Phantom Decisions Seem to Plague City Budget
The city comes out finally with its midterm budget report, and buried in the middle is a somewhat shocking revelation, because we cannot find indication of a policy decision or change that has been publicly announced.
The staff report reports, “While these expenditures were intended to be off-set by corresponding General Fund personnel reductions, implementation of additional personnel reductions are being deferred pending the outcome of current labor negotiations.”
The Vanguard‘s memory must be failing it, because no one remembers the decision being made to defer additional personnel reduction until the outcome of current labor negotiations.
The good news is that revenue estimates show a slight increase. Based on revenue results through the first seven months of this fiscal year, the City’s General Fund revenue estimates are being held relatively in line with the adjusted budget, showing a slight increase of $72,983.
However, “The City will not meet its expenditure savings projections yielding a shortfall of $665,561. This is due to the additional $1.0 million dollar of personnel savings built into the FY 2011/12 budget which will not be fully achieved.”
This will largely eat into the council’s reserve. The city is roughly $1,010,660 below the level suggested by the city’s 15% General Fund reserve policy.
According to the staff report, “This result assumes a fund balance draw-down of $850,000 to fund appropriations included in the FY20111/12 budget streets and road maintenance.”
If you recall, back in June of 2011, the city council by a 3-2 vote took what looked to be the bold first steps on the road to fiscal sustainability for the city by taking $2.5 million that was going to employee compensation and transferring it to pay for unfunded liabilities and unmet infrastructure needs, specifically and largely road maintenance which would have been unfunded.
September’s deadline turned into a late November budget session which outlined ways in which the city could approach the cuts.
Back in February, we were told the council would be briefed on these matters at their March 6th mid-year budget update. However, March 6 had no such update.
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 would include full funding of street maintenance at a minimum of $1 million, full funding of Other Post Employment Benefits (OPEB) required contributions, and a set-aside for potential increases in CalPERS (California Public Employees’ Retirement System) contribution rates.
In February, 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 reported 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.
But nowhere in this report is any mention that personnel reductions would be suspended. Given that the council took an overt action in June 2011 and amended it in November, it would seem that an informational report buried in the consent calendar is insufficient.
The personnel cuts were supposed to go toward shoring up unfunded liabilities in retirement health care, a preemptive move for the expected rate hike that would hit from CalPERS, and one million to fund street and road maintenance needs that would have been unfunded otherwise.
The city is finding some of that money.
They report: “Through the first seven months of FY2011/12 General Fund expenditures (including encumbrances) were $22.62 million, or 59% of the adjusted budget of $38.24 million. Overall, personnel expenditures through the first half of the fiscal year, when accounting for seasonality of citywide recreation program expenditures in Parks and Community Services, as well as, the initial implementation of departmental reorganizations, is projected to result in a slight increase above our standard general fund personnel savings of $165,407. The additional $165,407 savings does begin to offset the $1,000,000 in additional personnel savings desired to assist with funding Street and Road maintenance projects, but is not projected to achieve the full desired savings in FY 2011/12.“
They add, “Non-personnel expenditures also continue to track within budget and are projected to yield additional savings of $306,000 above the $770,000 anticipated savings assumed in the development of the FY2011/12 budget. This additional $306,000 will assist in funding the $850,000 added for Street and Road maintenance projects, but will not cover the full costs in FY 2011/12.“
The bottom line is that the city has not done what it said it would do, either last June or last November. It appears that there will be a $600,000 shortfall to a road maintenance budget that even at $1 million was going to push the city further into deferred maintenance projects that will harm it.
As we have noted, the expected fire department merger has fallen apart, there has been no movement on the reduction of fire officers, there was no discussion in this report on where the impasse money was going to come from, and it appears decisions that undo council actions have been done without a public discussion or further overt actions of council.
—David M. Greenwald reporting
I would hope the CC would address this tomorrow night. They seemed to be on the right track initially but as I have commented before, little public attention since.
It is not surprising that the city want to delay taking action now as the threat of personnel reductions is the most potent item in the city’s negotiating “toolbox”.
Sadly, we cannot be all things to all people. I hope that the current city council does not dodge this issue until after the election. We need a thoughtful, sustainable budget that does not set us up for future insolvency.
While some may think that dealing with the budget is an unpopular endeavor, I believe that if the city council acts decisively on this matter, the voters will be appreciative.
[quote]It is not surprising that the city want to delay taking action now as the threat of personnel reductions is the most potent item in the city’s negotiating “toolbox”.[/quote]
That was my thought too. And I wonder if this is in response to the fact that it looks as if the fire dept merger is on hold for the time being. Ultimately the ball is in the CC court, however, as to what to do next, and to let the public know what is going on…
[quote]I hope that the current city council does not dodge this issue until after the election.[/quote]I, respectfully, somewhat disagree… the non-sitting candidates should ‘show their stripes’, and let the voters know how they would approach this matter AS IF they were on the Council today. If the current council comes to terms before the election, great… if not, and if the current incumbents are not all re-elected, the “new-bies” (not meant as derogatory, Don) will BE the ones that have to deal with the issues. Before I vote, I’d like to know, in more detail, how the “new-bie” would approach this. The sitting members have given us a lot of info on this.
[i]”… no one remembers the decision being made to defer additional personnel reduction until the outcome of current labor negotiations.”[/i]
No one should ever forget that for the individual person being “reduced,” eliminating someone’s job is the worst possible approach to solving our City’s budget crisis. Many careers in government are specific to government and cannot transition easily into the private workforce. For example, not too many firefighters or city planners can get a good job at Google or at Bank of America. To do what they trained for they have to work for government at some level. But in today’s economic climate (due in part to overspending and overpromising for the last 20 to 30 years), there are no openings in other cities or counties for them to go to. So “reducing” someone in Davis will be extremely painful to that person and her family.
It is largely for that reason that my advice to the City–and to the labor unions and labor associations–is that we need to be in the business of sharing the pain.
● We need to vastly reduce the cost of medical cash-outs for all employees (taking them from $18,500 per year down to $6,000 per year*).
● We need to eliminate most of our retiree medical liability by including a new provision in all new labor contracts** which says that if you are not disabled and you retire before age 65, you have to pay for your PERS retiree medical benefit until you reach age 65. Doing that gets rid of at least 75% of the liability we have.
● We need to have total comp contracts which increase no faster than revenues to the City increase and which automatically adjust the rate of pay for each position if the cost of pensions or benefits rises too fast.
● We need to go back to the old staffing model for the fire department which puts 3 men on each truck, not four. We can do this without firing any firefighters, simply by scheduling them less.
● We need to stop paying automatic overtime to all firefighters by taking them off the clock 3 hours out of 24 for their meal breaks. This seemingly minor change will save a lot of money, because it kills all of their mandatory overtime pay.
● We need to adopt 2% at 55 and 2% at 60 pension plans for all new hires in public safety and non-safety respectively. This won’t make any difference for 5 to 10 years. But it will save us millions of dollars down the road and make the City’s budget sustainable.
*Why $6,000? That is what was agreed to in the last contracts for new hires; and it is also roughly the minimum cost for a medical plan for a single person with no kids.
**At Tuesday’s meeting, there is an item in the Consent Calendar for a new fire management contract. I wrote a letter to Paul Navazio (and CC’d it to the Council) decrying this contract because it lacks the key reform with regard to retiree medical. It continues to allow someone age 50 to retire and cost the City up to $21,000 per year (plus medical inflation per year) for 15 years before he becomes eligible for MediCare. After age 65, the cost to the City for his premiums will drop. MediCare picks up part of the bill and most people 65 and over don’t have minor dependents and more are widowed at that age.
The problem I have is not necessarily the direction the council goes – though I fear they are putting too much weight on the MOU – but how it has gone about doing it. This is a non-action item and it seems to be the only actual basis I can find for undoing a council action.
HP–I just figured out something last Friday which might interest you: the provision in the non-safty contracts which had said that if someone was hired after July 1, 1996 and retired before age 60, the City would pay only 50% of his medical premiums until he reached age 60, no longer has any force in the contracts now in effect. Although that language is still in there, it is trumped by the new vesting rules. What the vesting rules say is that if someone is under 60 when he retires, if he is fully vested–that is, he worked for Davis for 20 or more years–he will get 100% of his premium paid for even if he was hired after July 1, 1996. If the person is not fully vested, the City picks up a share ranging from 50% for 10 years to 95% for 19 years. Each year over 10 years adds 5%. At 20 years the person is fully vested.
[quote]● We need to eliminate most of our retiree medical liability by including a new provision in all new labor contracts** which says that if you are not disabled and you retire before age 65, you have to pay for your PERS retiree medical benefit until you reach age 65. Doing that gets rid of at least 75% of the liability we have. [/quote]
Assuming the unions would agree to this, and I have my doubts…
[quote]This is a non-action item and it seems to be the only actual basis I can find for undoing a council action.[/quote]
The ‘ol “put it on the consent calendar” trick, so the item will fly under the radar screen, you mean?
Yes
Rifkin… you are partially correct re Vesting on ret med… there are some nuances I’ll share with you via ‘lexicon artist’.
The fact it is consent is despicable if I am interpreting Rich’s point correctly. David, did you see this too?
The whole outcome of the MOU should be in the open, transparent, and the CC should report it back to the public in some detail.
Joe, I am counting on you to do the right thing here. You began so well, were the one to push for the $2.5, but have not (at least publicly), continued in that vein.
Anyone, prior to action on the consent calendar can ask any CC member to pull an item off the Consent Calendar (it only takes one). SODA, if you do not ask a member to do this, you have little cause to complain.
My guess as to why the put Item 6F–“Terms, Conditions and Understanding of Compensation for the Individual Fire Management Employees ([url]http://cityofdavis.org/meetings/councilpackets/20120320/06F Fire Management Employees.pdf[/url])”–on the Consent Calendar is because it does not apply to any current City employees: [quote]Currently the City has no permanent employees in Fire Management positions and has been using retired annuitants to fill vacancies during the merger discussion with UC Davis. Since merger discussions are now on hold, it is in the best interest of the City to move forward with filling those vacant positions.[/quote] However, if it sets the precedent for what to do with the HUGE problem Davis has with its retiree medical liability (estimated at around $64 million, give or take $10 million, depending on which actuary you believe), then it will be a costly mistake we cannot afford.
Also, there is an item to consider increasing CC compensation (a “regular” item). Reading the staff report, it only highlights proposed “changes”. It says little about the following compensation (if any) for CC members:
Direct compensation (does cover this, somewhat)
Medical/Dental/Life Insurance/vision coverage?
Contributions to PERS/PARS retirement?
Retiree medical? Vesting period/rates for Retiree Medical?
“Cafeteria cashout” (does cover this)
Other benefits?
All employee group compensation is shown on the City webpage… not so City Council members.
[quote]”**At Tuesday’s meeting, there is an item in the Consent Calendar for a new fire management contract. I wrote a letter to Paul Navazio (and CC’d it to the Council) decrying this contract because it lacks the key reform with regard to retiree medical. It continues to allow someone age 50 to retire and cost the City up to $21,000 per year (plus medical inflation per year) for 15 years before he becomes eligible for MediCare. After age 65, the cost to the City for his premiums will drop. MediCare picks up part of the bill and most people 65 and over don’t have minor dependents and more are widowed at that age.”[/quote]I thought a consent calendar is for routine items of minor significance that would engender little discussion. Does that mean the mayor and staff felt that the fire management contract falls in this category? Will any council member have the courage to pull it off the consent calendar for staff reporting and discussion?
Would a “total comp contract” approach make it clear how much each proposed change would cost, including into retirement? It seems lots of cool stuff has been added to contracts without anyone really knowing what the benefits cost until it’s too late.
Also, is there any evidence that Davis firefighters and police game the system (something that’s going on in lots of public retirement programs):-? It would be nice if we have good enough oversight to assure there no questionable “disability” early retirements or higher payments, boosting pensions with various final years’ techniques, returning to work while receiving retirement pay, etc.
[quote]”Also, there is an item to consider increasing CC compensation….”[/quote]The list of City Council benefits reads as though these folks are full-time workers. How many of our council members don’t continue on with their businesses or other jobs while they’re in this elective office?
Why not just give them a healthy annual stipend for their good efforts on our behalf plus whatever expenses (travel, etc.) they have carrying out our businesses? They could use the council payments to buy whatever they want–health insurance, retirement investment account–instead of hopping into benefits that seem more suited for long-term employees.
I’m in favor of having a full salary for city councilmembers at some point. We are basically ask them to either be retired and on a pension, independently wealthy, or work two full time jobs. Even if they make money at another job, they still should get paid.
That said, now is not the time to do it.
I generally support Rich’s proposal above.
[i]”I’m in favor of having a full salary for city councilmembers at some point.”[/i]
There is no benefit to the people of Davis for giving them that money.
[i]”We are basically ask them to either be retired and on a pension, independently wealthy, or work two full time jobs.”[/i]
We have never lacked for a surfeit of qualified candidates to run for City Council. The 2012 race is a good example of that.
[i]”Even if they make money at another job, they still should get paid.”[/i]
The Yolo County Supervisors, who have less responsibility and less of a workload than members of the Davis City Council get the pay David Greenwald is calling for? Has anyone noticed that the supervisor races attract far fewer candidates than the City Council races do? Jim Provenza is running for reelection right now–notice that no one is challenging him? Don Saylor won his seat on the Board and attracted no competition at all.
Here is something I wrote last year about how much money we are wasting on the expenses of the Board of Supervisors. This waste is exactly what David Greenwald wants the City of Davis to blow: [quote]The salary that supervisors give themselves is $59,000 per year. That may not sound like much. However, their job is supposed to be public service. It’s no more work than serving on the Davis City Council, where the members make $8,033.88 per year and get a lot more public scrutiny.
On top of their salaries, the supervisors give themselves $570 every month ($6,840 per year) to drive to work. For the five of them, that’s $34,200 this year.
Additionally, the supervisors have awarded themselves a medical plan which costs $20,107 each. For the five, we are paying $100,535 this year for this benefit. [/quote] I wrote this comparing the costs to the public of the two bodies: [quote] In 2008-09, for their helpers, their offices, their pensions, their medical cash-outs, their cars, their travel and their salaries, the Board of Supervisors spent $1,531,523 on themselves. That amounted to $306,305 for each of our five supervisors. …
In the City of Davis, we have five members of the City Council. Our entire annual expense for salaries and benefits for the five members this year will be $84,296. Additionally, the city will spend $52,933 on other “operating expenses” for the City Council. The total bill is $137,229. That is 8.9% as much as the Board of Supervisors costs us.[/quote] If David Greenwald has his way–he has also called for hiring staff for each of our members of the City Council–the City will become as bad as the county. His solution is direly in search of a problem. That solution will become the problem.
And if you care at all about poor residents of our County, know that the largesse that the Supervisors give to themselves directly takes money which should be going for the health care and food stamps and psychiatric care of the poor. All that so our beloved supervisors can live higher on the hog.
The City Council needs to run the numbers and know what we would like to achieve in contract negotiations and importantly what we must achieve. It is not acceptable to agree to an unsustainable plan. There are two parties in a negotiation; both have responsibilities to the groups they represent. The City Council negotiates on behalf of us, the community.
Layoffs even in a good economy can be devastating to the individuals and families involved. In today’s job market, losing a job can mean losing your home and everything one has worked for with no hope in sight of finding a replacement job. Having recently conducted a job search, I know how tough it is out there.
I have worked for and am currently working for Fedex. At Fedex we have a no lay-off philosophy (not policy but philosophy), basically this means we try as best as we can to avoid laying anyone off.
Personally, I believe the vast majority of city employees do important work for our community, by laying people off, we lose out on the city services they provide. It is my preference to maintain the general employment level but ask that in these times of sacrifice that employees contribute a greater percentage to their own retirement and medical costs.
While employee bargaining groups may often prefer to maintain the level of benefits and reduce the number of staff, I believe we must try our best to reduce costs by asking for greater employee contributions to their retirement plans not reduction in head count. Perhaps there are specific areas that exist where the headcount numbers may not match what we need, but I think we should certainly do our best to find other areas for those employees to work that would benefit our community. Clumsy cost cutting measures often do more harm than good in the long run.
We need to take a deep breath and get to work on long term sustainable solutions that maintain our community bonds AND meet our financial realities. We expect loyalty from our city staff towards the community; we certainly owe it to the employees to demonstrate loyalty to them.
Rich Rifkin: [i]”We need to eliminate most of our retiree medical liability by including a new provision in all new labor contracts which says that if you are not disabled and you retire before age 65, [b]you have to pay for your PERS retiree medical benefit until you reach age 65.[/b] Doing that gets rid of at least 75% of the liability we have.”[/i]
I need to update this slightly. I have just exchanged emails with the City’s Director of Human Resources, Melissa Chaney, and all the other bigwigs were cc’d the exchange.
The question was raised to me if PERS would allow the City to charge 100% of the cost of the retiree medical benefit to the retirees before they reach age 65. The answer is no.*
What Melissa told me today is that PERS requires the City to make a minimum payment for that premium, whatever the cost, of $115 per month. Compared with what the Kaiser Family Plan costs for a retiree and his dependents, that is close to nothing.
So here is my amended advice to the council for all future contracts in this regard:
• Any employee who retires at age 65 or later and is qualified for a PERS pension also gets 100% of his health care premium paid for by the City.
• Anyone who retires before age 65 and is qualified for a PERS pension will get a retiree healthcare benefit through PERS, but the City will pay $115 per month of the cost of his premium and the under-65 retiree will pay the balance of the cost of the premium until he reaches age 65.
• Those who retire before age 65 due to disability will be treated the same as if they were 65 or older.
$115 per month is $1,380 per year. For a 51-year-old retired firefighter with a husband and a 9-year-old child, the cost of her retiree medical benefit now is in the $19,000 a year range (give or take). So if the City could reduce that expense to $1,380 per year, that is a savings of 92.7% of the cost. It will nearly wipe out our $64 million retiree medical debt; and doing so will save the jobs of a lot of city workers and will allow the city to continue to provide things like police protection, public swimming pools and paved roads. Not making needed reforms this year will mean a great loss of jobs for city workers and a great decimation of city services.
————
*I spoke with Melissa about this 2 or 3 years ago and I thought she had said yes, then. But it is likely the case that I heard her wrong or I asked the question in the wrong way.
I realize I misread hpierce’s City Council benefits questions as a list of benefits that are covered, sorry.
Does anyone know what CC members do get now, other that travel expenses?
I think paying part-time, elected officials a reason salary is appropriate, but I don’t like the idea of having them get the varied benefits they approve for civil service employees.
[i]”Does anyone know what CC members do get now, other that travel expenses?”[/i]
$669.49 per month in salary plus medical (which costs about the same amount for the City). [quote]In the City of Davis, we have five members of the City Council. Our entire annual expense for salaries and benefits for the five members this year will be $84,296. Additionally, the city will spend $52,933 on other “operating expenses” for the City Council. The total bill is $137,229. [b]–The Lexicon Artist ([url]http://lexicondaily.blogspot.com/[/url])[/b] [/quote]
There should not be medical or retirement benefits in my opinion and especially not lifetime benefits after a short vesting period. Are CC members reluctant to be hard negotiators bc they get similar benefits?
I agree, SODA. Give’em cash and let them spend it on anything they want to (including buying into to city group insurance, if available).