Public safety contracts a litmus test on budget

(Originally posted on The Alamedan November 28, 2012)

The first sign of whether the City is serious about bringing its budget under control will occur when City Manager John Russo presents his proposed contracts with the public safety unions to City Council for approval, as he has promised to do shortly.

One thing is certain:  Although reducing staffing levels or pay scales might result in significant savings, it ain’t gonna happen.

In September, Council quietly approved renewing a grant from the Department of Homeland Security that enabled the City to retain six firefighters hired two years ago.  The terms of the grant expressly require not only that those six firefighters remain on the payroll for two years but also that the fire department maintain its current staffing levels for the entire period.  So if one of the 97 “operational personnel” declared by the City leaves the job – for any reason – in the next two years, the City must hire a replacement at its expense.

By accepting these terms the City threw the last shovel of dirt on the grave it had dug for a consultants’ report that recommended reducing fire department staffing to 86 sworn personnel.  After the report surfaced, the fire chief, the firefighters’ union president, and even the City Manager pilloried its recommendations without identifying any errors in its analysis.  The report never was discussed in any public forum – and now that the goal of keeping current staffing levels has been achieved, it probably never will be.

The federal grant does not require the City to maintain the same salary schedule, but anyone who bets that the new contract will contain pay cuts probably also believes Rob Bonta will never run for higher office.  The data published by the City shows that 85 fire department employees earned $150,000 or more in salary and benefits in 2011.  Of this number, 22 topped $200,000.  This is the kind of compensation worth fighting for.

And fight for it the firefighters’ union surely will.  Expect to hear that Alameda firefighters make less than their compatriots in – pick a city – and that they haven’t had a raise since 2007.  Preserving the current pay scale is necessary for the City to attract the best.  And, besides, it’s only fair.  Anyone who disagrees will be demonized as deluded and disrespectful.

Consider the example of City Treasurer Kevin Kennedy, who has been arguing for years that the public safety payroll must be reduced to keep the City solvent.  For his troubles, Kennedy has been accused by the firefighters’ union president of “trying to turn this into a political football game” and slammed by the Mayor for – in an ironic choice of words –“screaming fire in a theatre.”  Good thing for him that he was running for reelection as Treasurer unopposed; if he’d stood for Council, he might have had to battle for fifth place.

If staffing and salaries are off the table, the only other area for potential cost savings is benefits.  And this is where it will be necessary to separate the hype from the reality.

Suppose Russo came back with a contract that contained a two-tier pension system.  The formula for new hires would be 2% @ 57 (as opposed to 3% @ 50); pensions would be based on the final year’s pay (as opposed to the average of the last three years), and “spiking” would be prohibited.  In addition, new hires would be required to contribute fully 50 per cent of the “normal cost” of their pensions.

If presented with such a contract, at least four members of Council surely would rain hosannas on Russo for his bargaining skills and on the public safety unions for their selflessness.  Indeed, it wouldn’t be surprising if the Mayor announced that a new spirit of “collaboration” – a current buzzword that apparently has lost its World War II connotations – had dawned in the City.

That would be the hype.  But the reality is that all of the changes in the hypothetical contract are mandated by the new pension law signed by the Governor in September.  Adopting contract terms required by state law hardly constitutes a “concession.”  In addition, all of the changes affect only newly hired employees; for everyone else, the existing terms remain in place.  So, unless and until the City hires new cops or firefighters, the fiscal benefit is: Zero.

The opportunity to seek changes that make a difference does exist, however.  Both employees and employers make annual contributions to CalPERS.  Prior law permitted an employer to get employees to agree, through the collective bargaining process, to “share” the cost of providing certain “optional” pension benefits in addition to paying their own employee contribution.  Using this authority, the City got the public safety unions to agree to pick up 2% — the law allowed up to 5.057% — of the City’s required employer contribution beginning in January 2012.  The new law removes the limitation to “optional” pension benefits; now, it appears, an employer can ask employees to “share” the entire cost of the required employer contribution.

This is where the opportunity for savings arises.  The public safety payroll base used to determine the employer contribution for fiscal year 2012-3 was $23.4 million.  Every additional 1% of the City’s required employer contribution that Alameda’s cops and firefighters agree to “share” thus reduces the City’s pension costs by $234,000.  And there is plenty of room for additional sharing.  For fiscal year 2012-13, the City’s total required employer contribution after existing cost-sharing was 36.7% of payroll.  Negotiate an agreement for the unions to pick up a quarter of that amount and you’ll be talking real money.

And that isn’t all. Retiree benefits provided by the City include not only pensions but also what is called “Other Post Employment Benefits” like medical and dental care.  At present, the City foots the entire bill for OPEB costs for public safety and miscellaneous employees, a total of $2.25 million in fiscal year 2010-11.  But nothing mandates such magnanimity.  Indeed, cost-sharing between cities and unions has become increasingly common.  Were a 50-50 split included in the new contracts for both public safety and miscellaneous employees, the City would save $1.1 million per year.

Getting public safety employees to agree to pay more of the cost of providing pension and retiree health benefits thus actually would produce a fiscal benefit for the City.  And it’s not unreasonable to expect that the new contract will boost the share paid by employees of the required employer contribution to CalPERS.  Indeed, the pension task force – whose members included the police and fire chiefs as well as the heads of the police and fire unions — unanimously recommended such a step.  What will be interesting is just how much more the unions are willing to pay.

There is less reason to be optimistic about reducing the City’s expense for retiree health benefits.  Nine members of the pension task force favored requiring employee contributions for OPEB; four members disagreed.  The dissenters were not identified, but it’s not hard to guess who they were.  And if that guess is right, it doesn’t bode well for the City at the bargaining table.

So here’s your scorecard:  If the new contract produces annual savings of $2 million or more by increasing the share paid by employees of the required employer contribution to CalPERS and by instituting cost sharing for OPEB, chalk it up as a win for the City’s taxpayers.  True, the innovative solutions discussed by the pension task force will disappear from the discourse, but such a deal may be all the Council, four of whose members were elected with public safety union support, are willing to swallow.  But if the contract simply incorporates the requirements of the new pension law and makes a few token gestures toward cost sharing, crank up your turntable and sing along:  Meet the new boss.  Same as the old boss.  We’ve all been fooled again.

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