Palo Alto looks to trim managers' benefits | August 31, 2012 | Palo Alto Weekly | Palo Alto Online |

Palo Alto Weekly

News - August 31, 2012

Palo Alto looks to trim managers' benefits

City to require greater pension, health care contributions from 202 managers and professionals

by Gennady Sheyner

While Gov. Jerry Brown and Sacramento legislators scramble to contain pension expenses for state employees, Palo Alto is swiftly proceeding with its own set of pension reforms, the latest of which the City Council is scheduled to adopt Tuesday night, Sept. 4.

The city's proposal targets a group of 202 managers and professionals, the only major employee group that is not represented by a union. If the council were to approve the compensation plan for this group through a resolution, its benefit reductions would mirror those that have been accepted by the city's labor unions.

The management group has seen a major shift in personnel in recent years, as the city has undertaken a concerted campaign to trim employee benefits and require greater contributions from employees toward their health care. Dozens of managers have already retired and, according to a new report from the city's Human Resources Department, many more are expected to do so in the coming years.

Nearly half of the managers' group — which does not include utilities and police department managers, who have their own labor associations — are eligible to retire within the coming five years, according to Sandra Blanch, assistant director of the Human Services Department.

Now, as the city prepares to usher in a wave of managers, it is also looking to change the rules to promote more innovation, even at the expense of stability. The goal is to function more like a private company, with more flexibility and greater contributions from employees toward pension and health care expenses.

"It is no longer a workable paradigm to provide steady employment with a generous pension and health benefits in return for narrowly focused jobs that are carried out with pleasant and courteous service," Blanch wrote in a new report. "Dynamic times call for a workforce choosing to serve the city in order to better their community and to bring city services up to date with current good practices found in businesses and social institutions around the world."

Pension and health care expenses have been taking up an increasing share of the city's General Fund budget over the past decade. While benefits made up about 50 percent of salary in 2010, that ratio went up to 62 percent in 2012.

Among the most dramatic changes will be requiring managers to pay the full amount of the "employee" contribution to the California Public Employees' Retirement System, either 7 percent or 8 percent depending on the retirement formula the employee is enrolled in. Currently, employees pay 2 percent of the employee contribution and the city picks up the balance, according to Blanch.

The city expects the increased employee-paid pension contributions to save the city $271,932 per year. Employees will also now have to contribute 10 percent toward their health care plans, with the city picking up the balance (historically, the city had picked up the entire bill). The new contributions toward medical care are projected to save the city about $109,000 per year.

The proposed compensation plan is consistent with similar reforms that most other labor unions have accepted, with varying degrees of resistance, since 2009. Since then, workers represented by the city's largest labor union, the Service Employees International Union, Local 521, have agreed to increased medical contributions and accepted a second, less lucrative pension tier for new employees.

The city's firefighters and police officers have also agreed in the past year to accept a different pension tier for new employees and increased medical contributions.

In exchange for decreased benefits, the city is offering managers and professionals a salary increase of 3 percent in the new compensation plan. All newly hired managers and newly promoted department heads, assistant directors and other high-level managers will also now have "at-will" status, which means the city can fire them or ask them to resign any time, with or without cause.

In the new report, Blanch notes that managers have already made a series of contributions to help the city save money. These include scrapping a bonus program for managers, accepting a multi-year salary freeze and agreeing to pay for the health care premiums of active workers and future retirees.

In addition to signing off the compensation plan for managers, the council is also scheduled to approve on Tuesday the city's response to a July report from the Santa Clara County Civil Grand Jury. The grand jury recommended a host of pension reforms, including increasing the retirement age for employees; requiring workers to pay maximum employee contributions toward pension plans; and transitioning from "defined benefit" plans, in which pension payments are constant and guaranteed, to "defined contributions" plans.

The Grand Jury report concluded that "until significant modifications are enacted, there is no doubt that the escalating cost of providing benefits at the current level is interfering with the delivery of essential city services and the ultimate cost to the taxpayers is an unbearable burden." It alludes to several cities, including Vallejo and Stockton, that had been pushed to bankruptcy by staggering benefit obligations (San Bernadino had joined this group after the report came out), and cited San Jose, which had to reduce police and fire staffing levels and close libraries because of the rising employee costs.

Even with the recent reforms, Palo Alto officials have consistently returned to the need to do more to limit the city's pension and health care obligations. In July, four council members — Vice Mayor Greg Scharff, Councilwoman Karen Holman and Councilmen Greg Schmid and Pat Burt — submitted a memo calling for a broad community discussion centered on ways to cut employee benefits, which now make up 27 percent of the city's General Fund expenditures.

The memo states that in recent years "the cost of employee benefits and pensions has risen dramatically for the City of Palo Alto, reducing the funds available for our community's necessary and valued services and infrastructure."

The council is tentatively scheduled to discuss this memo and consider future reforms at its Sept. 18 meeting.

Staff Writer Gennady Sheyner can be emailed at


Posted by nieghbor, a resident of Another Palo Alto neighborhood
on Aug 31, 2012 at 9:30 am

I hope PA will tackle this issue, which aso goes well beyond here.

I don't have much confidence in Jerry Brown's overly-dramatized proposal, which I understand would kick in for NEW state employees starting work January 1! There have been comments from pundits suggesting even this modest proposal will be heavily watered down by the state legislature, which is controlled by public sector unions in this state.

What about our CURRENT problems which include an obvious problem of bloated pensions, double dipping, etc.?! There have been many alarming published reports documenting outrageous pension schemes.

This morning on tv news, I caught sight of a report of a former Bell government employee suing for his/her pension, despite the incredible fraud of that whole situation down in Southern California.

Posted by Resident, a resident of Another Palo Alto neighborhood
on Aug 31, 2012 at 9:34 am

Perhaps it is time to evaluate the number of managers a city of our size has.

Perhaps it is time to rethink and say too many chiefs and not enough indians.

Perhaps it is time to see where we can cut costs at the top, shrinking administrative costs, merging with similar departments in the county or neighboring cities, and saving some real money to help us balance our budget without losing service.

Posted by Observer, a resident of Another Palo Alto neighborhood
on Aug 31, 2012 at 9:48 am

There are somewhere around 1100 FTEs on the City's payroll, and maybe 300-400 part time people. Two hundred managers seems like a lot for 900 non-managerial employees. Although this 1 Manager to 4.5 employees has been noted in the past, nothing has ever come of restructuring the organization so that a more reasonable span-of-control could be achieved.

Now this bloating in the management side of the organization happened is probably not something that we can understand unless we looked at a year-by-year change in the head counts of both managerial and non-managerial staffing. Also not clear from this article is how many line managers there are, and how many managers there are with few direct reports.

The City Council has demonstrated itself to be useless in oversee this organization. There simply is no way that we can return any of the incumbents to continue "business as usual".

Posted by Lightfoot, a resident of Greenmeadow
on Aug 31, 2012 at 10:32 am

I know a recently hired, part time employee- who receives all the same benefits of a full time employee. That's quite a perk considering our current budget situation.

Posted by KP, a resident of South of Midtown
on Aug 31, 2012 at 10:36 am


Posted by Jo Ann, a resident of Embarcadero Oaks/Leland
on Aug 31, 2012 at 11:12 am

About time! PA has way more highly paid employees than any surrounding city. There was a great study a few months ago published in the other papers that showed how very high our unpaid benefits were, something like $10,000 per resident for city retirees.

It's not like most of us have pensions unless we own a small hotel in Europe.

Posted by barron parker, a resident of Barron Park
on Aug 31, 2012 at 11:46 am

According to the article, the "most dramatic changes" will be increasing employee contribution to pensions (to 7%) and increasing employee contribution to medical (to 10%), saving the city $272K and $109K, respectively.

Who are they kidding? With a budget of about $120 MILLION and with benefits now equal to 62% of salary (up from 50% of salary in just 2 years), this savings of less than 0.4 Million is a joke. A bad joke. Not even a bandaid.

These largely unfunded, defined benefit programs are totally unsustainable. Any serious attempt to regain fiscal sanity will require employee benefits to be similar to those in the private sector, with 401K style pension programs to which the employees contribute the majority of the savings, and with medical plans that end when the employee quits or retires.

Posted by lazlo, a resident of Old Palo Alto
on Aug 31, 2012 at 11:53 am

...and so the Keene and Klein plan towards privatization of city services moves ahead. So we a big story with lots of references to grand jury's and ass't personnel directors opinions on pensions by the Weeklys writer, but no link to the pension reforms council plans to approve next Tuesday. As many of the private contractors now employed by the city earn three times as much in salary as current Palo Alto FTE's holding the same job title, it will be interesting to see how council and the city manager will address this issue come Tuesday.
Several issues Ms. Blanch writes in her report are very concerning. She calls the current permanent employees working for the City of Palo Alto as not a "workable paradigam" and questions their employment in exchange for pleasant and courteous service. Apparently she has forgotten what Public Service is really about. Maybe that is the problem with current management who were hired to serve the public. Maybe they never expected to serve the public or are unable to grasp what Public Service really means. It is somewhat disconcerting that the Ass't Personnel Director is quoted as belittling Public Service in general along with public service employees, but no response by the Director of Personnel, City Manager, or City Council members is offered in this press release. What a pity!

Posted by Michael, a resident of Downtown North
on Aug 31, 2012 at 12:11 pm

This is mouse nuts.

Making the next generation 1% less screwed by this generation's bureaucratic bloat isn't progress at all. I'd rather not have my kids paying for the fact that the city councils of this era didn't have the spine to stand up to special interests and ended up paying six figures out of taxpayers money to union streetsweepers, and double that for countless management types. The bloat is rampant throughout Palo Alto.

San Jose and San Diego have shown the way. Cut back existing benefits and get all new workers on 401Ks. Better yet, outsource functions to the private sector, where there is competition and accountability: two efficiency drivers that sorely lack in the public sector.

Posted by Jim, a resident of Palo Verde
on Aug 31, 2012 at 4:56 pm

Most calls (80%) for the Fire Dept are medical. Couldn't the city bring in a private paramedic company to answer 911 calls for medical? The city would no longer have to pay benifits and pensions. I'm not saying to get rid of the Fire Dept, but only to cut back on employees we no longer need. Times have change and other cities are doing the same.

Posted by Ex-employee, a resident of another community
on Aug 31, 2012 at 8:57 pm

Wages and benefits will continue to be cut until a tipping point is reached. The San Jose Waste Treatment Plant has tipped over: Web Link it's a shame that Jim Keene and Klien can't see he writing on the wall.

Why did the retirement liability spike? The high number of retirements at the City in recent years.

The manipulation of statistics to make financial situation look much worse than it is. You can do this by comparing the employee costs from when Calpers was super funded to now. Of course it's gone up, in the early 2000s the City was paying zero towards pers. It's normal for employee costs to be a large part of general fund budgets. This is consistent with service industries.

Posted by Just say NO!, a resident of Community Center
on Sep 1, 2012 at 12:38 pm

They don't want to just contract out city services, they want to sell our assets to pay for operating costs. Just say NO!

Posted by new in town, a resident of Palo Verde
on Sep 2, 2012 at 7:25 pm

Has anyone done the math on the typical ratio of municipal employees to population?

Palo Alto sure seems on the high end for both budget and bureaucrats per capita, but it would be interesting to see some figures.

Posted by Ex-employee, a resident of another community
on Sep 2, 2012 at 9:14 pm

Good question new in town.

You have to factor in the fact that Palo Alto runs all utilities. The Utilities Deprtment employes buyers, resouce managers, waste water employees, gas construction, electric construction, engineering for all utilities, water distribution and transmission, and all of the management to support them. The City's garage maintains all of the Utility vehicles.

So you should see that a direct ratio might no work.

Posted by ben, a resident of College Terrace
on Sep 2, 2012 at 10:16 pm

it's a start, but a very small start. much better than our senile governor and his democratis yes men who claim they fixed the pension problem in CA. They did nothing but push the problem off for another day. Nothing they did will have any significant impact (savings) until decades have passed. Pathetic "leadership". San Jose bit the bullet and made hard choices, but will probably emerge better off for it, both for the tax payers and the employees. A bankrupt city pays no benefits.

Keep moving PA, freeze existing pensions, and move forward with a defined contribution not a unicorns in the sky defined benefit pension system. it's a bitter pill to swallow, but the current system, or a slight incremental deviation from it, is unsustainable.

Posted by Observer, a resident of Another Palo Alto neighborhood
on Sep 3, 2012 at 8:44 am

> Has anyone done the math on the typical ratio of
> municipal employees to population?

This is not really a meaningful number, in general. There are too many different governmental structures that have, more-or-less, unique employees/population ratios.

For instance, as pointed out in one posting, the City runs a Utility--which is not generally done in most cities. Menlo Park does not have a Fire Department, as it is a member of a coalition of other governments in a Fire Protection Agency. Many Santa Clara County governments have joined together in a library cooperative--so there are no library employees on those government payrolls. The costs of these government services generally show up on one's property tax bills as separate line items, so they need to be factored into any calculation for a property's cost-of-government numbers.

Posted by Jake, a resident of another community
on Sep 3, 2012 at 3:20 pm

So the Managers are getting a 3% pay raise "in exchange for decreased benefits"?
Many of thePalo Alto'srank and file workers took PAY CUTS in addition to decreased benefits. As usual the managers will not make the same sacrifices they expect other city workers to take!
How they can preach to everyone else the need to tighten their belts, do more with less and be willing to take pay reductions, but then take a 3% pay raise themselves is very telling.

Do as I say and not as I do, should be printed on dept managers business cards!

Posted by Jake is a Fake, a resident of Community Center
on Sep 4, 2012 at 9:33 am

Jake you have no idea what you are talking about and obviously have an agenda.

The managers in the latest round received a three percent salary increase but at the same time will pay as much as 9% towards their retirement plus other cuts. The increase doesn't come close to covering the cuts and they haven't received an increase in 4 or 5 years.

Similary SEIU got a 1.65% increase while at the same time paying and additional 2.25% increase towards their retirement and some other concessions.

In both cases, both groups took concessions much larger than the cost of living increase they got. The city is applying this equally.

get the facts

Posted by Jake, a resident of another community
on Sep 7, 2012 at 11:09 am

"Jake is a fake"

I have the facts, other employees and other units are paying more towards their pension benefits, more towards medical, and those employees ALSO took pay cuts!! Giving the managers a 3% pay raise does not make them equal, the managers also kept benefits other people lost as well like tution costs for continuing education. The managers of course kept theirs. A 3% raise is a raise, the whole point of having employees take reductions is too reduce overall costs. It's not to offset costs by providing 3% raise. Which by the way increases the managers pension benefits because it raises their base pay.

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