Panel Largely Agrees with City Position But Slows Down Pace of Reform – The city has now released the report of the second fact-finding panel in an effort to resolve the impasse between the city of Davis and the Davis City Employees Association (DCEA.) The panel members were Dave Owen, President of DCEA, Assistant Police Chief Darren Pytel, representing the city, and John LaRocco, Chair and neutral member.
“On February 18, 2010 and following unsuccessful mediation, the DCEA requested factfinding pursuant to Employer-Employee Relations Resolution No. 1303. While the record is not entirely clear, the parties endeavored to select a factfinder but encountered some difficulty in scheduling a factfinding hearing,” Mr. LaRocco writes. “Factfinding did not occur. On May 25, 2010, the City Council adopted a resolution imposing the City’s last, best, final offer on the members of the DCEA bargaining unit.”
On June 2, 2010, the DCEA filed an unfair practice charge with the Public Employment Relations Board (PERB) claiming that “the City did not bargain with the Union in good faith and, more specifically, that the City violated the MMBA [Meyers-Milias-Brown Act] by failing to exhaust the impasse resolution procedures.” An Administrative Law judge would issue a decision finding that the city had not followed proper procedures for imposing the last, best and final offer.
The city appealed that decision but on June 8, 2012, PERB found that the city committed an unfair practice by failing to exhaust its impasse procedures before imposing its last, best, final offer.
PERB ordered the city to make employees whole for all lost wages and benefits and to complete the fact-finding process in compliance with the city’s local rules. The city complied with PERB’s order. The city paid all employees back pay and benefits.
According to Mr. LaRocco, “Melissa Chaney, the Human Resources and Communication Service Director for the City, testified that the City laid off nine DCEA represented employees to fund the PERB decision. Chaney elaborated that, since the City had to ‘pay back concessions’ that it had achieved as a result of the 2010 impasse, the City had no choice but to lay off nine workers. It cost the City approximately $1 million to fulfill the remedy ordered by PERB.”
Melissa Chaney “declared that throughout negotiations, the City never claimed either that it lacked money or was headed to ‘bankruptcy.’ “
Yvonne Quiring, Assistant City Manager, “related that the City faces some financial challenges in the near future regarding OPEB [Other Post-Employment Benefits] pension costs; a new water treatment facility; and maintaining community services.”
The report continues, “Quiring gave several examples of these impending challenges. She forecasts water costs to rise from $859,000 in 2013 to approximately $3 million within two to three years. Quiring recounted that the City budgeted about $1 million for street and road maintenance during fiscal year 2012-2013, but the City rolled the expenditure into the budget for next fiscal year because the City did not achieve sufficient savings in 2012-2013 to fund the $1 million expense.”
John Bartel, President of Bartel Associates and an actuary, prepared several reports for the city regarding the city’s current and future liability for retiree health benefits and “opined that the City has unfunded liability amounting to about $59 million.”
Timothy Reilly, a Certified Public Accountant retained by the DCEA, analyzed figures, data and information in the city’s Comprehensive Annual Financial Reports (CAFR). He argued that “the City has a practice of constructing ‘very conservative’ budgets” and that from 2007 to 2012, “the City spent less money than it had budgeted and revenues were higher than anticipated for four out of five years.”
The panel found, “The Panel carefully reviewed all of the financial evidence in the record. The Panel concludes that the City of Davis is in adequate financial health. Stated differently, the City is not in desperate financial straits like many other governmental entities in California. The City has earmarked funds to replace aging assets and to deal with its unfunded liability for future retiree benefits.”
However, “There is not much margin for error” and “the DCEA failed to identify a source of money to fund generous pay raises or to retain lucrative benefits such as the PERS [Public Employees’ Retirement System] pick up and no employee contribution to health insurance premiums. Reilly conceded that although the general fund is not broke, the City can reasonably target an unreserved general fund balance at 15%. Also, while he characterized the enterprise funds as healthy, he never opined that they contain excessive amounts of money. Finally, Reilly’s analysis did not consider the water, deferred maintenance and community service challenges confronting the City.”
The panel found, “Therefore, as will be discussed later in our recommendations, the City rightly needs structural changes to the benefits afforded to employees, but it also has sufficient money to provide modest wage increases which are needed to partially cushion the financial sacrifices that the DCEA employees must make.”
The panel recommends that the parties enter into a four-year agreement that ends on December 31, 2017. They write, “The DCEA argues that the City must be barred from ‘going through the motions’ simply to arrive at the point where it is permissive for the City to take unilateral action. The Union charges that the City has negotiated in bad faith following the expiration of the 2006-2009 contract as amply demonstrated by the PERB ruling.”
Whereas, the city believes “a one year contract is appropriate unless the MOU contains concessions on retiree health care. The City stresses that the floor for a new MOU is the conditions of employment at the end of the 2006-2009 MOU and so, immediately after this factfinding, the City may implement its last, best, final offer with the caveat that it would only be implementing a new status quo.“
On contributions to the health plan for active employees, the panel recommends, “The Panel recommends that the MOU include a provision whereby the City pays the first 3% of the annual increase in health insurance premium; the employee pays the next 3% annual increase in health insurance premium; and the parties split (50%-50%) any increase above 6% per year. The Panel further recommends that the joint contribution formula be applied to a base rate of $1 ,949.32 per month.”
On the other hand, the panel holds that the cafeteria cash out benefit is “ripe for reform,” noting as we have, “it is discriminatory. The cash payout in lieu of health insurance favors those employees who happen to be fortunate enough to have access to health insurance through another source. An employee who is unmarried or does not have a working spouse (or the spouse’s employer does not provide health benefits), must forego the cash and obtain coverage under the City’s plan. Thus, the benefit is inequitable.”
They come to a conclusion that there is a slower ramp down in the payouts than the city has proposed. “The Panel recommends that the MOU include a provision that caps the cafeteria benefit cash pay as follows: $1,300 on January 1, 2014; $1,000 on January 1, 2015; $750 on January 1, 2016; and $500 on January 1, 2017,” they write. “The Panel recommends that the monthly cap on the cafeteria cash payout be set at $500 for all new employees.”
On the issue of employees contributes to PERS, “The Panel finds that a rather steep incremental pickup offset by a 3% wage increase through the four year agreement is the best solution to this very difficult problem.” They recommend that “the MOU provide that the employees pick up 7% of the employee’s pension contribution as of January 1, 2014 and 8% as of January 1, 2015. The employees shall receive a 1% salary increase as of January 1, 2014 and a 2% salary increase as of January 1, 2015. The Panel recommends that the EPMC [Employer Paid Member Contributions] be eliminated.”
On retiree health benefits, “The Panel recommends that the parties adopt the City’s proposal for retiree healthcare benefits (for both active and new employees) with the DCEA employees to receive a 3% wage increase on January 1, 2014; a 2% wage increase on January 1, 2015; and 1% increase on January 1, 2016.”
“The DCEA did not proffer a specific salary increase proposal during bargaining but the DCEA indicated increases are appropriate in exchange for concessions and to maintain the employees’ relative position in the comparable market,” the report notes. “The Panel recommends that the MOU contain a 1% general increase for all classifications effective July 1, 2015; a 1% general salary increase effective July 1, 2016, and a 1.5% general salary increase, effective July 1, 2017.”
“This Panel has formulated recommendations which, as a package deal, address the vital interests of the City and the DCEA,” the report concludes. “The City gains structural changes to employee benefits that are currently unsustainable. The DCEA employees will have to endure financial sacrifices, as did other City employees, especially on the cafeteria cash payout. In return, the DCEA members receive wage increases albeit most of the increases are designed to offset the decrease in net wages from the 8% PERS pickup and as an exchange for retiree health benefit reforms. The DCEA also gains a raise in allowances and reform to the grievance procedure. The Panel respectfully asks the parties to carefully consider these recommendations.”
While, overall, it is difficult to imagine that the city would be too upset with this report that found for them, at least on the core proposals, Assistant Chief Darren Pytel did dissent on some of the specifics.
Unlike the previous fact-finding session to which Samantha Wallace offered very vehement disagreement, Mr. Pytel noted, “At the outset, I would note that I appreciate the Panel Chair’s effort to sift through the many issues presented in this case and to attempt to strike the proper balance. Further, had the structural changes recommended here been implemented in 2010, and not now, I would likely support the Recommendations.”
However, he did note, “I dissent in part mainly because, in my view, the Panel Chair’s Recommendations on economic matters fail to adequately account for (I) the City’s financial condition and (2) the fact that DCEA has benefited greatly from the protracted negotiations in this matter.”
“While I certainly agree with the assessment of the Panel Chair that the City is not ‘in desperate financial straits,’ I find compelling the evidence presented by the City that there remain ample reasons to stay fiscally prudent,” he writes. “The Panel Chair’s Recommendations note, rightly, that there is little margin for error. In my view, the City’s financial forecast showing anticipated declines in the General Fund balance over the next five years, when considered alongside, among other things, the City’s future liability for retiree health benefits and the ever-escalating cost of the City’s pension contribution, give significant cause for restraint.”
“I therefore see no basis for according the wages/equity increases recommended by the Panel Chair, other than the 6 percent wage increase recommended in exchange for the retiree health changes,” he continues. “My view of this is reinforced by the fact that the Panel Chair’s Recommendations already take pains to soften the blow on DCEA members of these much needed, and overdue, reforms.”
“The employee benefits as to which the City is seeking structural changes are unsustainable and the City rightly needs to make structural reforms. On these foundational points, I am in complete agreement with the Panel Chair’s Recommendations,” he writes. “As discussed above, I concur with many of the reforms to benefits recommended by the Panel Chair.”
“As noted above, however, I must respectfully dissent from the Panel Chair’s Recommendations when they have adverse financial impacts on the City. In my view, such Recommendations significantly water down – at least in the near term – many of the important structural reforms,” he continues. “I believe that these Recommendations fail to properly take into account that the City’s financial pressures in the coming years – some of them unrelated to personnel costs (e.g. funding of community services, addressing deferred maintenance and infrastructure needs, building a new water treatment facility, and addressing rising water costs) – will be significant. While I remain optimistic about the City’s financial situation moving forward, I believe restraint and caution are the orders of the day.”
—David M. Greenwald
Anyone know which, if any, of the proposed Panel recommendations would trigger equivalent increases in compensation for the other bargaining groups under the contingency clauses in those contracts?
Jim: The answer to your question would be all of them – it would have a huge cascading effect on the budget short term – it’s why the city put the me too clauses in there and of course why the groups accepted them.
I didn’t put a commentary in here, but if I did my take would be that while the Factfinding panel recommendations are not completely unreasonable, the fact that they leaned toward the city shows just how much due diligence the city did with their work here.
Yes the city is not facing bankruptcy (I’d argue that’s closer than acknowledged) but the city needs to get these fixes in for the budget to be sustainable, the factfinders who notoriously lean to the workers (see the other factfinding panel) agreed.
DCEA has no legs to stand on anymore.