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Friday, January 23, 2009

City Needs to Press For Restructuring City Employee Contracts During Economic Crisis

Last night the Davis Enterprise had an interesting article on the status of city countrols for the department heads. The city has put on hold the new contract for department heads.
'We just decided to put it on hold while we deal with the budget issues,' said Human Resources Administrator Melissa Chaney. 'There's nothing pending right now.'

That means the seven people heading up the city's departments are operating under the old contract signed in 2005. Under that contract, the city budgets about $1,478,000 for salaries, health benefits, unemployment, workman's compensation and other items for the city's top employees.

'Right now, we're just trying to figure out where we are with the budget and what ramifications are with the current budget and the current fiscal situation,' Chaney said.
More interesting is that several of the bargaining units in Davis have to renegotiate their contracts this year. The city is facing a $1.5 million shortfall this year and up to $3 or $4 million for next year.

The retirement benefit issue has been a heavy topic of conversation on the Vanguard in recent months. The Enterprise article mentions Antioch has gone to a two-tier system which has dropped the formula from 2.7% at 55 for current employees to 2.5% at 55.

The other possibility is that the employees themselves are asked to contribute more to their retirement than they presently do. That is probably going to have to occur as the CalPers system which had been superfunded during the early part of this decade is now running in a deep hole with the struggles of the markets and other problems.

The two-tier system is generally strongly opposed to by public employee unions, so increased contributions for all might be the way to go.

One pressure that the current city management staff and the council are going to have to fight is going to be the pressure placed on them by the bargaining groups to simply extend the current contracts for a few years until fiscal times are better. That would enable employee groups to wait out the current economic downturn and essentially punt on the tough issues.

Instead the city needs to take advantage of this crisis to fix the structural problems with the compensation system--particularly retirement pensions.

The city is going to need to be tough in negotiations this time because there are not only current bargaining issues of a looming budget deficit for the city, but there are structural problems that will end up further stressing the city's fiscal condition.

As the Vanguard reported last summer, employee salaries rose 50% from 2000 to 2008. Total compensation to employees went from $27 million to $49 million over that period. However, retirement pensions fueled by the increase of the pensions to 3% at 50 for public safety have risen nearly six fold over that time. It is that factor that will further strain the city, especially as it has employees retire at 50 and 55 meaning the city may end up paying pensions for decades after retirement.

Is the city prepared to drag out these negotiations until they solve the problems in the contracts?

Looming ominously is a quote from HR Administrator Melissa Chaney:
"We haven't sat down with any of the bargaining groups. We would probably be looking at sitting down with them at this time of year, we just haven't done it yet."
One of the big questions is the extent to which the bargaining process can have transparency. Bargaining itself occurs behind closed doors. However, the city is looking into ways to make the process more transparent.

Under past conditions, the bargaining took place behind closed doors, a contract agreement was reached and the item was placed on the consent calendar for approval by the city council. That means that unless someone pulled the item off the consent calendar there would be no public discussion of the contract and the only time the council saw it would be at the end of the process.

Some possible changes include a status report to the council on the bargaining process given through out negotiations. Having a public presentation at some point along the way about the contract. Requiring the council to approve contracts like they do city ordinances--a full public hearing on the first reading and then a second reading.

One of the important ideas here is to sufficiently put public scrutiny into the process that both sides realize and recognize they have to defend the contract that they have arrived at. What has happened in the past is that the agreement is made behind closed doors and then the city staff become de facto advocates for the contract. That has produced some extraordinarily generous contracts over the last eight years and has allowed city employees to reap huge benefits at the expense of taxpayers and other projects.

The city in addition to the budget deficit in the general fund also is running about $13 million short on a variety of projects--often repairs and infrastructure upgrades--they have referred to these as unmet needs. Part of the reason for the unmet needs is an increasing portion of the general fund goes to city employees.

The city is facing very serious issues and it will be vital that the public be engaged in this process as they are really the only oversight the city has on contracts to public employees. The Vanguard will continue to press for ways to make this process more open and transparent in hopes that the interests of the taxpayers and citizens of Davis are represented in the process.

---David M. Greenwald reporting