Concern seems to be mounting that the delays in resolving differences over new labor agreements for city employees will lead the council to attempt a compromise that will not lead to the kind of reform needed.
In his latest column, Rich Rifkin worries that city leaders may grow “wobbly” as time continues roll after the July 1 “deadline” for new labor agreements “came and went.”
“All the old contracts expired the last day of June. But those deals – ones the city manager and the council concede are unsustainable – live on,” Mr. Rifkin writes. “Their terms remain operative until new accords are agreed to or an impasse is reached and the council imposes its last, best and final offer.”
As the months roll by, Mr. Rifkin expresses the same fear that we have in recent weeks. He writes, “A fear expressed to me by two members of the council is that their colleagues may go wobbly. The unions are not budging, not accepting the compromises necessary to allow the city’s expenses to match its revenues. And they worry there may not be a majority on this council willing to declare an impasse and impose terms.”
He argues, “The majority prefers to wait. But waiting comes with real risks.”
“The fiscal year will be half over in a few weeks. In its adopted 2012-13 budget, the City Council assumed we would achieve $4 million in savings under new, more cost-conscious terms in the reformed labor contracts. Davis needed to reduce expenses by that much to balance its budget,” he continues.
However, so long as the old contract remains in place, the city is not achieving the needed savings.
“Come New Year’s Day, the city will have spent roughly $2 million more on its employees than it had budgeted this fiscal year, because everyone but the six in police management is still working under expired deals,” he writes.
Previous bad experience may be at the core of the apprehension by council.
Rich Rifkin refers back to the impasse declared in December of 2009 with the Davis City Employees Associations.
“The DCEA membership voted to reject the city’s last, best and final offer on Dec. 17,” Mr. Rifkin writes. “A city ordinance and state law set forth procedures that the two parties had to follow before the city could legally impose terms. Over the following six months, those procedures were slowly playing out.”
The city, he argues, believed that the DCEA was not being cooperative with negotiating efforts.
“However, the city felt that the DCEA was not cooperating. On May 14, 2010, in a fit of pique, Davis unilaterally decided that the required ‘fact-finding’ process was over and that the council could impose its last, best and final offer. It did so 11 days later,” Rich Rifkin explains, but there was a problem, “the council got bad advice from its attorneys. Davis had no lawful right to unilaterally end the process.”
Thus, last year, a PERB administrative law judge ruled that “Davis had violated its own ordinance and various sections of state law. As a consequence, the terms of the DCEA’s previous contract, dating back to 2005, were put in place, and the city was required to repay the members of that union roughly $800,000 they had lost under the imposed conditions.”
Rich Rifkin continued, “It is that costly misadventure that appears to be weighing heavily on this council.”
“In the meantime, none of the seven employee groups without contracts has a strong incentive to accept a new deal that reduces the amounts their members are getting under the old agreements,” Mr. Rifkin continues. “Short of mass layoffs, the workers who hold out the longest probably will suffer the fewest consequences.”
“So the employees prefer to wait,” he writes.
One point where the Vanguard somewhat differs from Rich Rifkin’s perspective is that he argues the most important issue is “a gradual reduction in cafeteria cash-outs.”
The Vanguard doesn’t disagree that it is an important change, and bringing the maximum cash-out from $18,000 per year down to $6000 by 2015-16 is an important savings. However, we would argue that Other Post-Employment Benefits, retiree medical coverage, where there is a $65 million unfunded liability and which figures to consume nearly a quarter of payroll, is a far larger and more needed reform.
It is not that Mr. Rifkin disagrees on the needed reform, it is simply the order of importance that differs slightly.
Writes Mr. Rifkin: “Other significant modifications include reducing the city’s medical inflation risk, requiring the employees to pay more toward funding their pensions and, if the Davis Police Officers Association agrees to it, cutting back a bit on the retiree health benefit.”
In looking at the police management group’s contract, Mr. Rifkin takes issue with the 5.1 percent pay hike.
He notes for example, “The assistant police chief, for example, was earning a $138,700 salary under the previous MOU. By 2014-15, he will make $7,100 more.”
“The hope behind these changes is that the city will be able to better manage its future costs,” he writes. “But it’s unclear to me whether this contract succeeds even in that. It reduces some costs. It does not tie the annual growth in total compensation to the growth in city revenues.”
Indeed, as we noted previously, the police management contract, if extrapolated to the other agreements, winds up falling short of the needed projected savings, particularly at this midterm point in the year.
Rich Rifkin makes the additional comment: “With medical premiums going up 10 percent per year and with CalPERS requiring Davis to pay millions more to fund employee pensions, I don’t see how this gets us on a sustainable path.”
He adds, “Even worse, if the council goes wobbly with the other labor groups, huge cuts in city services might be needed this year to fill in the hole in the budget caused by the delay in achieving new contracts.”
That is the critical fear. One way or another, the city must reduce costs. The best way to do it is to make the benefits and salaries sustainable. However, if those efforts end up falling short, the city may be looking at layoffs, outsourcing and the contraction of services.
—David M. Greenwald reporting
[i]”The Vanguard doesn’t disagree that it is an important change, and bringing the maximum cash-out from $18,000 per year down to $6000 by 2015-16 is an important savings. However, we would argue that Other Post-Employment Benefits, retiree medical coverage, where there is a $65 million unfunded liability and which figures to consume nearly a quarter of payroll, is a far larger and more needed reform.”[/i]
I was perhaps unclear. It’s not that I don’t believe that the retiree medical liability is a bigger problem in the long term. You made this case very well in an article a few days ago where you showed the percentages of the budget now going to pay for current retiree medical costs and to fund future costs and you compared that to an even worse situation down the road. What I tried to say in my column is that, [i]of the changes made[/i] in the police management contract, the biggest change will be with the ramp-down in cafeteria cash-out.
It is possible that my read of the new police deal is incorrect. But I don’t think the change that was made was sufficient or will save all that much money. Here is the new language: [quote] For those EMPLOYEES that retire on or after January 1, 2013, EMPLOYEES will receive the same reduced retiree medical benefits as the sworn officers as set forth in the Davis Police Officers Association MOU, however, the reduced benefit amount for retirees shall not be less than premium for the Supplemented/Managed Medicare plan available from Kaiser-Bay Area [b]for retired employee and one dependent[/b] sponsored by the CITY through CalPERS. [/quote] The ‘supplemented/managed Medicare’ clause does not mean anything material. The only material change is that Davis will no longer pay for the medical care of a retiree and his wife and his child. That does not reduce our liability by much at all. It only affects a minority of retirees who have a spouse and a minor child; and it only affects them until their children are grown up, which in most cases is not very long.
Here is the language from the previous MOU in that respect: [quote] CITY shall contribute to eligible retirees an amount up to 100% of the premium for the group health insurance plan available from Kaiser-Bay Area [b]for retired employees and two or more dependents[/b] sponsored by the CITY through CalPERS. [/quote] As you know, what I believe they City should have insisted upon with regard to retiree medical is that the retiree should have to be 65 or older to get the City to pay for his supplemental Medicare coverage; and that in the case of employees who retire younger than 65, they should have the option of paying for 96% of the cost of that insurance, which is the max allowed by CalPERS. I think the changes in this new police contract are insufficient in terms of actual savings and insufficient in terms of incentivizing police managers to not retire young.
[b]In his latest column, Rich Rifkin worries that city leaders may grow “wobbly” as time continues roll after the July 1 “deadline” for new labor agreements “came and went.”[/b]
FWIW, I append here the footnote I included in [b]my column ([url]http://www.davisenterprise.com/forum/opinion-columns/now-is-not-the-time-to-go-wobbly/[/url])[/b] regarding the usage of the term ‘go wobbly,’ which perhaps I am alone in finding amusing:
To the best of my knowledge, this British [removed]meaning “don’t lose your nerve” or “don’t lose your resolve”) was popularized by P.M. Margaret Thatcher in a telephone call to President George H. W. Bush. It was August 26, 1990. Saddam Hussein’s army was occupying Kuwait. American and allied troops were building up in Saudi Arabia. Thatcher wanted to make sure that Bush would not back down. She said to him, “This is no time to go wobbly, George.” Mr. Bush loved the phrase and relayed to the press what Mrs. Thatcher had said.
More interesting to me is that over the last 22 years, as the expression has become a popular term in the wider English lexicon, it ismostly used by conservative or libertarian speakers and writers. I Googled “go wobbly” in quotes and did not find any recent uses by liberals or leftists. Most of the “don’t go wobbly” appeals this year are being made to Republicans to not back down with regard to tax hikes and spending cuts or to keep up the fight against Obamacare.
The first ten Google-listed users of “don’t go wobbly” are:
1) Larry Kudlow in the National Review calling on the right to stand for ‘free-market principles’; 2) Fred Barnes in the Weekly Standard calling on Republicans to be tough in fiscal cliff negotiations; 3) Erick Erickson in Red State calling on conservatives to be as tough as Wisconsin Republicans were in curbing the power of unions;.
4) Bill McKenzie in the Dallas Morning News calling for reductions in Social Security payments; 5) Michael Canon of the Cato Institute calling on the right to continue to fight Obamacare after Obama won reelection; 6) Rob Port in the sayanythingblog decrying North Dakota Republicans for not sufficiently fighting against Obamacare in that state;.
7) Tom Tancredo on the Team America PAC website calling on the state of Michigan to reject …the idea of issuing driver’s licenses to illegal aliens; 8) Doug Brady on the Conservatives 4 Palin website decrying Republican governors who are open to tax increases; 9) Ambrose Evans-Pritchard* of the (London) Daily Telegraph calling on US Federal Reserve Chairman Ben Bernanke to keep up a loose money regime while taxes are being raised and spending is being cut; and 10) Sarah Palin on Facebook calling on the GOP to stick to its Tea Party principles.
*Ambrose Evans-Pritchard is a conservative commentator, though it is hard to categorize a call for ‘loose money’ as a right-wing position. Mr. Evans-Pritchard gained fame (or infamy) as the Sunday Telegraph correspondent in Washington during the Clinton presidency, often writing scandalous and conspiratorial stories about the Vince Foster suicide and the Oklahoma City bombing.
Rich: As I read that language there are two things going on. One is that the management will get the same retiree medical as rank and file. Second is that they will limit benefits to a husband and spouse rather than a full family (or perhaps I am conflating that with where they are headed).
[i]”One is that the management will get the same retiree medical as rank and file.”[/i]
Yes. The change that the managers agreed to depends on the DPOA agreeing to the same thing.
[i]”Second is that they will limit benefits to a husband and spouse rather than a full family.”[/i]
Correct.
That does not strike me as a big change. It does reduce the City’s liability by about 1/3rd for those retirees who claim themselves and two dependents. But of all City retirees, that is not a large percentage.
My guess is that, once it becomes the norm in all MOUs, it will reduce the cost of retiree health (on a relative basis*) by about 10%. If they would adopt the Rifkin plan–to require all retirees under age 65 to pay 96% of the cost of their medical plans until they reach age 65–the City would save 75% of its costs (on a relative basis).
Very few retirees who are over 65 claim a spouse and a child or two children. Mostly this just affects those married retirees from 50-64 who had children at age 35 or later and their kids still live with them. (I don’t know if a divorced, non-custodial parent can claim this coverage for his child who lives with the retiree’s ex-spouse.)
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*The “relative basis” disclaimer is to differentiate between absolute and relative savings. Ten years from now we won’t be spending 90% of what we are now spending. Rather, under the police model, I estimate our spending will by 90% as much as it would have been without this change. So if the absolute cost of retiree medical in 10 years is 2.5 times what it is now, the cost to Davis will only be 2.25 times today’s price. In other words, 2.25 represents a 10% relative basis savings.