Rich Rifkin’s latest column looks at the MOU (memorandum of understanding) issue and concludes: “Expect city services to deteriorate more.”
Mr. Rifkin writes: “Either we have good public services or we have exorbitantly paid public employees. We cannot have both. Davis has never been taxed more than it is now. And our services have never been worse in my lifetime.”
Part of the equation that Mr. Rifkin is not considering, however, is that while it is true we are paying more per employee in compensation than at the start of the Great Recession, the employees are getting less in pay and benefits. Thus it is not that the employees are getting rich, rather the cost of providing the same – or in some cases lower levels of benefits such as pensions and health care – has gone way up over the last decade.
Mr. Rifkin, to his credit, has been calling attention for most of the last decade to the need to cap total compensation. The council in the latest MOUs paid attention to that.
He quotes Mayor Robb Davis stating, “We changed the conversation around compensation from just discussing base salary and benefits to a conversation about total compensation.”
Writes Mr. Rifkin: “That sounds good. His quote is almost word for word what I told Robb our city needed done when he asked me for my advice four years ago. I’ve given the same counsel to many others on the council over the years as well. They know that I know what I am talking about.”
Mayor Davis added: “And we’ve made progress that if PERS, in fact, does … outstrip the (budget forecast) model, which is conservative, then our employees will contribute not just one time but in an ongoing way to the pension costs.
“No council has done that before,” said Mayor Davis. “No council has created the transparency around a fiscal model and no council has gone to workers and said we need to have a conversation not 
about base salary but about total compensation.”
Mr. Rifkin, however, believes that while total compensation is “capped” or “almost capped,” the “cap is too high.”
He argues: “Labor cost growth will outstrip added city revenues over the period of the deal. In other words, city services — from broken roads to understaffed police to unmaintained parks and greenbelts to leaky windows in city buildings — will get worse over the course of these contracts.”
From Mr. Rifkin’s point of view: “Over many years, the city’s income has increased by about 2.5 percent per year on a sustained basis, including expansions and recessions. So for a contract to be sustainable, without raising tax rates or cutting services even more, the hourly total compensation costs per employee cannot increase more than 2.5 percent per year.”
Mr. Rifkin finds, “Based on my calculations, the increases in total compensation built into these deals is at least 4.71 percent per year. That inflation in expenditures is nearly twice as big as the increases in revenues will likely be.”
Mr. Rifkin goes through the calculation and concludes: “Total compensation thus goes from $200,693 now to $229,025 in three years. To sustain our current level of services, the annual total in three years should be no more than $216,124.”
He adds: “Beyond not restraining the growth in total compensation at a sustainable level, these contracts have no serious reforms. For example, veteran employees continue to get paid for an undue amount of time off.”
He closes writing: “Maybe some day we will elect members of the city council who care more about providing services than they do enriching city employees. Until that day comes, Davis will have crumbling infrastructure, too few police officers to patrol our city and trees that are not maintained.”
I would be interested to see what the city response is to Mr. Rifkin’s calculations.
More generally, I agree with one of his bottom lines: city services will deteriorate more. In fact, one of my biggest concerns is that quality life is going to take a huge hit over the next 10 to 20 years unless we do something to reverse the trend – and we cannot do that, in my view, through taxation.
How much is a key question. Here’s what I see without getting into whether or not Mr. Rifkin’s numbers are correct.
We just turned down the roads tax. That means about $3 million less per year just in road repairs. I figure that we will also likely lose the $1.5 million we were to get for SB1 money when the voters rescind the gas tax – as I expect them to do. That comes to about $4.5 million in roads funding that we will probably not make up until at least 2022.
That comes to about $18 million less over the next four years and when you factor in about an 8 percent inflation rate for asphalt and the cost increases as road conditions deteriorate, that $18 million could easily mean we have to pay an extra $30 to $50 million, even if we approve a new tax in 2022.
Why 2022? Well, the next cycle would be 2020, but we already have to renew our sales tax which generates $9 million for our general fund – about 15 percent of our general fund money comes from that. The city cannot afford to risk it by passing another tax concurrently, therefore the next window for a 50 percent tax is June 2022.
One of the reasons I have been pushing for economic development so hard is that Mr. Rifkin is right – we are paying more in taxes than ever before and receiving fewer services for it. We can either increase those taxes even more or we can grow our revenue over the longer term through economic development.
I am not opposed to holding the line even more on employee compensation, but part of the problem is that, while we are paying more for employees than ever before, they are actually getting less in real benefit from that cost.
That means we are actually all taking a hit here, as employees have seen their real dollar take home decline over a decade. The city is paying more to provide that, and the taxpayers are receiving less in the way of services.
Cost containment is still a must, but so is revenue generation – something that Mr. Rifkin never addressed.
—David M. Greenwald reporting
On 6-24, Matt Williams made comments to your article on the MOUs, “Sunday Commentary: The MOUs We Signed Should Not Be Cause for Alarm” – https://davisvanguard.org/2018/06/sunday-commentary-mous-signed-not-cause-alarm/
These comments are equally pertinent to today’s Vanguard article and Rich Rifkin’s Enterprise column.
In that article you stated, “The notions of thinking about the contract in terms of total compensation and using the contract to mitigate risk are highly innovative and the council deserves a lot of credit.”
Matt commented,
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“There is absolutely nothing innovative about thinking about employee costs in terms ofotal compensation … absolutely nothing! The community dialogue, especially here in the Vanguard over the last 3-4 years has been almost 100% in terms of total compensation, and when external information sources that haven’t reached that stage have been introduced, Howard P has made sure that everyone is aware that the newly shared data is not total compensation.
So, all the council was doing was catching up with what their constituents had already been doing for 3-4 years.
What risk did the contract mitigate?
The simple answer to that question is no risk whatsoever.
Why no risk mitigation? For the following reasons …
(1) The 2% annual COLA (8.25% over the 3 year and 12 day term of the MOU) is 68% higher than the average annual COLA granted by the Social Security Administration over the last 9 years.
(2) The 6/30/2016 CalPERS Actuarial Valuation report shows 245 “active” members of the City of Davis Miscellaneous Plan. Over 31% of those “active” members will actually not receive an 8.25% increase, but instead will receive in excess of an 18% increase.
(3) Another 40% of those “active” members will actually not receive an 8.25% increase, but instead will receive in excess of an 12.5% increase.
(4) Only 28% of the “active” members will actually receive the 8.25% increase.
(5) The 18% increase bumps up the Pension Qualifying annual compensation by at least 18% (possibly more), which means the City’s Pension liability goes up substantially thanks to these MOUs.
It will take a Masters in Political Spin to transform those factual realities of the MOUs into “highly innovative” risk mitigation.
At the Tuesday City Council meeting Robb Davis challenged the citizens to “read the MOUs.” He repeated that challenge in his 1:30pm comment yesterday (see LINK). Unfortunately the Staff Report for the Tuesday Consent calendar items does not transparently disclose any of those facts. It also does not disclose the “fact” that achieving an employee total compensation growth of less than the 2% assumption in the Forecast Model will provide the community with more money to repair the City’s crumbling capital infrastructure. The Council’s mindset appears to have been “it says 2% growth in the forecast, so Make It So!”
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After his factual comments on the budget-busting MOUs I made the following observation, “Wow! So, David, this seems rather alarming to me! Any response? I’d love to see Robb Davis’ responses also.”
The silence is deafening.
Significant changes were made to Federal employee retirement systems about 30 years ago (during President Reagan’s era).
In the past, there was a defined benefit system. Now, there’s still a (much smaller) defined benefit, but it’s coupled with a 401k-type account (with an employer match up to a certain percentage), and social security.
Regarding medical, the federal government pays a share of the costs, up to a certain amount. If a desired plan is more expensive than that cap, the employee/retiree must pay 100% of the difference. (Not sure if it was always that way, or if it was changed along with the retirement system.)
Cites? Dates?
Reagan did make some important changes (that did not apply to Congress, BTW)… he got enacted the “windfall elimination”… where no matter how much you were eligible for, under SS, it would be reduced $/$ if you were a public employee who was in a SS exempt plan agency at some point, and got a pension from that… sweet… our contributions to SS were non-deductible charitable “gifts”… you’re welcome…
https://www.opm.gov/retirement-services/fers-information/
https://en.wikipedia.org/wiki/Federal_Employees_Health_Benefits_Program
Thanks , Ron… appreciate it…
Alan – I could provide a point by point response to Matt and my answer would be the same: There is nothing in what Matt wrote that was not anticipated/laid out in both the fiscal model and the MOUs. I am choosing not to respond because I have learned from you that no response will be met with acceptance. You will simply move to on to the next outrage and ignore any comment that does not fit your narrative. I am done as of Monday. I have fought for what I thought was right and stand by my comments. This will be my last comment on this matter.
Robb, taking a page from your own book … your response above to Alan sounds like “ideological tribalism” that divides rather than brings together.
While I frequently share your frustration with the amount of hyperbole that Alan includes in his comments, falling into the trap of focusing on the messenger rather than the message obscures the meaningful “fracture lines” that we see daily (most often in our streets and bike paths). Ironically, neither the message nor the messenger quoted above were Alan himself … they were me.
Don’t expect an answer . . . he’s done.
I got to the meeting just after Alan P. spoke. Wasn’t sure at the time who they were referring to, but some of the Council Members were seriously miffed in their comments about what he said and were being very defensive about the MOU — I’d summarize the point as “you try negotiating one of these contracts if you think it’s so easy”. I get the feeling from Rifkin, that isn’t the point.
— The Other Other Other Alan
Well said Alan.
I concur with Rich Rifkin, and have added his article to the FBC packet for this Monday’s meeting. Excellent article. As powerful as Rich’s calculations are, they actually understate the increase somewhat. In addition to everything that Rich describes, there is also a new Longevity Pay provision that adds another 2.5% cost for approximately 40% of the employees and 5% per year cost for approximately 30% of the employees. Those longevity increases are not one time bonuses (like many private sector employers provide), and they increase the annual pension amount for the employee by the same percentage.
The Finance and Budget Commission has received a number of e-mails from Davis citizens expressing similar concerns to those raised by Rich in his article. I have also added those e-mails to the packet of Monday night’s FBC meeting (at 7:00 at the Senior Center). Anyone who cares about this issue should try and come to the meeting and express your thoughts about City finances. If you can’t make the meeting but want to be heard send a public comment e-mail to the Chair of the FBC at the e-mail address MATTWILL@PACBELL.NET. Your e-mail will be added to the public record.
Matt: Appreciate the efforts that you, Rich Rifkin, Alan Pryor (and perhaps others) have made to bring this to everyone’s attention. (Each in your own way.)
I also appreciate the work of Matt, Rich and Alan, but I don’t think most Davis voters will notice or care until taxes go up a LOT more…