City to spend most of utility user tax revenue on new employee retirement benefits Menlo Park, posted by Finance Wonk, a resident of the Menlo Park: Downtown neighborhood, on Feb 8, 2007 at 11:43 pm
Today the city issued several staff reports recommending that the UUT tax rate be kept at the maximum rate and that the majority of the funds go to new benefits for city employees.
In addition to pay raises for members of two employee unions, the executive management will also get a 4% pay raise.
Far more costly, will be a 35% increase in retirement pay for the same groups of employees.
The new retirement benefits will mean that the city has to increase its contribution to CalPers to 16.8% of salary from the current 11.5%. (Private employers typically contribute about 8% towards pension benefits)
The city has estimated the direct costs of these benefits in 2008 to be about $1.3M, which is more than half of the projected $2.4M revenues from the Utility Users Tax (UUT).
Mayor Furgesson has placed the pay packages on the consent calendar for next Tuesday's council meeting meaning there will be NO PUBLIC INPUT OR DISCUSSION unless at least two council members object.
It is time that the new council majority started being more accountable to the voters on taxes and spending if they do not want to go the way of the old council majority.
Posted by Roxie, a resident of the Menlo Park: University Heights neighborhood, on Feb 9, 2007 at 1:58 am
The Senior Management should not get a raise. They got a raise in 2005. The City Manager is overpaid as it is. Giving the pay raise and making it affective as of Jan 1 will mean extra money goes into Boesch's pocket before he leaves, as well as Ms. Seymor's and any other senior staff who are leaving soon. Let's just work on getting a new city manager. I don't think it is appropriate to have senior management negotiate salary increases as a block anyway, some have not even been here that long.
I am not opposed to using the UUT money to pay the salaries of people who DO something for the public, like those who take care of our children, protect us from crime, clean our streets, maintain building and safety standards and other true city functions. These are the people who do their jobs and do the well--even when overpaid city managers waste time and money needlessly and try to make up for their mistakes by cutting back on the real workforce.
I think you are mistaken though about there not being public input on consent calendar items. We do have an opportunity to speak on consent calendar items during the first Public Comment near the top of the agenda. After the public comment, the council members can decide to pull con. cal. items for further council discussion before voting.
Posted by Renee Batti, news editor of The Almanac, on Feb 9, 2007 at 11:30 am Renee Batti is a member (registered user) of Almanac Online
Before the election, City Council members and other supporters of the utility users' tax stressed that the tax was needed to prevent further cuts to city services and increases in fees.
I'm curious to hear from people who voted for the tax whether they would have supported it if they knew that the city was considering a double-digit increase in employee retirement benefits. In hindsight, are you willing to pay a new tax at a time the city is prepared to increase its retirement costs by 35 percent?
Posted by Roxie, a resident of the Menlo Park: University Heights neighborhood, on Feb 9, 2007 at 3:28 pm
I voted for the utility tax and still would. Some of our city employees do deserve raises, but NOT the executive management staff.
How did you calculate a retirement costs increase of 35%? The Staff reports for the union contracts estimate the the enhanced retirement cost increase to the city at 3.25%. Are you referring to the fact that the retirement benefit will be 2.7% at 55 instead of 2.0%? That that increase doesn't mean the city will be paying 35% more. CALPERS will be paying the retirement checks to the employees after they retire? the city just pays a premium to CALPERS every year (the added 3.25% in this case). Saying the city costs will rise by 35%, is not correct. Could you clarify what you meant?
Posted by Renee Batti, news editor of The Almanac, on Feb 9, 2007 at 4:04 pm Renee Batti is a member (registered user) of Almanac Online
You're right -- I should have said "at a time the city is prepared to increase its employees' retirement benefits by 35 percent."
Your 3.25 percent figure is off, if I'm reading the report correctly. The staff report said the city asked CalPERS for an estimate of the financial impact on the city of the proposed retirement enhancement; CalPERS "determined that such an enhancement would annually add 5.3% to the employer contribution over a 20-year amortization period." Part of that increase, it appears, would be offset by an increase in employee contribution from 7 percent to 8 percent. Under the proposal, the city's contribution rate would immediately rise from 9.6 percent to 15 percent, according to the staff report.
Posted by VERYMADTAXPAYER, a resident of the Menlo Park: Downtown neighborhood, on Feb 9, 2007 at 4:18 pm
The just agreed to pay increases to managers and retirment benefits increase to SEIU members is just un-conscionable. If this new council votes to approve this outrageous overpayment for services being so poorly rendered, they should be re-called.
With their 4.5 day work week (if they really even work that long), they are being vastly overpaid relative to the private sector right now. Its time to stop this crap.
If this council won't stop this, maybe a re-call is the proper method.
Posted by Anna, a resident of the Menlo Park: University Heights neighborhood, on Feb 9, 2007 at 5:10 pm
Oh, come on, VERYMAD. I'm a bit agitated by this new development myself, but it's so unfair to trash city hall employees across the board like that. The vast majority of my experiences with city employees have been highly positive, and I find them for the most part to be very conscientious and committed to doing their jobs well.
If I'm uneasy about this proposed contract, it's not because I think these folks don't deserve a good salary package, but because I question whether the city can afford to increase its financial liabilities in the area of pensions, which encumber the city far into the future. And, because this is happening at a time city officials --not the rank and file -- have been crying poor mouth and weren't upfront about the city's financial situation until after the utility tax passed.
I'll join the ranks of VERYMAD, however, if the departing city manager gets a penny of the 4 percent increase for top management before he leaves. Although the increase would be prorated and therefore wouldn't involve very much money, such a gesture would be an outrage given the shenanigans that have kept the public in the dark about city finances and other matters. The buck stops with him.
Posted by Responsible Resident, a resident of the Menlo Park: Park Forest neighborhood, on Feb 9, 2007 at 6:27 pm
These are all very thoughtful and informed comments. Indeed, this is the kind of debate that deserves a larger public forum. I commend all the participants.
In that spirit, I offer a suggestion. As we all know, there has recently been a major thrust into the domain of environmental management in Menlo Park. Driven by our mayor, this interest has zipped through the Environmental Quality Commission, which endorsed a staff document entitled: "Environmental Stewartship." Unfortunately, this document does not oblige all of us to actively participate in its goals of greenhouse gas reduction, but,instead calls for task forces and adoption of various goals.
Well, there is something substantive that we all can do in this city and it is simple and immediate. Implement a “carbon tax.” That means every business, every home, every vehicle in Menlo Park that consumes fossil-fuel energy (including the electricity that comes from coal and oil fired power plants) pays an energy use tax. Two benefits: we will be more constrained in our energy consumption, and we will have a tax income. (How it is spent is another discussion.) The UUT could drop the communications portion of the tax, and the “carbon tax” could be added to the now altered UUT. A win-win. We put our money where our mouth is.
Posted by new guy, a resident of the Menlo Park: Downtown neighborhood, on Feb 10, 2007 at 4:20 pm
Very interesting, so lets see how this all happened:
1. Sell us the story of having to cut services (read: police and fire)
2. Get the tax passed somehow.
3. Figure out that the city actually has an increase in revenue (the surplus is our money and should be returned), and not a deficit.
4. Set the tax at the maximum rate for some reason?
5. Use the money for raises and eternal pensions.
So now what to do, lets see:
1. Change the billing address of your cell phone to some other town other than Menlo Park (where you work, etc, or go paperless and use whatever address you want, as long as you pay the bill you will have phone service, trust me). Cell phones are not location specific! That should save my family about $50 bucks a year (read: keep my money from going to someone else's raises.)
2. Change your premium television signal provider from cable to satellite. (I do not have premium television, I use what is called an antennae) but depending on the level, that could save probably $30-$50 bucks a year as well. (read: keep your money)
I pledge to keep pointing out ways to get around paying even a penny of this new tax. As often as possible.
So next time people, please do not fall for the story that the town is going to cut police and fire. IT JUST DOES NOT HAPPEN!!!
Realize that this is just a "cut and paste" strategy that works every time for some reason. Lets not EVER let it happen again.
Just for fun
3. Constantly call and write the other entities that are collecting the tax on behalf of the city, to complain that you want it removed, lowered, and recalculated, request a review, etc. (I threw that one in there just to point out that there are costs involved in the processing of our money.)
Posted by Roxie, a resident of the Menlo Park: University Heights neighborhood, on Feb 11, 2007 at 4:13 am
I’m not sure, but I don't think you are reading the report correctly. Look at page 5 of the Staff Report 07-027 (the m.o.u. with SEIU) in the paragraph titled CalPERS Retirement Benefit Enhancement. It explains that since the 5.3% increase is applied to a benefit, so it costs a bit less than the 5.3%, this estimate is 3.25%. Let me know if you see it the same way as I do after reading that paragraph.
Also, if you read the paragraph above, titled SALARY ADJUSTMENT, you will see that settlement contains no cost of living salary adjustment for the first year, 1% increase in the second year and 2% increase in the third year. Instead of asking for standard cost-of-living increases, the unit is taking reduced pay increases so they can have the retirement benefit instead. You know, they will not be able to get company stock or take advantage of some of the other retirement programs available to workers in the private sector. So you have some people thinking ahead and willing to compromise with the city so that they can do their jobs and continue working for the city without sacrificing their futures. What’s wrong with that?
I think too much is being made of this retirement enhancement and people are not being fair to the city employees, especially considering that CalPERS will be paying the pensions by investing the employee and city contributions.
I do NOT think the City Managers and executive management team should be given 4% raises though, they got their raises in 2006 when others didn’t.
Menlo Park resident
P.s. very mad taxpayer: I think the 4 ½ day schedule city employees have was set up by management to save money, not because the workers demanded it.
Posted by VERYMADTAXPAYER, a resident of the Menlo Park: Downtown neighborhood, on Feb 11, 2007 at 9:39 am
The original intent of the 4.5 day workweek was supposedly to save on utility bills. Howsever productivity of workers in the last hour of their 9 hour days is virtually nill... just watch the parking lot around 5:00 PM and observe how many leave early.
No productive business closes its door every other Friday. How many other cities do this?
The new council seems to want to pursue environmental issues and not do anything about the serious problems that have local implications. They are certainly not impressing me thus far -- howver, I supposed anything is better than the Jellin, DuBoc, Winkler gang.
BTW, I note the City's email server has been out of service for at least the last week. You wonder if this is a method of keeping its citizens from objecting to the UUT and these outrageous pension benefits and management raises.
Posted by Renee Batti, news editor of The Almanac, on Feb 11, 2007 at 2:05 pm Renee Batti is a member (registered user) of Almanac Online
I'm having a problem accessing the staff report from the city's Web site, and my hard copy is elsewhere. I'll post a response to your question tomorrow (Monday) as soon as the Almanac gets clarification from city hall.
Meanwhile, I'd like to echo an earlier post about the unfairness of trashing city employees across the board. In my years of working with city staff, I've found the great majority to be unfailingly conscientious and helpful, and they're working all the harder in recent times because of the drop in staff numbers. I think it is neither fair nor valid to say the staff isn't entitled to a decent benefits package because of "poorly rendered" service. One could fairly debate the merits of the benefit enhancement proposal from several angles, but to my mind poor staff performance isn't one of them.
Posted by UUTsupporter, a resident of the Menlo Park: Central Menlo Park neighborhood, on Feb 11, 2007 at 4:26 pm
Renee, I voted for the UUT because I believe the city needs the additional revenue to invest in infrastructure improvements and planning that prior Council (probably plural) did not fund. The "improvement" for the past fiscal year is skewed because that year the Council did not allocate $2 million for infrastructure even though this same amount was slipped into the current year's budget making it look worse. I hope that budgeting for the remainder of this fiscal year and the next will allocate the FULL amount of any UUT to these efforts.
I am quite displeased that it appears a large portion of the UUT revenue will be applied to ever richer post retirement benefits. These, and pay generally, already are out of line with the private sector. Aren't we actually losing good people because of poor and uninspiring management (maybe this will improve when Boesch departs) or for other normal life events, not primarily because of pay or benefits?
Mind you that I do not begrudge reasonable pay for any hard worker, but I hope the union and management understand that most Menlo Park residents pay these wages and benefits through taxes on their own hard work; many of us have not been paid similarly or received such rich benefits for many years and we probably never will again. UUT or not, city jobs will be lost because many taxpayers won't be willing to keep paying richer and richer benefits.
Another point: please remember that the prior Council pushed for the UUT, and initially both Councilmembers Jellins and Fergusson were to lead the effort to win its approval at the ballot. In his usual lazy and irresponsible fashion, Jellins bailed well before news of possible financial improvements arrived, leaving Fergusson holding the bag. Yes, she led the effort but many others were supportive of the tax.
Also, my understanding is that once the UUT goes into effect, the Council can only lower it but could never raise it. Thus whenever it goes into effect it should be at the highest rate thought possibly necessary at some point over its life.
Posted by Political Animal, a resident of another community, on Feb 11, 2007 at 6:31 pm
Not to ruin a good conspiracy theory, but the tax was put on the ballot by the previous council that campaigned against SEIU and pension benefits. The MOU with SEIU is being approved by a very different council. So the idea that the tax was put on the ballot with the hidden intent of enhancing city employee benefits is wrong.
City workers are giving up most of their salary COLA for the next three years to pay for this pension improvement. The latest one-year change in the Consumer Price Index is 3.1 percent. Assuming this holds steady for the next three years, this means city employees are due a 9.3 percent raise just to keep up with the cost of living. Instead, they are taking a 3 percent raise and a benefit in that's worth 5.3 percent, which translates into total compensation increase of 8.3 percent, which is one percent LESS than a reasonable raise over the same period. Plus city employees are paying an additional one percent of their pay toward their pension and sharing in the cost of their health premiums.
The hysteria around public employee pensions has really gotten out of hand. Let's just calm down and look at the facts.
Posted by DamnedIfYouDo, a resident of the Menlo Park: Linfield Oaks neighborhood, on Feb 11, 2007 at 6:53 pm
You know, I feel sorry for this council. They can't catch a break. In the two months they've been in office, they've sent the city manager packing; it turns out the city budget is fine and the sky isn't falling as the previous council claimed; and they reach a deal with the city employees that is fiscally responsible and requires employees to PAY for the change to their pension plan. It looks to me like they're cleaning house and making some long overdue changes in the way the city does business. That's exactly what I voted for.
Posted by Political Animal, a resident of another community, on Feb 11, 2007 at 7:05 pm
Let's see how John Boyle votes on Tuesday. He made some nice statements after the election about wanting to work together. He can rise to statesmanship, approve this agreement and let the council move on; or he can continue the mudslinging from the election, derail it and exploit this opportunity to attack his colleagues and the union. This is a fiscally responsible deal. Let's if he resist the temptation to give in to political grandstanding.
Posted by Finance Wonk, a resident of the Menlo Park: Downtown neighborhood, on Feb 11, 2007 at 10:30 pm
I am glad to hear some thoughtful dialog on this subject, but I wish that it was taking place in the council chambers, with the council asking some tough questions and the city staff explaining why they think that this is a fair deal.
There have been a few misconceptions stated which I would like to clarify for the sake of the discussion.
The initial cost of the pension benefit is estimated to be 5.6% of salary. The 3.25% someone mentioned is the increase in total compensation costs including the amounts we already pay for pensions and medical benefits.
It is the city, NOT CalPERS that is obligated to pay the new pension benefits. CalPERS merely provides a “savings account” where the city can put the money until it is needed to pay benefits. If CalPERS underestimates the amount the city needs to save, it is the city that is obligated to make up the difference. When the police union got their retirement age lowered to 50 from 55, CalPERS underestimated the cost of the benefit by about 50% and the city had to make up the difference. Also, if the stock market were to decline, the city would have to pay in additional money to make up for the losses. This is the problem with defined benefit plans in general and why even the biggest US companies and the federal government say they can no longer bear the stock market risks themselves and have moved to defined contribution plans plus social security.
The city attorney has stated that the council can raise or lower the UUT tax rate at any time up to the limits set by the voters. Thus, there is no reason to start out at the maximum rate in order to maintain the option of using the tax when we need it.
The total cost of this new benefit package is likely to exceed $15M (taking into account subsequent growth in the payroll) over the next 10 years and cannot ever be rescinded once the council votes on it.
Last week, the council spent over 4 hours debating use permits for a single family home and a childcare center. I find it surprising that the Mayor does not believe that this matter deserves any public discussion at all.
Posted by Political Animal, a resident of another community, on Feb 11, 2007 at 11:36 pm
FinanceWonk, the rate given by CalPERS is the average rate over 20 years. It does not predict what the rate will be this year or next year. During the dot com boom, the city's pension costs were zero. The city saved money. During the latest economic downturn, the city's pension costs went up. Using any one year during this period to make an argument about pension costs lacks credibility. I think using PERS actuarial projection is a reasonable way for the city to make decisions about employee benefits.
The year-to-year fluctation in the cost of these benefits is (or should be) why the city maintains a budget reserve. In bad years, the city should tap its reserves to cover its increased benefit costs. In good years, the city should grow its reserves.
The employees are paying for this benefit improvement. Instead of taking a 9%+ raise to keep up with the cost of living, they are taking a 3% raise, paying 1% toward this benefit, and for the first time sharing in the cost of the city's health plan. A 3 percent raise is a guaranteed savings to the city of at least 6 percent per year. Will there be years when the cost of this pension improvement exceeds 6 percent? Yes. Will there be years when the cost of this benefit is less than 6 percent? Yes. Over the long term, the cost should be roughly 5.3 percent.
I'm starting with the assumption that 9% to 10% is a reasonable amount for the city to spend on employee compensation increases over the next three years since that's roughly how much the CPI will increase. If employees want to take that all in raises, that's fine. If they want to take it all in benefits, that's fine. In this case, the city and the employees have negotiated a deal that splits the pie between wages and benefits.
Posted by new guy, a resident of the Menlo Park: Downtown neighborhood, on Feb 12, 2007 at 7:46 am
I really wish I could understand all of this.
You mean, that people should get a 3% raise every year just for showing up? Wow, that sounds amazing.
Can someone point out to me who I am paying this to and what their job descriptions are, and maybe even if I can get their salary histories, etc.
I just don't get all of this anymore. I mean, I still see trash on the street, homeless people, crime in the newspapers, parks in disrepair, streets that are cracking and full of holes. Why is this, I pay big time taxes, and so do other people.
Like I have said before. I will pay dearly for increased level of service, but payment for showing up, this does not and should not exist anymore.
To let you in on what is really going on:
Change is coming, people new to the workforce will never have experience with a pension, and just maybe if they are lucky, they will have some degree of company matching in their own personally funded retirement plan in which they accept all the risks. They understand that no one will take care of them in the future. The also expect to work for multiple companies throughout their careers.
So what does that mean to all of this:
This model of pay for showing up, retiring early, and getting a fat pension will die. No one will even understand it.
This is the reality of the future. Most towns will go bankrupt to get rid of this entitlement program. Yes this will be a crisis, but it is what is coming. Why should we pay for this town to hang on a little longer than the surrounding towns.
"Analyze the present, look to the future, and get there first"
the new rules part is reality people: (this is the reality us taxpayers face today!)
Old Rule: "Success required a high school diploma."
New Rule: "Success requires a college degree."
Old Rule: "Climbing the ladder meant rising up the ranks within a single company."
New Rule: "Climbing the ladder means chasing opportunities with multiple employers."
Old Rule: "Wealth was managed on behalf of workers."
New Rule: "Workers need to manage their wealth."
Old Rule: "Most mothers expected to stay home."
New Rule: "Most mothers expect to work."
Old Rule: "Competition was limited."
New Rule: "Competition is fierce."
To sum up: The American economy offers you a much higher standard of living then it did in 1979. But to fully enjoy the fruits of this success, you'll need to spend four more years in school, be savvy about switching jobs, carefully manage your stock portfolio, and tap into two incomes, with all of the child-care worries that entails.
So try as you might to hold on to the old ways people..
Posted by Just An Average Joe, a resident of the Menlo Park: Central Menlo Park neighborhood, on Feb 12, 2007 at 10:58 am
"I'm starting with the assumption that 9% to 10% is a reasonable amount for the city to spend on employee compensation increases over the next three years since that's roughly how much the CPI will increase. If employees want to take that all in raises, that's fine. If they want to take it all in benefits, that's fine."
I think you hit upon something, here. There are all these dire predictions about pension fund obligations killing us in the future, so we obviously should be taking that seriously. Also, at least according to Financial Wonk, the city employees already have a healthy pension plan in place (and I always thought that was why people were drawn into gov't jobs, for the good benefits).
Given that, I think this might be more palatable if, instead of increasing benefits, we offered that 9-10% increase PA cites solely in employees SALARY instead of their pensions. After all, with a salary increase, we know exactly what our new obligations are.
Overall, I wouldn't mind if part of the tax goes towards hiring more employees to offer more/better city services or towards going to offer a more competitive wage to existing employees (except management types, like Boesch, who are WAY overpaid), but I think this whole idea of further feathering a good pension plan just doesn't go down my craw quite right.
Posted by MPworkingMom, a resident of the Menlo Park: Central Menlo Park neighborhood, on Feb 12, 2007 at 11:21 am
Wait a minute, New Guy, you are complaining about seeing homeless people and then you go on about how pensions and retirement benefits are a thing of the past?
Call me crazy, but considering the state of social security, the erosion of pension plans and the inadequacy of 401(k) and IRA plans, I predict you are going to be seeing a whole lot more homeless folks on the street in the future.
At this rate, the future is going to look a whole lot like the Monty Python sketch about the gangs of elderly thugs roaming the streets and terrorizing the young people.
Posted by UUTsupporter, a resident of the Menlo Park: Central Menlo Park neighborhood, on Feb 12, 2007 at 3:17 pm
Wow - some great comments here. I also wish this sort of discussion were occurring in the Council hall.
I also don't think it makes much sense to just assume everyone should get an annual COLA increase just for showing up. This assumes the base pay scale is appropriate, which may or may not be. It also assumes that residents who pay taxes are getting these so they can afford to pay. Hasn't there been a local recession, haven't many lost jobs, lost pay, lost benefits? There are a lot of "little guys" who pay these wages and benefits; many have not enjoyed any where close to the job security, permanent pay grade, or permanent level of benefits. We have many wealthy neighbors, but not everyone thinks it's just fine to sign a blank check.
If I heard correctly, the citizen task force related to the budget recommended the city look into these things and got stopped cold by staff and the prior council. Frankly, I think we're taking too much on faith here. And I still supported the UUT at an appropriate rate because I think the city is way overdue doing planning and infrastructure improvements. Hope that's still possible.
Posted by A Guy, a resident of another community, on Feb 12, 2007 at 5:51 pm
One way of estimating the future cost to the city for worker benefits is to look at how much you would have to spend up front if you wanted to purchase the same benefit from the private sector.
Let's plug the numbers into Vanguards annuity calculator and see how much an equivalent annuity would cost. Let's assume we have an employee retiring today after 30 years of service who started working for the city at age 25, and now wants to retire at 55 with 30*2.7% or 81% of final salary for the rest of his or her life. Let's assume for simplicity sake that the worker is a middle manager earning $100K.
To purchase a lifetime annuity that would pay $81K/yr to a 55 year old female, one would have to spend over $1.25 million in today dollars.
I have no idea what the average city employee receives in salary but I dare say that these generous benefits place city workers around the top 5% wealth holders if they work a career at the city even if they never save another dollar in their lives. It's not a bad standard of living to be able to retire at 55 after never having to worry about a lay off when the economy goes soft.
I do thing the rationalization that city workers don't get stock options is completely overblown. The vast majority of rank and file private sector employees in Menlo Park receive stock options that are a very small fraction of anything like $1M if they get anything at all. I know of virtually no new economy companies that pay a pension to rank and file workers, with the vast majority of large companies limiting 401(k) matching to a few thousand dollars.
Posted by new guy, a resident of the Menlo Park: Downtown neighborhood, on Feb 12, 2007 at 7:25 pm
I knew there were people who understood me. I knew it!
I think it is important to understand the reality of newcomers to the town. I recently purchased my first house and now I have the grand opportunity to pay in excess of 12K a year in property taxes. Yes, I knew how much they would be going in.
So what do I see. I see people in need of help (homeless), dirty streets, and crumbling streets and parks. This is what I believe my money should be used for.
So with the UUT, if people still feel that THEY dont pay enough taxes, I am very sure the city and county and fed government will accept your check at any time. But that is not what the people in favor of this tax want. They want me (read: everyone) to pay for what they were told the money would be used for.
So what is the money being used for now? Salary and benefit improvements?
The story is the same every time. When there is money available, the unions go after it. I mean, that is pretty much all they do, its not as if they are fighting for better working conditions anymore. (what else is there, better office lighting, a nicer parking lot, more vacation)
Posted by A Guy, a resident of the Menlo Park: Central Menlo Park neighborhood, on Feb 13, 2007 at 10:50 am
Well, at least there are two of us. Historically I've always thought of myself a pro labor, but I guess the difference for me is that when labor goes up against big B Business interests, you have more of a fair fight. Collective bargaining at its best is just a supply and demand proposition. Ideally if business doesn't want to pay the rate that unions are demanding, they should be free to hire workers who will accept the wages that they want to pay.
That's not the way it works with the city. Supply and demand of labor never come into the picture; only supply of cash comes into the picture. If there's "extra", then the union asks for it.
This racheting up of benefits, first from 2% to 2.7% is something that will not ever be taken away. If a mistake is made with salaries and they get ahead of themselves, well, the city can always decrease the cola in the future. With the benefit increase, it will never leave. Moreover, it won't come back to bite until some number of years in the future, so there's a perception that it's "free" today.
Sure, labor may be willing to moderate their pay increases today, but when today's clerk earning $50K (or whatever it is) in today's dollars becomes a department manager in 15-20 years earning $80-90K in today dollars (much more in future dollar), we'll be paying the benefit on the highest year of salary. My computation above shows that it's not hard for salaries to run this benefit into the million $ per person range.
Well, today's city council won't be around when these pensions are payed out, so they might as well make all the city workers happy today. It's easier then trying to negotiate a fair market labor contract.
Posted by Political Animal, a resident of another community, on Feb 13, 2007 at 9:19 pm
Every employer I've worked for has provided an annual of cost of living increase. Is it really that unusual? What would you propose? That their wages stay the same every year? I'd support that if rents would stay the same, gas prices would stay the same, and grocery bills would stay the same. In this case, city employee wages will fall behind the cost of living by about 6 percent over the next 3 years. The savings will be applied to their retirement pay.
By the way, there's a lot of faulty assumptions being made here. The vast majority of city employees don't earn anywhere near $100,000 per year, nor do they retire with 30 years of service, nor do they promote to management jobs. Costs today only look high in comparison to where they were during the dot com boom, when investment returns allowed the city to pay nothing. But if you compare costs with their historic average, they are completely in line, if not slightly below.
Futhermore, we have to differentiate between pension costs for police officers versus all other city employees. Police officers receive a much better benefit. The rationale is that their life expectancy is lower so they should be allowed to retire earlier. Unfortunately, this distinction has been lost of most people, so the instinct is to tar and feather all city employees with the same brush. Not every city employee is the city manager or the police chief. City employees include guys who pick up trash in the parks and answer the phones at city hall, and I assure you that none of them will be retiring to the life of luxury that some seem to be imagining.
Posted by A Guy, a resident of the Menlo Park: Central Menlo Park neighborhood, on Feb 14, 2007 at 11:11 am
fwiw, I find cola raises perfectly reasonable and appropriate. inflation happens.
Excuse me, however, if I take umberage at your assertion of faulty assumptions. I happened to use an example of a manager making $100K, but my point was as applicable to an electrician earning $65K as an assistant building official earning $105K (figures taken from Palo Alto 2007 salaries since I couldn't find MP numbers online). My only question is how do these benefits compare with workers in the private sector. If an electrician in the private sector works for 37 years and retires at 62, can he really be guaranteed that he will retire with 100% of his salary for the rest of his life? With this benefit increase he will. Somehow I guess that our private sector friend is going to struggle a little more than this. He might even have to put some money aside for a rainy day. That $65K electrian pension would cost over $1M if purchased as an annuity in the free market.
I'm not suggesting that a $65K pension is going to have this guy going to France every week, but anyway you slice it, it certainly puts him in the top 5-10% of wealth holders in this country, and maybe there's not anything wrong with that. It just seems likely to me that it violates supply and demand economics somewhere.
The suggestion that the typical employee is not going to have 30+ years of service is a complete red herring. The total cost to the city will be the same if it has 5 workers who each work for 6 years and then retire at 55 as if it had one worker who works for 30 years and retires at 55.
Another red herring is the misassertion that I was suggesting that the average worker promoted to management jobs. My point was that the average management job is filled by somebody who is promoted from within. Hence each one of these management positions will be paid a retirement benefit that far exceeds any brief pay cut that they might take for the next couple of years since the pension is based on final year of service. And while the average city worker may not end up in a top post, I think that it's reasonable for me to speculate that the average city worker does get promoted to improved positions if they stay long enough.
This retirement benefit will still be with us 20-30 years from now, but the restraint on pay increases is only for a couple of years. Moreover, let me dare to test my prescience: is it not possible that the unions will point out that they have barely had any pay increases over the last couple of years and they are therefore deserving to have their salaries be adjusted to be inline with "surrounding communities"?
I could go on, but frankly I view this benefit increase as fate accompli. The city council will adopt the staff guidance that benefits be increased. My, what an independent source of advice!
It may work out ok, and may end up being humbled. Calpers has done a simply amazing job of getting investment returns that far exceed the vast majority of top money managers. If they continue to, this will all work out. Still, I'd suggest the city put some money away for a rainy day because the 26% contribution that they already had to make for a year in the past, would have been more like a 40% contribution if these benefits had been in place. A few years of Calpers underperforming combined with a weak market, and the tax proposals that will be tossed around will make the UUT look benign.
Posted by Pseudonyms Are Fun, a resident of the Menlo Park: Belle Haven neighborhood, on Feb 14, 2007 at 11:28 am
I read this string and I can't help but think you all are as confused as the city leadership. Some of you say taxes are dedicated solely for increased employees benefits. There are constant examples in this string of inaccurate percentages and ridiculous conspiracy theories...can we at least get to the heart of matter?
Last night I watched on TV this council, staff and citizens debate the numbers with no real answer. I see some councilmembers expressing more discomfort every week with the budget explanations. Staff is having a hard time getting the answers through to everyone...yet we are facing union negotiations and tax debates and development planning...with questionable numbers.
There were some GREAT comments from residents last night until I turned off the TV at 11pm!!! Experienced financial experts and residents really took time to look at the numbers and offer up advice.
Will staff and council heed these words? Will council stand firm and ask for a subcommittee to audit or evaluate the accuracy of the numbers before they make crucial decisions about our next year?
This string is great and you all obviously have issues with this council -- but this problem should not about how you feel about the councilmembers -- or how you can demonstrate your wonkness...this is serious.
We are all confused. Council is grasping for answers. Staff is struggling to explain. In March, this council decides the fate of our next year. I am worried that our smart residents will spend time posting snide wonkisms rather than joining in the effort to solve the problem.
And I think about two councilmembers really get the urgency of this problem.
Posted by ElectionWatcher, a resident of the Menlo Park: Sharon Heights neighborhood, on Feb 14, 2007 at 1:17 pm
Pseudonyms Are Fun:
Actually, I think that "debating the numbers" may be a waste of time as they are all based on a bunch of assumptions and remembering the first rule of computer programming, "garbage in = garbage out."
Let's look at the facts: We are stuck with the pension increase and it was evidently the best we could do - from today's Almanac:
"This is as close to a win-win deal as we could get," said Councilman John Boyle. "Going to a 2.7 [percent] rate was a major concession and a difficult decision. ... We could have played hardball and said 'no,' but in the long-term, it was going to happen anyway." Nearby cities, such as Redwood City and Palo Alto, have increased their respective pension levels to "2.7 percent at 55" plans.
If John Boyle says this is the best we can do, I believe him.
So if half of the UUT must go to cover this increase, so be it. But that is only 1/2 of the UUT, so the question becomes: Do we really need the other half RIGHT NOW (remember, we can always change the rate at any time up to that max value).
The two other questions I have that potentially impact the answer to the UUT question I poise are:
1) What about this "new" (starting last year) $2 million a year for infrastructure maintenance being drawn form the General Fund? First, is this work "justifiable" (I'm sure that, as the head of the Public Works Dept, our new interim city manager will say so, but is it really? - what exactly will be getting and what will we miss if it is reduced/eliminated)?
And second, should the work be funded via the General Fund or via another way (there evidently is a property assessment method that could be used to charge property owners based on the actual benefits they receive that certainly sounds like the best way to go - or perhaps a separate bond measure is in order).
2) What role should the reserve play in all this? Yearly budget projections are conservative in nature - and this has played out in recent years, with the actuals being better than the projected. Given that, if there isn't a "significant" deficit projected for the next year (and let's say "significant" is 5% of the overall budget of $30 million or $1.5 million), then I say we should just go and see how things play out for that year, covering any actual deficit with the reserve.
Point being, I think the reserve should be used as a "balancing device" - some years $ goes in, some years $ goes out, with the balance staying roughly the same over the long term (this approach assumes that the current reserve level is "sufficient," which I assume it is as no one has said otherwise - to the contrary, some feel it is too big for a city our size).
Overall, despite it's passage by the voters (which, face it, would not have occurred if the vote were taken today), there needs to be strong justification for it's imposition at the max level - and I'm just not seeing it, even with the increase in benefits to city employees.