City Reaches Agreement with Three Bargaining Units

City Largely Holds Firm on Structural Reform – The city council has reach agreement with three of its bargaining units – Davis Police Officers’ Association (DPOA), the Program, Administrative and Support Employees Association (PASEA) and the Individual Management Employees on new contracts.

The items are on the agenda for Tuesday’s Davis City Council meeting, where the council will ratify the new agreements.

According to the staff report, “Due to a timing issue, the DPOA, Management and PASEA contracts/resolutions will not be available until the each association’s membership ratifies its contract. All ratified contracts will be available Tuesday, December 18, 2012.”

The city projects that these would result in the savings of $1.2 million for 2013-14 and $2.25 million by 2015-16.

“By December 31, 2015, the proposed three-year Memoranda of Understanding and anticipated savings with the two remaining bargaining groups is estimated to result in an all-funds savings of $5,986,347 or twelve percent (12%),” staff writes. “This is consistent with the ‘target’ savings established by the City Council and assumed in the development of the FY2012/13 through FY2015/16 annual budgets.”

Staff continues: “The $5,986,347 includes all savings which will be achieved by both the structural benefit changes (capping and reducing the cafeteria cash-out, employees paying their share of retirement costs, changes to retiree medical); and an ongoing reduction of overall personnel costs as a result of operational changes assumed in General Fund Five-Year forecast.”

They add, “There are also potentially significant avoided costs associated with provisions in the contract for employees picking up shares of future medical premium cost increases and the full employee portion of CalPERS retirement.”

Within the contract are contained many of the critical structural issues facing the city.  For the most part, the contract follows the contours and goals of the previous agreements.

On PERS (Public Employees’ Retirement System), staff writes, “Recent legislation is mandating that employees pay for their portion of the CalPERS contribution by 2018. These MOUs achieve this in year 2014.”

“Upon adoption, Miscellaneous employees covered by these agreements will go from paying five percent (5%) to seven percent (7%) of the employee share and pick up the additional one percent (1%) on January 1, 2014. All new Miscellaneous employees will be paying the full eight percent (8%) upon hire. Sworn Police will continue to pay the full nine percent (9%) and the additional 3 percent (3%) of the employer share of retirement costs,” the staff report explains. “This is an estimated additional savings of $281,857 in the first fiscal year for the three contracts attached.”

The new contracts also create a new tier that follows the contour of state law which will lower the rate in the second tier – for new hires beginning January 1, 2013.

Staff writes that the new law “creates a new defined benefit formula of two percent (2%) at age 62 for all new miscellaneous (non-safety) members with an early retirement age of 52 and a maximum benefit factor of two and one-half percent (2.5%) at age 67.”

Staff adds, “This new law also creates three new defined benefit formulas for new safety members with a normal retirement age at 50 and a maximum benefit factor at age 57. These changes require that new safety members be provided with the new formula that is the closest to the formula offered to classic members of the same classification and that provides a lower benefit at 55 years of age than the formula offered to classic members.”

“CalPERS estimates these changes will result in a 4.7 percent (4.7%) savings to agencies for new hires,” staff reports.

One of the keys to this deal appears to be a compromise on changes to retiree health benefits (OPEB, Other Post-Employment Benefits).

For new employees hired after January 1, 2013, the maximum medical benefit is reduced to the “Medicare Supplemented/Managed Medicare monthly rate for an employee plus one dependent, which is approximately one-third of the current benefit offered to employees.”

“The Council was mindful of the impact the proposed changes to retiree medical would have on long-term employees and who may be retiring in the next several years,” staff writes.

So this is the big compromise.  Those who retire after December 31, 2015, with more than 25 years of service for non-safety and 20 years for safety, will receive the maximum current benefit.

Those who retire with less than that amount of tenure who retire after December 31, 2025, would receive 75% of the current benefit.

In addition, “When all retired employees reach age 65, their benefit will drop to the Medicare Supplemented/Managed Medicare monthly rate.”

Currently, the city projects 20 percent of payroll going to the unfunded liability for retiree health premiums. Under this plan, that percentage drops by 2.75%, an annual savings of about $178 thousand for the three years of this contract.

However, that does mark a compromise.  The city would be paying 17.25% of payroll for OPEB under this plan – they had hoped to get down to 16%.  However, this avoids the prospect of the city in future years paying upwards of 25% of payroll.

Finally, the city caps the cafeteria cash out to $500 per month, which marks about a $1000 per employee savings for those employees who currently take the full $1500 month benefit.

“The current contract provides a cash payout to any employee not taking the full health insurance allowance. The new contract would ultimately cap the cash-out provision for current employees at $500 per month following a three-year phased in process,” city staff writes.  “This amount is higher than the average of $400 per month for cities with a cash-out provision and approximately 66 percent (66%) of employees are not affected by this change.”

The estimated contract savings are $816,827.46 in for the three contracts.

This agreement also continues the cost sharing provision established in previous MOU’s for medical premiums.

“When new health care premium increases take effect, the City will contribute up to the first three percent (3%) of any increases in health premiums. Employees will contribute up to the next additional three percent (3%) of health premium increases for the benefit year. Any increase in the premium above six percent (6%) will be shared equally (50/50 cost sharing) between City and employees,” staff writes.

There is a tradeoff for these concessions. The DPOA sworn employees will receive a two percent (2%) salary increase starting January 1, 2013, a two percent (2%) salary increase effective January 1, 2014, and a one percent (1%) salary increase effective January 1, 2015.

The non-safety employees get a 3% salary increase on January 1, 2013, 2% in 2014, and 1 percent in 2015.

Staff writes, “These modest increases were a trade-off for the large number of structural benefit changes impacting employees involved in the contract.”

The Vanguard‘s view at this point is that these are reasonable contracts.  The Vanguard would have preferred to see the city hold firm on the 16% figure for OPEB, but if going up to 17.25% was critical to getting this done, then we can live with it.

We would have preferred to have seen a trade-off of full premiums for a later retirement age.  That would have allowed employees to continue to get their full benefits but the city to recoup the savings through a reduction in the number of years of service.

We can live with the salary concessions, as the city has largely held the line on salaries since 2009.  However, we would like to see the city pass an ordinance that restricts any future salary increases to the rate of inflation – that will prevent future salaries from making the benefits unsustainable.

—David M. Greenwald reporting

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