The direction back in June was for then-acting City Manager Paul Navazio to return to council in September with proposed ways to cut $2.5 million from the budget to go to bolster road maintenance, Public Employees’ Retirement System and Other Post-Employment Benefits. But “long is the way and hard that out of hell leads up to light.” The path to salvation has been anything but straightforward. It has been complicated by the hiring of a new city manager.
September’s deadline turned into a late November budget session which outlined ways in which the city could approach the cuts. But it appears, as time has gone on, that the $2.5 million goal will be more about the next round of labor negotiations rather than the stick that drives these labor negotiations.
The council will be briefed on these matters at their March 6th mid-year budget update – a little over three months before the next budget is due and just under four months before all of the current MOUs with the city’s bargaining groups expire on June 30, 2012.
In November the city proposed proceeding on a track that would yield $2.5 million in annual savings and at the same time address current needs, from the perspective of an all-funds budget rather than simply general fund savings. This would also ensure that, going forward, the budget includes full funding of street maintenance at a minimum of $1 million, full funding of OPED required contributions, and a set-aside for potential increases in CalPERS contribution rates.
This week, Paul Navazio, the city’s finance director, told the Vanguard that through various mid-year re-organizations and reductions, they are expected to realize an annualized savings of $1.7 million from the all-funds budget, with the general fund savings that are expected to be around $400,000.
“We are proceeding with our analysis of additional potential cost-savings through issuing RFP’s for several maintenance activities, to include parks, street lighting, and elements of utility operations,” Mr. Navazio additionally told the Vanguard.
He added, “We are also developing additional budget reductions that would need to be implemented in order to achieve the needed level of savings – pending outcome of our labor discussions as well as in the event that we are unsuccessful in renewing the Parks Tax.”
For the current year, the city is ensuring that they have sufficient funding in the budget to proceed with $1 million in street contracts to be let this spring.
Additionally Mr. Navazio reports that they are developing their 2012-13 budget which would “include ongoing, full-funding, of street maintenance, OPEB obligations and CalPERS set-asides.”
He said, “This will ensure that we are including these ongoing expenses within a balanced budget framework for 12/13, and can be supported on an ongoing basis (ie these have also been built into our 5-year forecast).”
“When we present our mid-year budget update to the City Council we will provide an update on the alternatives for achieving the required budgetary savings – again, pending the outcome of our labor negotiations – where we discussed with the Council as being the appropriate place to engage with the goal of either fully-funding our current benefits, or alternatively, restructure our compensation package so that its costs can be sustained with existing resources, along with the other needs identified by the Council and supported by the City Manager,” he added.
City Manager Steve Pinkerton told the Vanguard that the talks with the various bargaining groups will be heating up soon and that the city is hopeful that this process will help shape the future cuts to reach the $2.5 million.
Of course these are a tricky matter. The city’s last round of MOUs, which are expiring in June, failed to yield the kind of savings that the city needed to move forward on a sustainable path.
Moreover, the city got slapped down by PERB (Public Employment Relations Board) on their imposed contract with DCEA (Davis City Employees’ Association).
While the city has been slow to acknowledge that poor decisions and the wrong process were followed by legal counsel and staff on that costly debacle, they do believe that new state laws on impasse will make it easier to impose this time, if and when the labor negotiation process breaks down.
Given previous discussions, that seems largely inevitable.
There is some good news to go along with the bad news. There is a general belief that, while well short of the $2.5 million, the $1.7 million in all-funds cuts and $400,000 in general fund cuts represent progress, given the fact that we have had a transition to a new city manager and this has really been compressed into a half-year to achieve the savings.
It is not clear where this money is coming from, however, although one source suggested they may be making use of some enterprise fund monies.
The good news from our perspective is that, when we first raised the issue of road maintenance back in 2008, it barely generated any interest either on this site or in the community. Four years later, $1 million in spending has been permanently, it seems, incorporated into the budget. That number is still too low, given the $15 to $20 million in deferred maintenance, and it is barely at the break-even point, but it resembles good progress.
However, we are still concerned that the $2.5 million is the tip of the iceberg. The city is really looking at $7 million among increased pension contributions, OPEB costs and road maintenance, and $2.5 million is only a third of the way there.
The city is really banking on the MOUs and the next round of labor negotiations to secure these savings.
The city hopes to be able to reduce the costs of retiree health benefits through negotiations. The city hopes to be able to eat into the cafeteria cash out. And the city hopes to be able to get the employees to pick up their full side of the pension ledger.
But even that will be a tall task to achieve, in the next round of negotiations that figure to be bitter and contentious.
We are also of the belief that the CalSTRS (California State Teachers’ Retirement System) decision to reduce their earnings assumption to 7.5 percent will trigger CalPERS to follow suit. Such a drop means about $1 million for all funds and $400,000 to $600,000 out of the general fund.
As we presented last week, actuaries actually believe that 7.5% is still way too high, given the current investment climate.
—David M. Greenwald reporting
[quote]reduce the costs of retiree health benefits through negotiations. The city hopes to be able to [b]eat into[/b] the cafeteria cash out. And the city hopes to be able to get the employees to [b]pick up their full side[/b] of the pension ledger.[/quote]Let’s see what the city is asking:
If an employee, making $60 k/yr is covered for med/dental thru a spouse, and taking full advantage of the cafeteria cash out, elimination of the cash out would be (before taxes) ~ 30% decrease in compensation (for the record, I’ve never supported the concept, but the fact is that several employees accepted employment based on it, and others have built their financial decisions on it).
The employee share of PERS, for non-safety employees, is ~ 8%.
So, an employee who makes $60 k/yr will see (without figuring taxes) would see ~ a 38% reduction in compensation, if they derived the max cash out. Perhaps one and or the other changes should be phased. Many employees have minimal cash out, if any… they would only see a loss (not including taxes) of 8%.
The City currently provides, that at retirement, the City’s current 8% (non-safety) contribution on the employees’ behalf, is credited as “compensation”… elimination of the City’s contribution would (probably) result in ~ 8% decrease in retirement income (depending on whether the formula remains “highest year”, and whether 3 years from now, whether the EPMC (employer paid member contribution) would be reported, since it had ceased). So, if all of the employee contribution fall on the employee, they’ll take a 8% hit now in compensation, and would have to work an additional 3+ years (@ 2.5 @ 55) to “break even” in retirement (not counting any wage increases).
My purpose in this post is not to advocate anything. My purpose is to disclose what the ramifications are of what David has outlined, and to have folks think, in their situation(s), how these ‘proposals’ would affect them.
Again, in my opinion, it is good that the City covers med/dental for employees & their family. To me, the coverage is the benefit, not the cost to the City. I see no reason why a cash-out should exist. That being said, it has, and there are huge repercussions to individual employees, if it isn’t phased out.
Also, many of these benefits were “in-lieu of” salary increases, in the past.
Will be interesting to see how this plays out, but DJUSD employees (teachers, staff, administrators) have not even talked about employee cuts of this magnitude. All the teachers seem to offer is fewer days of instruction, with a nominal decrease in pay. Still not sure how I will vote on the continuation measure.
” I see no reason why a cash-out should exist. That being said, it has, and there are huge repercussions to individual employees, if it isn’t phased out.”
I don’t think this is an unreasonable point you make here.
“Also, many of these benefits were “in-lieu of” salary increases, in the past. “
That may be true, but we cannot afford them in the present. So that’s largely a moot point.
As I said… I was not advocating, I was attempting to explain how. the City got here, and why it would be a “sticking point”. To re-phrase you, David, “it is what it is, but what is may not be what needs to be”
I understand the sticking point. But I think most employees are not seeing the big picture here which is $7 million (at least) needs to be saved in order for the city to remain solvent over the next few years.
And teachers ARE seeing the big picture?
Why do you always bring up teachers?
David… according to you, and others, there are two entities in Davis where there are “structural deficit” concerns, and in both cases the salaries, benefits, and post-retirement benefits are the major ‘drivers’. Yet, with the City, you recommend drastic cuts, and for DJUSD, nada.
In part that’s because the current city problems are due to the combination of the collapse of the real estate market which had been for some time covering up the fact that compensation had increased at unsustainable levels whereas the school’s crisis has more to do with the fact that the state has cut funding in the seven figures every year since 2007.
The state’s revenue for schools comes from property taxes, which were taken from local agencies (ERAF)… so, you’re saying that school teacher, admin. & other staff costs are at or below “sustainable” levels?
The city came up with the “cash in lieu” back in the mid 90’s to get the employees to agree to remove the retiree medical for spouses, as well as curtail salary increases. This was supposed to cut retiree compensation by eliminating spouses and having pay based on salary and not total comp. Still though, they could use that “total comp” in negotiations to keep employees on par with comparative agencies. Now that has come back to bite them. Somehow though, it seems as though we blame the employees for this system. I believe that the employees have always bargained in good faith, honored their contracts, and never tried to hold the city hostage with threats of strikes or work stoppages. But, now the city deems it necessary to try and strong arm employees, to “fix” mistakes that it has created. This is not a problem that can or should be fixed by starting at the bottom, but only by a top down approach.
David, you had mentioned in a previous article that you were surprised that the Firefighters and DCEA hadn’t come out with their own candidate for CC. Maybe “owning” the council is not on their agenda. Could it be possible that they just want to be bargained with in good faith? Have the city follow their own personnel rules? And, maybe, adhere to contracts that they have previously agreed to?