes, the upward trajectory of public employees compensation will continue unabated to the quarterback, which in this case, is the taxpayer.
—David M. Greenwald reporting
[quote]who is paying 8% of his own contributions on the employer side [/quote]You may want to check your facts… is he paying 8% of the EMPLOYEE’S share, or 8% of the EMPLOYER’S share? This is a significant difference…
I need to check my typing more than my facts, he went from paying 2% on the employer side to 8% on the employee side.
Thanks for the clarification… have a great day…
Sacramento had a fine city manager, in place, in the person of Gus Vina . He was a manager who came up through the ranks, not a politician and therefore could not be cajoled by the council and mayor to their satisfaction . They sought and hope that they found a “get along, go along ” manager in John Shirey . Like Shirey, Pinkerton inherits a city with no clear plan for its future, inadequate revenues to maintain it existing infrastructure and a populist mayor .
[quote]”Vallejo’s experience may do more to dissuade than persuade other California cities that bankruptcy is an option for dealing with severe labor and financial problems,” Mr. Mendel reported.[/quote]
Stockton and San Jose have declared “fiscal emergencies” which may allow them to alter labor contracts (still in courts). This may be the more common route.
Math is funny–it doesn’t care about legal precedent. At some point these labor/benefit arrangements are simply unsustainable. Many cities are reaching that point now. I don’t know how this plays out but the endgame will be significantly lower benefits and stagnant wages.
On another topic, I sent off my protest concerning water sewer rate increases. for my household it was estimated at $2000/year. that is too high–and who knows if there will be cost overrns–typical in public infrastructure problems. I urge everyone to protest.
[quote]They add to the point that we have been making: “To make matters worse, it will make the managers’ jobs even tougher. One of their biggest challenges will be trying to bring payroll and pension costs under control through concessions from employee unions. How do they now argue for shared sacrifice with any credibility?”[/quote]
Bingo!
[quote]Neither Davis nor Sacramento will break their budget based on the salary of one city manager. However, it is an illusory justification. The salaries at the top inevitably will pull the rest of the salaries with them. Moreover, they send the message to employees not to cooperate.[/quote]
Exactly.
[quote]The more things change, the more they do not change. We believed that business as usual was over, but we see now that these practices that got us into hot water in the last decade will continue and there is no doubt that once this crisis passes, the upward trajectory of public employees compensation will continue unabated to the quarterback, which in this case, is the taxpayer.[/quote]
And I think we are headed for a taxpayer revolt. Taxpayers will start voting against tax measures at every turn they think is unjustified…
[i]”You may want to check your facts… is he paying 8% of the EMPLOYEE’S share, or 8% of the EMPLOYER’S share? This is a significant difference …”[/i]
HP, can you explain why you think it is a [b]significant[/b] difference?
If a hypothetical misc. employee makes a salary of $100,000 in the 2011-12 fiscal year, it will cost $26,018 to fund his 2.5% at 55 pension. Of that amount, $8,000 (or 8%) is the employee share and $18,018 (or 18.018%)is the employer share.
It seems to me that as long as the employee pays $8,000, the employee and the employer are equally well off, whether the amount taken from the employee is called employee share or it is called employer share.
What may be significant–what you know and I am ignorant of–is some sort of tax implications. Is it the case that if the $8,000 in this case is called employer share, then the employee pays income tax on that money now? Or is it that if it is called employer share he pays income tax now? Or is it the reverse in one or the other case, that they employee would pay no income tax now and pay it later?
It seems to me that it is not significant as long as the amount, 8%, holds steady. But if there are different tax implications, then I’m interested to know what they are.
[i]”One of their biggest challenges will be trying to bring payroll and pension costs under control through concessions from employee unions. How do they now argue for shared sacrifice with any credibility?”[/i]
Forget about the fact that the City has the right to impose its terms on its employees. Forget about the $1.4 million per year the City could save by going back to the 3 men on a truck fire staffing model. Forget about all the other reforms I have proposed. Even forget about junking the fire departments 1,104 hours we pay them each year to get training from their union in how to be a stronger unionist.
Just focus on the Rifkin Reform* that Pinkerton agreed to, beginning July 1, 2012. If that is the single thing the council gets in the new contracts, the City will save $8 million a year every year on $100 million in miscellaneous salaries. That is not small money. That does not even have to ask for any salary cutbacks.
*The Rifkin Reform is to have the misc. employees pay the 8% “employee share” to fund their pensions. Most misc. employees have paid in 0% of the employee share. Those in the management group are now paying a capped 3% (though it is called employer share). Some others, I believe, are now paying a small fraction of their share.
Pardon me, David, but isn’t this exactly the position that I took while you were “covering your bases” and vacillating, doing your usual “on the one hand, on the other hand” routine? Then, when your “on the other hand” routine gets validation from the Sacramento Bee, you write as if you had always taken a firm position. You also completely ignore that there was a council member who did not vacillate, but stepped forward on the issue before putting a finger to the wind.
Sometimes you sound more like a political player than a journalist.
[quote]The elected officials who support these big salaries say they can’t attract qualified leaders otherwise. That’s a self-fulfilling prophecy that debases the ideal of public service and does no favors for their constituents. — Sacramento Bee editorial[/quote]This last sentence of the Sacramento Bee editorial beautifully summarizes the points I have been making during the last two weeks.
Sue Greenwald
“”””The elected officials who support these big salaries say they can’t attract qualified leaders otherwise. That’s a self-fulfilling prophecy that debases the ideal of public service and does no favors for their constituents. — Sacramento Bee editorial””””
Or city council people are to lame to do some homework of their own , to find a great city manager !
This is a difficult topic, because we rely on and are friends with our managers. But as difficult as it is, I think that this has been an important discussion to start. The issue of disproportionate pay of local government management compensation compared to that of state and federal government management positions, and the disproportionate compensation of small down management compared to big city management both deserve public airing.
There are some specialist management positions that we will have to pay a premium for because of the very limited number of people with the skills, but we should rethink our approach to general management compensation in small towns. What “other cities pay” is not a true definition of market. Market is what we need to pay to get a competent employee.
I agree with a merit based approach in principle, but it rarely works in practice, first because council members only pick the city manager and not the other managers and second, because city council members themselves don’t agree on merit of city managers even after seeing a city manager in action.