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So You Need to Reduce Retirement Costs: Contracting for

Reduced Retirement Benefits

CSMFO Annual Conference February 29, 2012

Lalo Perez, ASD Director/CFOlalo.perez@cityofpaloalto.org

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Discussion

• About Palo Alto• What caused the problem?• What mitigating actions has the City taken?• What resulted from the changes?• Lessons learned• Resources

City of Palo Alto Data

• 1,016 FTE• 7 Labor Groups – Including 4 safety groups • Binding arbitration for safety• Salary and benefits account for 64 percent of general

fund budget• Enterprise Funds include: electric, gas, water,

wastewater collection, wastewater treatment, refuse, storm drain, fiber and airport

• 9 Council Members elected at large

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Citywide Pension Expense

Citywide Pension Expense

$6.1$4.8

$3.8$2.4

$15.6

$18.2$19.5

$20.8$22.9

$20.0 $19.5

$23.3$24.8

$28.9

$6.9

$28.5

$0

$5

$10

$15

$20

$25

$30

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Mil

lio

ns

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Pension Contributions

Miscellaneous Plan Public Safety Plan

Fiscal Year EmployerEmployee

(City Paid) EmployerEmployee

(City Paid)

2009 17.005% SEIU, MGT - 6% 24.512% All groups - 9%

         

2010 17.063% SEIU, MGT - 6% 23.938% IAFF - 0%*

        FCA, PMA, PAPOA - 9%

2011 17.555% MGT - 6% 24.695% IAFF - 0%

    SEIU - 2.25%   FCA, PMA, PAPOA - 9%

2012 21.725% MGT - 6% 30.125% IAFF - 0%**

    SEIU - 2.25%   FCA, PMA, PAPOA - 9%

2013 22.970% MGT - 6% 31.050% IAFF - 0%

    SEIU - 2.25%   FCA, PMA, PAPOA - 9%

2014 23.300% MGT - 6% 31.500% IAFF - 0%

    SEIU - 2.25%   FCA, PMA, PAPOA - 9%

* IAFF members began picking up 9% of these costs in exchange for a 9.9% salary increase. ** Employee pays

Citywide Health Care Expenses

$0

$5

$10

$15

$20

$25

$30

$35

Mill

ion

s

Active Employees Retirees Retiree Medical Liability

Growth based on CPI

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Compensation Changes

• New miscellaneous employees 2%@60 – July 2010• Increased non-management employee share pension

contribution to 5.75% of 8%• Eliminated bonus plan for Managers• Switched from 100% paid medical premiums to 90%• 3%@55 for Safety Labor groups along with 3 year

average salary – Firefighters agreed• Proposing Safety Labor groups pay 9% employee

pension contribution share – Firefighters agreed

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Impacts

• Experienced large number of retirements due to medical premium contribution requirement

• Limited impact to attracting new employees• Problems in re-hiring former employees: PERS Plan

will allow only two active formulas• New pension formula and 3 year average final

compensation only for new employees• Adjusted salary for some key positions• Some candidate pools have sufficient qualified

candidates but not many laterals with experience

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Positions Recruited

• Hired City Attorney, Library Director, CIO, Accounting Manager, and Wastewater Quality Control Plant Operator

• Hired Planners, Asst. to City Manager, Sr. Financial Analyst and other positions from higher pension formula agencies

• Difficult recruits: Dispatchers, Lineperson and Power Engineers

• Challenging hires: Asst. Planning Director, Budget Manager and Sr. Technologist

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Conclusion

• Required increased communication and explanations with all involved

• Prepare a Long Range Financial Forecast and recognize that savings are long-term

• Compensation plans need flexibility for unique needs• Ensure transparency throughout process: 2%@60

becomes 2.418%@63 – impacts are mostly to new employees

• Impacts of two-tier pension and medical premium cost sharing can be mitigated

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Resources

• Link to Palo Alto website re: Labor Negotiations Update http://www.cityofpaloalto.org/knowzone/labor_negotiations/default.asp

• Power Point Presentation to Council on Last, Best, and Final Offer http://www.cityofpaloalto.org/civica/filebank/blobdload.asp?BlobID=17507

• Staff Report to Council Requesting Adoption of Imposition of Terms http://www.cityofpaloalto.org/civica/filebank/blobdload.asp?BlobID=17511