This week, Alan Pryor forcefully pushed back against the council placement of two MOUs on the consent calendar and the agreement of an annual two percent cost-of-living adjustment (COLA) for the duration of the contract. While I understand Alan Pryor’s concerns, I find myself in disagreement with his points in this context.
First, addressing the issue of the consent calendar, I agree with Brett Lee – I don’t believe that the council was trying to hide anything, but, for the sake of transparency, I think it is better to have MOUs on the regular agenda even if it ends up being a quick discussion. I understand that, from the council’s perspective, by the time the item comes up for ratification they have already discussed it to death, but this is really the first time that the public has had a chance to weigh in.
There are at least two new concepts here that the council and city have brought to bear and they needed public discussion. 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.
On the other hand, I will focus my comments here on the issue of the two percent annual cost-of-living adjustment.
Alan Pryor raises the point that, every time the voters have approved a parcel tax or sales tax measure, “the council has turned around and given all of that tax money and then some to the employees.”
On the surface there is some truth to this. I think the council did a good job of pointing out that city employees are the ones hired to carry out the service increases. So when the public approves a parks tax, some of the money will go to pay parks staff.
But in a way what Alan Pryor is doing is taking something extraordinary and trying to make it commonplace. The original reference comes from the Vanguard reporting, probably starting in 2008. The city council in 2004 put a sales tax measure on the ballot. It was of course a general tax, so, while it was billed to go to save parks and public safety programs from state budget cuts, the money, 
as the Vanguard demonstrated, went to massive across-the-board pay increases.
The largest of these was a 36 percent pay increase going to fire from 2005 to 2009. But across the board, every bargaining units over a four- to five-year period received at least 15 percent in pay increases.
The effect of this was devastating to the city. It exploded the city’s compensation structure. It created huge unfunded pension liabilities. The economy and real estate market then collapsed in 2008, which made the impact all the worse.
The magnitude of what happened was not effected previously and will probably never be done again. You just can’t compare the impact of a 36 percent pay increase with an 8 percent pay increase that barely keeps up with inflation. This is a key point we need to discuss.
We really are operating in a different world than we were in 2004. There is much more transparency from the council. You have citizens well aware of what happened from 2004 to 2008. We have things like GASB (Governmental Accounting Standards Board) to help us better understand the impact of post-retirement systems. We brought in Bob Leland to help us model the impacts of spending decisions over a 20-year time horizon.
In 2008, the Vanguard began warning the community that the city compensation system was unsustainable. We pounded the issue of benefit reform. We got some of what we needed in 2009 and a lot more in 2013. But the other thing we called for at the time was to allow inflation to help bring salaries back in line with where they had been historically. And, for the most part from 2009 to 2017, there were very few increases to salaries, and what there was took the form of COLAs.
What I would like to see is for the city to produce a chart showing salaries in real dollars over the last ten years. Total compensation has gone up in real terms, but what is happening here is that our employees are actually getting less in the way of benefits, it’s just unfortunately costing us more to provide those benefits.
That brings us to the question of the two percent annual COLA. As I mentioned previously, one of the big changes is that this council brought in Bob Leland to look at our long term fiscal picture and create a model by which to understand our ongoing needs and their impact on the budget. One of his key assumptions was that we would have an annual two percent COLA for city employees.
All of his models were built around the assumption that employees would get a two percent increase in salary each year. The remarkable thing about these MOUs is that the council found a way, and got the employee groups to agree, to make increases in total compensation predictable.
Bottom line at this point, given that we know the impact of a two percent COLA, the fact that it basically keeps pace with current salary levels, and the fact that salary levels have been decreasing in real dollars over the last decade, means I do not believe we should get upset by a two percent annual COLA.
Finally, there are some who believe we should look at another 15 percent reduction in city spending. While I understand where that impulse is coming from, I believe that further cuts to city spending will reduce quality of life and city services. Thus, at this point, I think our focus should be on growing our revenue base – which long term means economic development rather than trying to squeeze more blood out of an old turnip.
Even as early as 2014, former City Manager Steve Pinkerton made the argument that we have a revenue problem in this community at this point, not a spending problem.
What we cannot afford to do is go back to the days of the Wild Wild West of spending increases like we did from 2000 to 2009. We need to be mindful of spending and contain any cost increases.
But to fix the rest of the problem we need revenue. Short term, we may need to figure out ways to raise revenue through tax measures, but, in the long term, it has to be economic development.
—David M. Greenwald reporting
Could the same be true, for DJUSD? Do the same points you make, apply?
Specifically what?
You mean the Steve Pinkerton that is living in very expensive Incline Village and I think retired or close to retirement with hundreds of thousands of dollars per year in pension benefits from his five-year stint working for the City of Davis?
I would not quote any city employee on the topic of city spending. They all have confirmation bias that spending is not part of the problem.
We have both problems. We have 50% of the tax revenue we should otherwise have because of our population of change reactionaries and their destructive direct democracy tool Measure J/R. That is a unique problem. Davis has no equal in all of the the state, the nation, and maybe the world and the universe for our piddly little sales revenue, number of firms and development-allowed space per capita. Our $50M general fund budget is half of what it should be given the needs and expectation for the residents.
The problem of over-compensated city employees is not unique. It is a cancer that has infected almost every city and county in the state… and the state itself. It would also be seen to infecting the national government only for the smaller ratio of employee spending compared the size of the national budget.
The origins of the cancer was the National Association of Letter Carriers in 1889. However, the cancer was not metastatic at that point… staying contained within that government service. There were failed attempts for regional grass roots grabbing of more government labor power like the 1919 Boston Police Strike. But it backfired and gave more power to the politicians that thwarted it.
The infection did start with FDR and his Fair Labor Standards Act of 1938. It was this act that started the labor-politician cartel business. However, Roosevelt was against government employees unionizing and said this in 1937:
It was in 1958 that a mayor of New York, and then next year the state of Wisconsin that planted the great tumor that would grow to eventual destroy almost every municipal budget in the country.
So here we are today. The unions and their political benefactors have done a swell job advancing the brand of government employees as angles, heroes and servants. This has duped voters into continuing to vote for the politicians paid for by the unions and that return the favor by perpetual compensation increases for the government employees. Any rational reflection leads one to the conclusion that government employees are really just employees paid to perform within a certain role… a definition that makes them no different than their peers in the private-sector workforce. And their peers in the private-sector keep getting hit for tax increases that diminish THEIR lifestyle and impact THEIR retirement. They also note the decline in government services and infrastructure and the growing number of government employee neighbors retired in their 50s without a financial care in the world.
We have two choices to fix the mess: 1 – abolish the right for government employees to organize and collectively bargain. 2 – Lacking the will to do this, we should outsource every possible government job to private service providers and reduce the actual number of over-paid government employee on the payroll.
Interesting post… let’s start with some agreement… I adamantly oppose the right to strike, or take other “job actions” for public employees… no “blue flu”, no slow-downs, etc.
So, a government entity should treat each and every employee as it sees fit? No “collective” treatment and no “bargaining”? Just fiat, no meet and consult? Chicago and other cities used to do that…
Might have “merit” (or preclude that)… and be effective in that no competent person would sign up for a position where their compensation was determined by whim, unless they were heavily, politically “connected”. Completely negates the concept of merit-based compensation… nothing new, as unions would not put up with that, either… one of the biggest problems I have with unions, particularly in the public sector…
Howard, is your assertion that before the rise of public employee unions all government workers were not “competent”?
Weird interpretation, that I’ll decline to address, except to note, sounds like a comment made by a public agency union member…
There is no need for collective bargaining otherwise the other 90% of the working world (the non-union taxpayers) could not function. There are professional best practices for establishing market compensation ranges for a given role. The compensation range is generally split into quartiles where more demonstrated capability within a role should be rewarded with merit increases… thus moving the higher-performing employees (which generally also means those with more work experience in the role) into higher quartiles and eventually they can top out. But it is an individual performance thing. Having your butt in the seat for more years should not be the reason for higher pay in a given role. A new hire would be assessed for experience and capability ranked with the existing employees and their pay and placed within the appropriate range. In general you want to hire in the 1st and 2nd quartile to leave room for advancement… but sometimes you find an experienced gem that requires higher compensation.
There is something disconnected with respect to your questions (and it is common in my experience when I discuss these things with people having limited private sector management experience). For example, I am working on hiring a new employee. I engaged a recruiter. I am looking for specific experience and talent in a role. I will have to pay market compensation to attract this person. And I will have to provide quality management/leadership to keep the employee satisfied working for me… including matching compensation growth progress commensurate with demonstrated performance growth and changes in the employment market. If I don’t hire and retain the right talent, I will fail. I will also fail if my company expenses grow too large and destroy profitability. So I am motivated to make sure compensation is in the pocket… not too much, and not too little. And I am motivated to find ways to do more with less. Automation, process improvement, innovation, outsourcing, technology.
The disconnect seems to be an understanding that employees are trading the value of their labor for compensation. Each employee is unique. Don’t like the pay and think it is unfair, then request a raise. If you don’t get a raise you have two choices… accept what you make as your new normal, or quit to go do something else that will pay you what you think you are worth. If you cannot find something that will pay you more, then it is likely that your sense of worth is over-inflated.
Likewise, if you cannot find adequate talent for the job at a given pay level, then it is likely you the hiring manager are not paying enough. If you have a line of qualified applicants going around the block, then it is likely you are paying too much.
Paying too much is another problem… both because you are burning more expenses than required, and because you can end up with deadwood employees… those that are paid more than they are worth in the general job market and will never leave unless forced to leave. That is a terrible place to be in both for the employee and the manager. Pension benefits are included in this. At some point even the employee that has grown disgusted with their job and unmotivated will secure their ass to their chair because of that higher pay and/or their future pension. They will do just enough to keep from getting fired.
To work for me, you have to love what you do because otherwise you will not provide the level of customer service my business and industry requires.
Let’s say I play favorites and give more compensation to the employees that I like. How do you think that will work out with overall employee moral? Good leadership compartmentalizes and seeks objective and market fairness at every decision. You just need to have a robust quantitative and qualitative basis for choice. And an open mind. I have given employees a merit increase that said they expected more. I ask them to explain and I listen. If they make a case, I will given them more. I am not perfect with all decision, so I need to always be willing to listen and not take it personal when I miss something.
Compensation levels are self governing if allowed to be. There is a market for labor. It has a market rate. Employees should all be like independent contractors within the range of the role they fill on the job. Public sector unionization destroys this natural market control, makes the system into a collective where the individual gets buried, and ripens the system for corruption and exploitation.
There is that adage, “what gets measured, gets done.” I think the problem is that city management is not being held to performance standards that meet the goals of the city. It is like a big compensation pool where everyone is swimming in circles trying to stay afloat until they can retire and get the big reward… and nobody is really held accountable for failing to hit performance targets.
Do you have over 300 FT employees?
The City does… your points make sense, but could you handle doing it for 300 employees?
Where the roles are so diverse you’d need to be a SME in multiple roles?
Meant as an honest question…
So, you’re saying only 10% of “the working world” (have to assume you mean the US) are ‘union’ (and they are taxpayers, generally)?
Private sector is full of union employees… pretty much every contractor of any size… Granite, Teichert, Gilotti, any electrical contractor with more than 50 employees, etc., etc., etc.
I don’t for a micro-second believe that 10% claim… unless you have a special definition of “working”… if so, please share…
https://www.bls.gov/news.release/union2.nr0.htm
Don… acknowledge your 10:32 post… but is indeed surprising… I sit corrected (maybe, as I haven’t drilled down)…
Yet, looks like the cite is private sector only (haven’t drilled down)… I guess another interpretation is that anyone in the public sector is not “in the workforce” … they do no work… saying this as someone who has never belonged to a “union”…
What % of DJUSD employees belong to a union?
Another point I may be in be in agreement with… Pinkerton likely “feathered his nest”, locking in retiree medical that would not have been the case in Manteca or Stockton… and, since his new income is from NV, it isn’t considered “double-dipping”… and pretty sure he knew that… pretty much the worst CM Davis has ever had…
He was brought in to do a tough job, and largely did it. That he ruffled a lot of feathers and made a mess of a few things while he was at it was incidental to the main task of slowing the runaway compensation train.
It was just my opinion, based on observations from Howard Reese to Pinkerton… you are perfectly free to have a different opinion…
Seems like you are primarily basing yours on one basic metric… which is fine… I have many metrics, and it seems like you acknowledge there are more than one.
And I stand by my opinion… posted earlier…
“You mean the Steve Pinkerton that is living in very expensive Incline Village and I think retired or close to retirement with hundreds of thousands of dollars per year in pension benefits from his five-year stint working for the City of Davis?”
You mean Pinkerton that presided over the deepest cuts to compensation in 2013?
I don’t think he could have retired with hundreds of thousands in pension benefits from the five year stint in Davis – he’d get 2.5 percent of his final salary times 5 for his tenure in Davis.
No… it was his stints in Stockton, Manteca, and Davis (… he gets just under $132 k/year, plus probably retiree medical… 34+ years of PERS-able service, which might have included “air-time”…
3-get some high-end cannabis related income, build somewhere attractive for these rich retirees & their families to live and more hotel rooms for temporary folks to pay and stay.
That too.
“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.”
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!”
Matt,
So, if I understand the math, and the model has a “built-in” annual escalator of 2%, plus another 2% for the new/future expenses to offset the associated increases in unfunded pension liabilities, then we need a reliable, continuing revenue increase of 4% per year.
Without additional, new increases in local tax rates, does the model show an annual growth in revenues (driven by retail sales and property tax assessments) equal to this 4% baseline assumption in cost creep?
If not – and as the Council is approving these new costs – it seems we are accepting that additional new taxes will be required to fund these new baseline cost increases – irrespective of changes in PERS discount rate, accelerating infrastructure maintenance costs, etc?
Is that the basic strategy for meeting our increasing costs of operations – or have I missed something?
Yes, you are missing something… I think… the model figures a total increase of costs @ 2%… current costs include PERS, other benefits, so 2% applies to both… (if it is valid) Doesn’t seem to be “additive”… but I claim no expertise on the ‘workings’ of the model…
That is separate from the “backlog” issues… but moving forward, have heard (and assume) that the model looks at all “real time” changes, consistent with with current/known rates… (if not, it should)
Howard, at least for salaries and incentives, the Compound Annual Growth Rate (CAGR) reported in the FY 2018-2019 Budget is 3.25%, not 2%. Here are the actual words from page 4-6.
And that is not figured into the model, why? It should be, IMHO… (yes Matt, I understand you neither created, nor are responsible for the model… just saying…
It is in the model … but
— It isn’t in the selected sound bites that have been used in the dialogue about MOUs.
— Nor is it in the selected numbers that appear in the staff reports for the MOUs.
— Nor did it appear at any time in the Council comments that came from the dais about the MOUs.
— Nor does it appear anywhere in the actual MOU agreements.
If the City actually has transformed the employee bargaining unit to “thinking about the contract in terms of total compensation” then it isn’t unreasonable to expect the true cost of total compensation to actually appear in the MOU agreement documents?
Matt… your 11:03 post…
If you mean the “staff reports”, agreed… total expenditures incurred/obligated to, should be openly disclosed, discussed, and be of public record… have 0% problem with that, and strongly believe it is good public policy to do so…
Putting into the texts of the MOU’s, not so much… after all, that discussion,disclosure should be part of the MOU’s discussions, a “fait accompli”
So, if in ‘staff reports’ fully available to electeds, citizens… hell yes… if it is “true costs” (or, likely true costs), not someone’s “spin” on it… one way or the other… there were several different “views” of risk from Nishi air quality for example… and several different “views” of costs and benefits (financially) in the Nishi discussion… in MHO, they should be bracketed, and a reasonable number come up with… just me…
Wow! So, David, this seems rather alarming to me! Any response? I’d love to see Robb Davis’ responses also.
Robb is now “off duty”… suggest picking another target, Mr Prior…
LOL, Howard always seems to be “on duty”.
Et toi, aussi…
I think 2% a year was an assumption by Leland as to what would be a reasonable inflation expectation. It also happens to keep pace with inflation.
Depends on what segment of history you use… the last 7-10 years, it’s fairly good… high side for a number of those years… go back 40 years, not so much… “your inflation may vary”…
But 2% is often used for many things… one of which is PERS pensions… almost all PERS agreements call for an annual pension adjustment of ‘actual rate of inflation, or 2% whichever is less‘.
So, “treading water”… hopefully…
Most government workers are doing better than “treading water”…
https://www.investopedia.com/articles/markets/080416/how-congress-retirement-pay-compares-overall-average.asp
As Matt mentions “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.”
It is hard to find even a single government worker who retires after 30 years that is getting less than the average American gets from Social Security after working for 30 years…
“As usual”, you completely missed my point, and now am starting to believe in “inherent bias”…
David, how does 2% per year “keep pace with inflation” when the actual inflation over the past 9 years has only been 1.2%?
An even larger question revolves around whether “cost containment” means the City is actually trying to reduce its costs or just slow down the rate of growth of its costs. What do you think?
An MOU that would have been to do exactly what Howard has described … use an annual adjustment threshold/standard of “2% per year or the annual Social Security COLA, whichever is less.” That definitely wouldn’t have been “innovative” since it has been used many, many times before, but it would have been creative.
One of the additional problems with the CalPERS assumption of a 2% annual average growth in payroll is that the annual costs CalPERS has assessed the City of Davis as a percentage of Total Payroll has risen from 18.018% in FY 2011-2012 to 36.1% currently. As noted in the MOU language, as well as CalPERS documents, that percentage is projected to rise to 39.7% in FY 2018-2019 and 42.5% in FY 2019-2020.
Some simple math says that the rise from 36.1 to 39.7 is a 10% increase and the rise from 39.7 to 42.5% is a 7% increase. So if the City is going to hit its annual Budget Forecast target of a 2% growth in Total Compensation costs, it is going to have to grow the non-CalPERS portions of total compensation at a rate that is slower than the 2% overall target.
I received an e-mail this morning from a Davis taxpayer that said the following … “Maybe we need a primer on why 2% is not 2%? Many believed that Mr. Leland was brought in to help insure transparency in the budget, not justify traditional practices. Is the norm 2% a year, every year – plus 2% in unrecognized deferred expenses for new pension liabilities? That’s exactly how the hole gets deeper. At least for the sake of transparency, report it for what it is – a new contract with 8.25% increase covering the nexr four years. In addition, ignoring the contemporaneous increase in unfunded liabilities is the height of non-transparency. I thought we’d moved beyond that.”
When I read that e-mail, it made me think of Governor Brown when he announced his 2018-2019 Budget in January.
I know some “official” sources say that “the actual inflation over the past 9 years has only been 1.2%” but I’m wondering if anyone here has seen inflation of 1.2% a year?
While a big screen TV is a lot cheaper than they were nine years ago, we are paying a LOT more for almost everything else cell phone bill, internet bill, health insurance, food PG&E, Davis city services.
From Leland’s analysis: “Other revenues are generally projected to grow at the Consumer Price Index (CPI), which is projected to be 2%. The Bay Area index for All Urban Consumers has averaged 2.51% over the last 10 years, while a broader composite of US Cities, Western Urban and Bay Area inflation indices has averaged 1.87%. The Federal Reserve maintains 2% as their inflation goal.”
David,
I still haven’t read the actual Leland report, but is this your way of answering my earlier post:
Per your comment, if Leland is projecting a 2% annual growth in revenues, and its being offset by a projected 3.25% annual growth in compensation expense, then the logical conclusion is that Council’s strategy for meeting our increasing costs of operations will rely principally on the increase of local taxes and tax rates.
Sorry, but this really doesn’t seem like a strategy.
Answer is no. That’s part of the key finding, we have a deficit of about $8 million annually over 20 years that we have to find a way to close.
While we are talking about cost containment, the following quote is from page 4-5 of the Forecast chapter of the FY 2018-2019 Proposed Budget document (you can see that chapter by clicking on this LINK).
What does that tell us?
(1) it tells us that 2% isn’t really 2%, it is 3.25%.
(2) it tells us that if we actually achieved enough increase in productivity in our City operations to avoid adding the 1.00 FTE per year, 2% would actually be 2.83%.
(3) it tells us that if we actually achieved enough increase in productivity in our City operations to actually reduce our staffing by 1.00 FTE per year, 2% would actually be a bit below 2.5%.
If you add in Howard’s suggestion that the annual COLAs be “2% per year or the annual Social Security COLA, whichever is less” we might actually get to a point where 2% really is 2%.
You misquoted me, but know what you mean… no harm, no foul… as a retiree, my annual adjustments have been as low as 0.1% (rounding up)… and am good with that…
My bad. Sorry about that.
Howard’s actual words were “‘actual rate of inflation, or 2% whichever is less‘.”
I think the words I used “2% per year or the annual Social Security COLA, whichever is less” have the same meaning as Howard’s, just with a specific definition of the term “actual rate of inflation.”
You are correct on both, and I reiterate, “no harm, no foul”… you did capture the gist…
Also, please note that SS does not currently have the 2% “cap”… it will follow inflation (not sure which index) to 5-8-12%… until it goes “bust” (or folk like me are additionally taxed to prop it up)… SS is a “ponzi scheme” (and, a form of ‘defined benefit’ and ‘defined contribution’ [irrespective of inflation], BTW), and those under it aren’t required to pay in beyond $127 k/yr… thanks to Reagan, my contributions (several thousand dollars) is a ‘charitable’, but not deductible, “gift” to that system, as I’ll not see one cent of it.