A reader wrote recently that she supports my re-election (yea!) and had some questions that she thought might be asked and answered on the campaign trail and in forums. Most of her concerns are about the budget, employee salaries and benefits.
Since 2008 the City has been engaged in remarkable events: the collapse of the financial industry due to reckless and perhaps corrupt behavior which has caused the greatest decline in home values since the Great Depression, high unemployment and a failure of the federal government to address the mortgage meltdown. These national events drive much of the discussion about events in Benicia and it is understandable that people seek answers and solutions.
Regardless of numerous articles and emails I have sent in the last year, questions and assumptions about the same issues continue to come to me. This is positive because it shows the passion and commitment our residents have about Benicia and that is to be embraced and celebrated. For reference, please see several previous articles I have sent on my email newsletter, as well as posted some of them on this blog and on my website.
5/4/2011 - Council seeks to avoid layoffsUPDATE - Recent developments
5/3/2011 - Expect budget action by City Council on Tuesday
4/15/2011 - What's a city to do when the State doesn't?
3/27/2011 - Update of City Employee Compensation web page
1/3/2011 - A steady helm in a stormy economy
At the May 3, 2011 council meeting as reported in the Benicia Herald: "Hoping to avoid further layoffs and departmental reorganization, Benicia City Council asked its staff Tuesday to look at further cuts in employees’ base pay to address the city’s likely $1.7 million budget shortfall.
The Council unanimously agreed to ask staff to reopen the city’s memoranda of understanding with its unions, opening the door to negotiations for a desired 6.9 percent reduction in base wages in hopes of eliminating $1.3 million of that deficit.
The panel decided on a 75-25 percent split, with employees bearing the larger brunt (75%) of the budget cuts. The Council would look to other expenditure cuts — from services to grants — to make up the rest of the reductions.
That percentage split was suggested by City Manager Brad Kilger, who said employee pay takes up about 75 percent of General Fund spending.
During last fall’s cuts to balance the budget, the Council addressed the deficit by making cuts 50-50 between employees and services. At that time, most of the unions agreed to 3.16 percent reduction in pay, but those negotiations included provisions that would let the Council renegotiate employees’ compensation if city revenues continued to drop".
If new negotiations were successful, it would mean employees would have accepted combined cuts of about 10 percent — which may become even steeper for higher-paid staff members.
The Council has been in negotiations with the city labor groups including the city manager, city attorney and senior managers since the May 3rd meeting. In order to avoid unintended messages, council members are not commenting on these negotiations since time is of the essence for addressing the city's budget gap. The next step for council action on the proposed city manager and city attorney salary and benefit reduction of 6.86 per cent is scheduled for next Tuesday, June 7th.
Questions and Answers
The reader who wrote recently would like a few persistent and key questions answered and these will be posted to my website: http://www.elizabethformayor.com/ .
1. What is the status of the present level of contribution of city employees to health care?
The City Council approved contract changes in December of 2010 for all bargaining groups except one (their contract was not open for negotiations last year and they are currently negotiating a succession contract). Under these contracts health care payments by the city are capped and future increases in health care costs are paid for by the employee.
This May 3rd, the Council majority voted to seek $1.3 million dollars in salary and benefit reductions in the contracts subject to reopening (7 of the 8 contracts the city has with labor groups - see above for the exception). With the approximately 6.86% in additional reductions added to last year’s 3.16% reductions, the employees in one year will have taken approximately 10% reductions.
2. What is the status of the present level of contribution of city employees to CalPERS?
The Council approved a two-tier PERS pension program last year for public safety - police and fire. The existing program adopted in 1997 (?) is at 3.0 at age 50 and the new tier that can only (by current law) apply to new hires is 3.0 at 55. Public safety pays the employee share and all other groups pay 1%. The City Manager and City Attorney will adjust the contracts with Council approval on June 7th to pay 4% of the employee portion (the current employee share is 8% which the city pays).
2. Are the city manager and the city attorney salaries and benefits too high?
We are paying less now than paid to the previous city manager and there have been no increases for the city attorney for several years. As noted above, effective next Tuesday (June 7, 2010), we will have reduced the two executive salaries by more than 10% (it is actually more, and details are in the staff report noted earlier). The starting salary for the new city manager was less than the previous and so the added salary and benefits reductions are greater than 10% (effectively nearly 20%).
Our employees are our greatest asset and it is important to recognize that. It is equally important to stay within our budget and maintain city services. That is why we continue to reset salaries and reform benefits. We are very fortunate to have highly experienced and qualified city manager and city attorney which is critical in these difficult economic times. The city manager’s experience in revenue losses and necessary budget changes and salary reductions is invaluable at this time.
The benefit package and provisions for the city manager and city attorney are the same as the last two decades. Changes are underway - see June 7th - and reductions are being made.
Below is a summary of the agenda item for June 7th.
Not unlike most jurisdictions in California, the City of Benicia has identified a structural deficit due to the unprecedented downturn of the economy. The City has identified a structural deficit that is anticipated to continue for the next ten years, with a projected shortfall of approximately $1.7 million for 2011-12. Since the adoption of the budget for FY 2010-11 the City’s General Fund revenues have declined $2.1 million, primarily due to reductions in property taxes, sales taxes, utility users taxes and franchise fees. The salary and benefit reductions for the City Manager and City Attorney recommended in this City Council agenda item are consistent with salary and benefit concessions that are being sought through negotiations with the employee associations representing other City employees. This action will assist the City’s efforts to make ongoing structural reductions in order to address the City’s structural deficit.Data points on a graph can be misleading if there is only one criteria. For instance, if I were to use the last two years for water usage in Benicia and compare to the last ten years, I could demonstrate that Benicians are conserving water. In fact, the last three years have been cooler than normal and without that other piece of data, it would look like we are doing a good job of water conservation. Therefore, when plotting data points one needs to weigh the criteria and other factors. In the last several months, there have been public discussions on Benicia salaries, especially for the city manager and city attorney. The city manager salary is not just based on population. The point is that the range of salaries is based on the size of the budget that is managed, how many services are done by city versus contracted out, the age of the city, whether or not there is a redevelopment agency, physical issues, level of service, community income (for instance Benicia is pretty high compared to all other cities in Solano) and so on. Graphs don't tell the whole story. In the end, the city manager is paid what is competitive for expectations, experience, competency, proven record, and ultimately what the community is able and willing to pay.
RECOMMENDATION: Adopt the resolution approving the following reductions to the City Manager and City Attorney compensation packages: 1) a decrease in the Employer Paid Member Contribution (EPMC) of 4%, 2) a monthly pre-tax deduction toward health care costs, 3) a 2.5% reduction in the City’s contribution to deferred compensation and 4) a 2.27% reduction in salary for the City Attorney and a 2.02% for the City Manager. This achieves a total savings of approximately $37,288 per year, and is the equivalent of a 6.86% reduction in base pay plus associated payroll costs. The average annual reduction per employee is approximately $18,644.
3. Are there further adjustments in overall salaries for the 2011-12 budget year?
This May 3rd, the Council majority voted in a public hearing to seek approximately 6.86 percent reduction in salary and benefit reductions in the contracts subject to reopening (7 of the 8 contracts the city has with labor groups - see above for the exception). With the 6.8 reductions added to last year’s 3.16% reductions, the employees in one year have taken approximately 10% reductions.
This Tuesday the Council will act on the recommendation to adjust the Senior Management salaries and benefits in line with the executive adjustments.
RECOMMENDATION: Adopt the resolution approving an the following reductions to the Senior Managers compensation packages: 1) a decrease in the Employer Paid Member Contribution (EPMC) of 3% for miscellaneous senior management employees and a 4.5% for public safety senior management employees, 2) a monthly pre-tax deduction toward health care costs of $2,535 for the entire group 3) a 3% reduction in the City’s contribution to deferred compensation for miscellaneous senior management employees and a 1.5% reduction for public safety senior management employees and 4) a 2.615% reduction in salary. This achieves a total savings of approximately $99,843 per year, and is the equivalent of a 6.86% reduction in base pay plus associated payroll costs. The average annual reduction per employee is approximately $14,300.
4. Does the City have a second-tier CalPERS retirement plan for new hires?
Yes. The City Council adopted the two-tier retirement for public safety - police and fire - in December 2010 at a public hearing. The existing rate is 3.0 at 50 years and the new hires' rate is 3.0 at 55. Current labor negotiations are on going for other labor groups.
5. Is the City considering an alternative to defined benefits or a supplemental program for defined benefits?
The city currently participates in defined benefits through PERS and does not participate in Social Security which is another kind of defined benefit. Thus the only pension earned by city employees is through PERS. The executives and senior managers as well as public safety have a deferred compensation-type program that functions something like an IRA or 401k (for public employees it is either a 457 or Vantage care program). These programs are separate from PERS and are known as defined contribution programs.
6. How does overtime work and is it necessary?
The Council has been vigilant about unnecessary overtime costs. Beginning in 2004, the Council caped overtime for public safety departments. The city operates a fairly sophisticated staffing and employee shift program maximizing small staff and capping overtime. In other words, if overtime costs exceed a budgeted amount that is determined in yearly budgets, then new hires will be used instead of overtime. Overtime is part of the functions of the police and fire departments and represent efficient and effective staffing and costs. Overtime in other departments vary depending on the operation, especially for the 24/7 operations in water treatment and wastewater. Recent changes have effectively reduced costs in some overtime (as reported at Council meetings) for a savings of over $500,000. Other savings have been realized such as shift reclassification and other managerial decisions. The city manager under direction by the Council is reviewing the overtime programs, changes have been made and further changes are expected. However, recent public comments about excessive overtime have been found to be incorrect - see Dennis Lowry testimony at April City Council meeting. Mr. Lowry publicly committed to retracting his written statements about police and fire overtime, but has yet to do so.
7. What are solutions for the 2011-12 budget that has a $1.7 million shortfall?
At the May 3rd meeting the Council majority voted to reduce the budget gap projected for 2011-2012 through salary and benefits reductions totaling 75% of the $1.7 millon and the remaining 25% - $400k - through city operations. The Council has directed staff to avoid service and program reduction. This will mean approximately $800 thousand must be found (remember the $420 thousand carry over from 2010-2011). While some of the low hanging fruit in savings has been identified, there are other more efficient and effective operation changes available. But it will not be easy and ultimately services will be affected. The planning and budgeting for these reductions are underway and several public study sessions and workshops are planned to help find these solutions. High on the Council's list is the consideration of reorganizing for efficiency and other effective measures. A more robust citizens volunteer program will be considered.
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