Palo Alto Weekly

News - March 8, 2013

Palo Alto copes with spiking benefit costs

Recent reforms help city withstand rising costs of pension, health care

by Gennady Sheyner

As pension and health care costs continue their dramatic rise, Palo Alto's budget officials can at least take solace in one fact — the city's employee expenses are holding steady despite the two troubling trends.

According to salary statistics that the city released last week, the city's payroll fell by 3 percent in 2012, largely as a result of a leaner workforce and a wave of retirements from some of the most senior employees. The city now has fewer workers and more flexibility when it comes to staffing, which resulted in a major drop in overtime spending. Furthermore, in a significant break from past practices, workers now pitch in toward their benefit costs.

The new numbers, along with financial forecasts that the City Council Finance Committee officials discussed Tuesday night, underscore the success of the labor reforms that Palo Alto has been aggressively pursuing since the economy tanked in 2008. Over the past three years, the city has negotiated new contracts with all of its labor unions that force employees to share the costs of their medical care, which has traditionally been paid for entirely by the city.

Workers also now pay the entire "employee share" of their pension contributions to the California Public Employees' Retirement System (CalPERS), a contribution that has previously been footed entirely by the city. The city's largest union, the Service Employees International Union, and its non-unionized group of managers and professionals have begun paying the full "employee share" last September. The city expects this move to save about $30.5 million over the next decade.

According to David Ramberg, assistant director of the Administrative Services Department, the slight decrease in the number of employees and the new contribution requirements were the major reasons for the city's overall compensation remaining largely unchanged at about $100 million. The city's contribution toward the employee share of worker pensions has dropped from $2.9 million in 2011 to $2 million in 2012, slightly softening the blow from the overall increase in pension payments. The employer share for workers' pensions has risen from $16.7 million in 2011 to $20.3 million in 2012, the new data shows.

The city also expects medical costs to continue their recent climb. The long-range financial forecast assumes a 10 percent annual increase in medical costs and a 4 percent annual increase in dental and vision costs. According to the forecast, the city's average medical monthly cost per employee has been rising every year over the past eight years, going from $609 in 2004 to $1,080 in 2012. The new forecast also includes a glimmer of hope. In 2013, according to the city's data, the medical cost was $1,075 per employee.

The most glaring difference between 2011 and 2012 is among the city's top earners. The number of workers earning more than $200,000 dropped from 22 to 15, while the number of those getting more than $100,000 decreased from 378 to 372. And the list of the highest earners, once dominated by firefighters and police officers, is no longer so.

While in 2011, 12 out of 15 top earners were from the police or fire departments, in 2012, only six public-safety officials made the top 15. One major reason is overtime spending. Last year, the city reached an agreement with its largest firefighters union, the International Association of Fire Fighters, Local 1319, to abolish the long-standing "minimum staffing" provision in the firefighters' contract. The provision, which required at least 29 firefighters on duty at all times, has consistently bumped up overtime spending in the department. Now that the department has more staffing flexibility, that number is dropping.

Christine Paras, principal financial analyst in the Administrative Services Department, told the council's Finance Committee Tuesday that city's overall spending on overtime is slated to drop by 37 percent this year.

"A lot of that has to do with the elimination of minimum staffing and the organizational changes that were done in the Fire Department," Paras said.

Though the city's list of top earner still includes members of the two public-safety departments (Fire Inspector John Parks was the city's highest earner with $288,728 in total wages, which includes $150,125 in overtime pay), most of the people at the top of the list are department heads and other high-level managers.

City Manager James Keene was second on the list with $259,529 in total compensation (most of it is salary). Fire Captain Ryan Stoddard and Police Chief Dennis Burns were third and fourth, with total compensation of $224,883 and $223,004, respectively. City Attorney Molly Stump and Assistant City Manager Pamela Antil followed, with $221,492 and $220,639, respectively.

Staff Writer Gennady Sheyner can be emailed at gsheyner@paweekly.com.

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