No wage stagnation to worry about here, Bernie (plus: Muzzle off!)

“Stagnant wages.”

If you’ve been listening to Bernie Sanders’s campaign speeches – any of them – you’ve heard the phrase.  According to the Senator, it is “profoundly wrong” that, even as the “billionaire class” rakes in the dough, wages for ordinary workers aren’t rising at all (or at least not enough to keep pace with inflation).

One can debate whether the indictment is true across the board.  But there is one group of workers it doesn’t fit:  those employed by the City of Alameda.

During the last four years, the current and former Councils have approved contracts granting two rounds of wage increases to both the firefighters and cops and the approximately 210 employees represented by the Alameda City Employees Association and the Management and Confidential Employees Association.  As a result, all City workers – “sworn” and unsworn – received a 4.1% raise on January 1, 2015.  Public safety employees (and maybe administrative employees, too) got an even greater pay hike – 4.36% – on January 1, 2016. [After this column was published, we learned that the City gave raises to the ACEA and MCEA employees in January 2016 using the “revised” BRI formula discussed below.  The wage increase was 3.38%]

(By way of comparison, the Consumer Price Index – Urban for the Bay Area rose by 2.8% in 2014 and 2.6% in 2015).

What’s more, City workers will continue to get annual raises in the near future, regardless of how well, or poorly, the economy generally, or the City specifically, performs.  Indeed, they’re guaranteed to do so.  And if the total of certain specified municipal revenues goes up, wages will follow along, regardless of whether, or how much, expenses escalate at the same time.

The pay plans for public safety employees and other workers employed by the City are similar.

Both groups are guaranteed minimum raises in 2017 and 2018:  2% each year for the firefighters and cops; 3% each year for the administrative employers.  Likewise, depending on the increase, if any, in the total of the revenues specified in their contracts, both groups can get annual raises exceeding the minimum:  up to 5% for the firefighters and cops; up to 4% for the administrative workers.

The cost to the City consists not only of the wage increases themselves, but also the additional contributions the City will be required to make to CalPERS to fund employee pensions.  Based on the contribution rates in effect for fiscal year 2016-17, a $1 pay raise for firefighters and cops costs the City $1.49 in wages and benefits; for other employees, $1 in additional pay results in a $1.21 cost increase.

When the former Council approved the first round of wage hikes for public safety employees in December 2012, staff estimated the contracts would increase the City’s labor expenses by $6.185 million.  When the current Council handed out the second round of raises in April 2015, staff put the tab at between $6.25 million and $9.8 million (depending on whether minimum or maximum raises are paid).

We couldn’t find any cost estimates in the staff presentations for the first round of wage increases for the administrative employees, which were approved by the former Council in June 2012.  But the staff reports for the second round estimated that the contracts approved by Council last month would increase labor expenses for employees represented by ACEA and MCEA by $2.83 million.

Whom do the firefighters, cops, and other municipal employees have to thank for their fatter paychecks – or, to put it another way, whom should Alameda citizens hold responsible for the City’s burgeoning labor costs?  The unions and employee associations who negotiated the deals, and the politicians who signed off on them, top the list.

But if one reviews the history, it turns out that the real wizard behind the curtain is none other than our old friend, former City Manager John Russo.  (Former Interim City Manager Liz Warmerdam has played a somewhat different role – more on that later).

Back in June 2012, Mr. Russo introduced the concept of the “Balanced Revenue Index” into the determination of the wages paid to City employees.  Under this approach, municipal revenue in five categories – property taxes, sales taxes, utility users taxes, transit occupancy taxes, and property transfer taxes – would be added up for the most recently ended fiscal year.  If the total exceeded the total for the prior fiscal year, the employees would get a percentage raise equal to half the rate of revenue growth (subject to the minimum and maximum levels).

Thus, for example, in FY 2013-14 revenue in the five categories totaled $54,489,962.  This exceeded the FY 2012-13 total by $4,102,991 – an 8.1% increase.  Under the contracts approved in June and December 2012, the firefighters, cops, and administrative employees got a raise equal to half this amount – i.e., 4.1% – effective January 1, 2015.

At first glance, the BRI concept may look like a corporate profit-sharing plan.  But it’s not.

The major difference between the two is that, under the BRI approach, employees share in increases in revenue, not increases in profit.  If a private business loses money even though its revenues have increased, the employees get nothing under a profit-sharing plan.  But in such a situation City workers still get the minimum raise – and they may get even more based on the increase in revenues alone.

Suppose that, in any given year, the total BRI revenues rise by 10% but expenses increase by 20% (if you think this can’t happen, you don’t know CalPERS), and the bottom line is a $10 million deficit.  Under the BRI method, the firefighters and cops nevertheless would get a 5% (and the other municipal employees a 4%) raise.

The rationale offered for corporate profit-sharing plans is that employees should be rewarded if their efforts enable the business to do well.  That rationale simply doesn’t apply in the municipal context:  property taxes don’t go up because City employees are working harder; they go up because property values are rising.

Except for former Councilman Doug deHaan, Mr. Russo had an easy sale when he first proposed the BRI concept to the labor-friendly Council led by Mayor Marie Gilmore.  The City Manager cleverly turned Mr. deHaan’s comment that he had never heard of such a method being used by a public employer against him.

“The fact that no one else has done it, we should be proud of that,” Mr. Russo said.  “It’s terribly innovative because what it does, it creates a true partnership and an understanding between management and labor that there’s only so much money – these costs have to be met in some way that’s fair and that has a fair glide path – but if, on the other hand, times get better you’ll share with us.”

Which, not surprisingly, evoked hearty concurrences from Mayor Gilmore, Vice Mayor Rob Bonta, and Councilwoman Lena Tam.  All three agreed that the BRI approach represented the beginning of a “partnership” between the City and its employees – and thanked the unions for agreeing to tie the knot.

Brushing aside Mr. deHaan’s concerns, Council then approved contracts employing the BRI formula for administrative employees.  Six months later, the majority gave Mr. deHaan equally short shrift when it okayed the public safety union contracts incorporating the same method.

But, for the next round of contracts, skeptics emerged.  They focused particularly on the inclusion in the BRI of property transfer tax revenues, which were subject to one-time spikes arising from the sales of large parcels.  Such spikes would skew the BRI total upward, resulting in higher wage increases, now and in the future.  (The data proves the point:  the BRI rose by 3.6% in FY 2012-13, 8.1% in FY 2013-14, and 8.72% in FY 2014-15; had property transfer tax revenues not been included, the BRI increases would have been 2.48%, 6.59%, and 6.75%, respectively).

City Treasurer Kevin Kennedy – undoubtedly exceeding his Charter authority, at least in the mind of City Attorney Janet Kern – was the first to identify the problem.  When the second round of public safety raises was up for consideration last April, Mr. Kennedy urged Council to delete property transfer tax revenues from the BRI.  Including that item “is a flaw,” Mr. Kennedy said. “It should be out.”  He added: “I hope it’s not too late.”

But it was too late.  This was Mr. Russo’s last Council meeting before leaving for Riverside, and the new public safety union contracts were his parting gift.  (To whom is a matter for debate).  No one on Council took Mr. Kennedy up on his suggestion.  To the contrary, Councilman Jim Oddie declared that any changes by Council to the terms that the unions had found acceptable would constitute “regressive bargaining.”

Nevertheless, the seed had been planted.  Two months later, during Council’s budget discussions, Councilwoman Marilyn Ezzy Ashcraft brought up the issue of removing property transfer tax revenues from the BRI.  Ms. Warmerdam responded that such a move “would have to be negotiated with the bargaining units.”

And then she proceeded to do just that.  She couldn’t re-open the public safety union contracts that Mr. Russo had just pushed through Council.  But the contracts with the administrative employees were about to expire.  For the new MOUs, Ms. Warmerdam retained the BRI concept, but she persuaded each of the six bargaining units, including ACEA and MCEA, to let the City take property transfer taxes out of the index.

In addition, she got them to agree that, if a greater-than-minimum raise was due under the BRI formula, employees would receive any amount above 3% “in the form of a one-time nonPERSable stipend.”  This not only would save pension expense, but it would limit the compounding effect of a series of annual raises.

According to the staff report, the revisions engineered by Ms. Warmerdam will save the City about $685,000 over the term of the contracts.

(Having seen these figures, we couldn’t help but speculate about what might have been had the new BRI formula been used in the last two years.  If property transfer taxes had been excluded from the BRI, the wage increases for 2015 and 2016 would have been 3.3% in 2015 and 3.38% in 2016 rather than 4.1% and 4.36%, respectively.  For sake of argument, assume a total City payroll of $50 million.  Under that assumption, the revised approach would have saved the City nearly a million dollars in wages alone).

The contracts with the administrative employees run through December 2018, but, thanks to Mr. Russo, the public safety union contracts don’t expire until December 2021.  Maybe by that time, Jeff DelBono will be mayor, and no price will be too high to pay for “labor peace.”  But if not, the next time the contracts are being negotiated, we’d urge the City’s representatives to follow Mr. Kennedy’s and Ms. Warmerdam’s lead in endeavoring to protect the interests of all Alamedans in responding to employee demands for wage increases.

Muzzle off!

The Muzzle Law is dead.

Or it will be if Council plays along Tuesday with the face-saving ploy devised by the City Attorney and her staff.

Our readers will recall that City Attorney Janet Kern had proposed a law – ironically, as an amendment to the Sunshine Ordinance – prohibiting City boards and commissions from taking any “formal action” or “undertak[ing] any activity” that “contradicts a policy or a position that the City Council had adopted or expressed.”

The proposed Muzzle Law was prompted by an incident that occurred during the battle to save the Crab Cove parcel from residential development.  From the outset, City officials tried to wash their hands of the matter by insisting that the dispute involved only the East Bay Regional Park District and the federal General Services Administration.  But the Recreation and Parks Commission unanimously voted to send a letter to the Mayor requesting that Council step in and re-zone the land to open space.

This request did not sit well with Mayor Gilmore, who reprimanded the Commission for speaking up.  “As a body established by the City Council,” Ms. Gilmore declared, the Commission “must not take any action that is in direct opposition to the legal position of the City.”

Ms. Gilmore, of course, was voted out of office in November 2014, but the point of view she espoused lived after her.  The City Attorney included the original version of the Muzzle Law in the proposed amendments to the Sunshine Ordinance presented to the Open Government Commission in February 2015.  Two newly appointed OGC members, Paul Foreman and Irene Dieter, opposed the ban, but the next draft contained essentially the same language.  Again, Mr. Foreman and Ms. Dieter objected, but the City Attorney kept the Muzzle Law provision in the version of the proposed amendments presented to Council in October.

The elected officials punted.  The minutes reflect that, after a meandering discussion, Councilwoman Marilyn Ezzy Ashcraft suggested that the Muzzle Law provision “should go back to the drafters for clarification.”  Mayor Trish Spencer closed the item by stating that “staff will come back with revised language based on Council comments.”

Contrary to Council’s direction, the drafters in the City Attorney’s office did not revise the Muzzle Law for clarification based on Council comments.  Instead, when they presented a new version of the proposed amendments to the OGC, they just took out the offensive language altogether.  Moreover, rather than owning up to having pushed a pernicious policy, they told the OGC that the Muzzle Law provision had been deleted because “City Council agreed with the Commission” not to include it in the amendments.

The staff report to Council signed by Ms. Kern contains a virtually identical, and equally misleading, description of events and statement of reasons.

Whatever.  If revising history makes it more palatable for the City Attorney finally to abandon her campaign to force boards and commissions to toe the party line, so be it.  The important thing is that the Muzzle Law is dead.  Now if we could just think of some way to make it easier for Ms. Kern to give up her attempt to get Council to conduct as much of the public’s business as possible in closed sessions. . . .

Sources:

IAFF Local 689 contracts: 2013-17 MOU2015-04-29 Ex. 4 to staff report – Redlined version of MOU between the City of Alameda and the IAFF

ACEA/MCEA contracts: Redline Version of ACEA MOURedlined Version of MCEA MOU

Staff presentations re IAFF contracts: 2012-12-11 presentation re new MOUs2015-04-29 Presentation – REVISED

Staff report re ACEA MOU: 2016-02-24 staff report re ACEA MOU

BRI computations: BRI Calculation for 2014 and 2015BRI calculation for 2016

Proposed Sunshine Ordinance amendments: 2015-10-06 Ex. 1 to staff report (Sunshine Ordinance Redline with Explanations)2016-02-06 Ex. 1 to staff report to OGC (Redlined Ordinance)2016-04-05 Ex. 1 to staff report – Sunshine Ordinance Redline

Staff reports re proposed Sunshine Ordinance amendments: 2015-10-06 staff report re Sunshine Ordinance2016-02-06 staff report to OGC2016-04-05 staff report re amendments

About Robert Sullwold

Partner, Sullwold & Hughes Specializes in investment litigation
This entry was posted in Budget, City Council, Firefighters and tagged , , , , , , , , , , , , . Bookmark the permalink.

6 Responses to No wage stagnation to worry about here, Bernie (plus: Muzzle off!)

  1. nyborn2013 says:

    Robert. To “muzzle” commissions and boards would eliminate the need for them. The commissions and boards represent the citizens and in some ways help protect those citizens from Council. Council members certainly do not have all the answers. They act based for various reasons and they are not always in the best interest of the citizens of Alameda. We should be thankful that the City Attorney and Council backed away from the “Muzzle” law. I think I recall the Crab Cove issue and that ARPD commission stood up against the bad decision of Mayor Gilmore and the Council at the time. I don’t recall how it all came out, but I was pleased to hear they had the best interest of the rest of us.

  2. dave says:

    Does anyone have a current spreadsheet of city salaries? Last one I saw is a few years old.

    Specifically, trying to learn avg. comp of public safety employees/

  3. MP says:

    Question re the public safety contracts (asked without reading them): Does an increase in “BRI”, including property transfer taxes, result in a wage raise, but a decrease in “BRI” results in no adjustment? With the public safety contract terms apparently ending in 2021, how much of the planned new housing will likely be sold in that period and is a significant increase in revenue from property transfer taxes caused just by first time individual sales anticipated in that period? The budget numbers for the fiscal year ending in June 2015 released in March showed that “real property transfer tax increased $1.5 million or 22% compared to prior year due to appreciating home prices and change of ownership”, without specific mention of new revenues from first time sales. Is it anticipated that real property transfer taxes will level off or decline once the new housing is sold. In other words, will first time individual sales of the new housing cause a spike in “BRI”, without a long-term elevated revenue stream to support it (even before looking at the cost side of the ledger discussed above)? Sure there will be more individual properties in circulation going forward, with a consequent increase in property transfer tax revenues compared to today, but doesn’t the BRI get skewed upward by a lot of first time sales that will taper off as turnover in the new properties falls is reduced to rates typical of all residential?

  4. MP says:

    Thanks for the link. You and Russo are probably right, but I detected ever slightest bit of uncertainty in your presumption about how to apply in this case the rule construing ambiguities against the drafter: “Ordinarily, any ambiguity is construed against the drafter (which, in this case, I presume was the City).”

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