Palo Alto trims managers' benefits, eyes more reforms | September 7, 2012 | Palo Alto Weekly | Palo Alto Online |

Palo Alto Weekly

News - September 7, 2012

Palo Alto trims managers' benefits, eyes more reforms

City Council approves new contract with 202 managers and professionals, will consider other benefit changes on Sept. 18

by Gennady Sheyner

Palo Alto took a giant step on its road toward reducing employee costs Tuesday night, when it approved a contract that forces about 200 managers to contribute more toward their pension and health care expenses.

But even as the City Council approved the agreement, members vowed to pursue in the coming months further reforms geared at curtailing the spiking benefit costs.

The new contract with the non-unionized group of managers and professionals achieves concessions similar to those the city recently agreed to with its largest police union, its firefighters unions and with the Service Employees International Union, Local 521, which represents more than 600 workers, about half the city's workforce. It will require managers and professionals to contribute significantly more toward their pension and health care expenses — costs that have traditionally been borne by the city.

On pensions, the management group will now be required to pay the maximum "employee contribution" toward the California Employment Retirement System (CalPERS), the giant fund that administers the city's pension benefits. The employee contribution is either 7 percent or 8 percent of the city's total pension obligation, depending on each employee's pension plan. This would be a major increase from the 2 percent they currently pay.

The 202 managers and professionals will also have to pay extra for medical care under the new contract, which the council enthusiastically approved Tuesday night with an 8-0 vote (Sid Espinosa was absent). While the city has historically footed the entire health care bill, managers and professionals will now be required to contribute 10 percent of the cost. This change is expected to save the city about $109,000 annually, according to a report from Sandra Blanch, assistant director of the Human Services Department.

In exchange for the concessions, the city has agreed to give this group a 3 percent salary increase. Even with this pay bump, the average paycheck will drop by 4 percent because of the increased contributions, said Kathryn Shen, director of Human Services.

"We know this is painful," Councilwoman Nancy Shepherd said toward the end of the discussion. "It's painful for the council, and I really appreciate the management group for making these changes so that we can bring ourselves back into sustainability."

Much of the conversation centered on the city's response to a recent report from the Santa Clara County Grand Jury, which analyzed the unfunded liabilities of each city in the county and concluded that existing obligations are unsustainable. The report recommended a series of pension reforms, including a second pension tier (with a less generous pension formula) for new employees, increased "employee contributions" toward pensions and increasing the retirement age — changes that the city has been gradually adopting since 2008.

The council generally agreed with the report's conclusions and recommendations, even as members acknowledged that their power to implement pension reforms is limited by state law. Several major Grand Jury recommendations, including a switch from "defined benefit" plans (in which a retiree is guaranteed constant and predetermined pension payments) to "defined contribution" plans (in which pension payments fluctuate based on performance of CalPERS investments), cannot be legally implemented without legislative assistance. Councilwoman Karen Holman pointed to these legal barriers as a major reason why the city can't make the types of sweeping changes residents call for but said the council is "doing the best we can."

The council approved the contract with the managers group after a long, broad and extensive discussion about the Grand Jury report and pension reform in general. The topic will return to the spotlight on Sept. 18, when members consider further reforms. The meeting was prompted by a colleagues' memo from Vice Mayor Greg Scharff and Council members Pat Burt, Holman and Greg Schmid. In the July memo, the council quartet pointed to the swelling employee benefits (which comprised 23 percent of salaries in 2002 but increased to 54 percent of salaries in 2010). The memo urged the council to "provide policy direction regarding future reforms and innovation in employee benefits, pensions, compensation and other aspects of employment."

Councilman Larry Klein said Tuesday that among the policies the city should consider at the hearing is whether the city should continue to provide medical coverage to employees' families. He noted that Palo Alto is one of the few cities in the area that has such a policy.

Other reforms that the council could consider is moving toward fixed health-benefit contributions, providing more employee choice in health benefits and encouraging changes in state law that would allow Palo Alto to establish a pension plan combining defined benefits, defined contributions and Social Security.

Chief Financial Officer Lalo Perez said that while the city continues to face a major challenge in curbing the cost of employee benefits, much progress has already been made.

"I think we're being progressive in Palo Alto. We're being leaders," Perez said.

The city still faces major challenges when it comes to unfunded liabilities, he said, but it's not standing still.

"We recognize it and we're taking action," Perez said.

Staff Writer Gennady Sheyner can be emailed at


Posted by What's-She-Been--Smoking?, a resident of Another Palo Alto neighborhood
on Sep 5, 2012 at 6:00 pm

> Nancy Sheppard said: ‘This is hard for the City Council too ..’

You have to wonder what Nancy Sheppard thought she was getting into when she decided to run for City Council. She continues to act like running a City government is nothing more than a big party, where you give away taxpayer funds to your friends, family and the special interests that contributed to your campaign.

Sheppard has never given any sense that she has read a budget, or even wants to. Let’s hope she decides not to run .. as she has been of no benefit to the general population of Palo Alto.

Posted by Frank, a resident of Another Palo Alto neighborhood
on Sep 5, 2012 at 8:15 pm

I'm I reading this right? They having the empolyee pay 7% more towards their pension, but then the city is giving them a 3% raise! When most cities are making the employees pay 10 to 20% more for their pensions, Palo Alto is giving raises. Oh, and the savings is only $109k per year. Nice job city council.

Posted by common sense, a resident of Midtown
on Sep 5, 2012 at 8:16 pm

What's-She-Been-Smoking - For Nancy, it's always about herself, about how much work she needs to do, about how hard it is for her, etc. etc. She's been a puppet of the unions & development special interests, and her votes on issues shows it.

After the infrastructure commission came out with their report, she was a part of the council faction that didn't want to make infrastructure a priority - it would cut into her ability to dole out the city budget to her special interest supporters.

Posted by Neighbor, a resident of Greenmeadow
on Sep 5, 2012 at 9:18 pm

@Frank -- you misread the article. The $109k/year savings comes from the employee contributions to health care. The retirement contributions are in addition to that, although the amount saved is not included in the article.

Posted by guest, a resident of Crescent Park
on Sep 5, 2012 at 10:36 pm

Terminating 100 would be better.

Posted by common sense, a resident of Midtown
on Sep 5, 2012 at 10:36 pm

By giving the managers a 3% raise, their future pension benefits go up, the value of their unpaid sick leave and vacation time goes up, and the liability the taxpayers have goes up as well for the unfunded part of the pension liability.

Posted by David Pepperdine, a resident of Another Palo Alto neighborhood
on Sep 6, 2012 at 10:27 am

This is like throwing a pebble to fill a hole that's the Grand Canyon.
The city bureaucracy is bloated and top-heavy.

Posted by Tyler Hanley, digital editor of Palo Alto Online
on Sep 6, 2012 at 11:16 am

Tyler Hanley is a registered user.

The following comment was moved from a duplicate thread:

Posted by randy albin, a resident of Mountain View, 20 hours ago

how much does it now cost to live in palo alto? there once was a middle class in palo alto. indeed the old days are gone. what in the world?-the bay area is this high in cost of living? no wonder there are odd people up and down university avenue in downtown palo alto. who could have thunk that it would ever be like this?

Posted by Must be nice..., a resident of Charleston Gardens
on Sep 6, 2012 at 11:46 am

"The new contract with the non-unionized group of managers and professionals achieves concessions similar to those the city recently agreed to with its largest police union, its firefighters unions and with the Service Employees International Union..."

The managers new contract is "similar" except for the fact they are getting a 3% raise disimilarly to the line level workers in the other departments. The police officers for example got no such raise.

Web Link

Posted by MEMBER, a resident of Adobe-Meadow
on Sep 6, 2012 at 12:47 pm

THIS IS REFORM!!! When all non-governmental workers have HAD to be covered by Social Security (which is controlled by a Congress that didn't think it was good enough for themselves), Congress,at will can refuse to grant COLA raises. ALSO, we paid taxes on our vacation time and also, if we were sick and got paid, taxes were taken out. Now we are being told that with all the raiding by the Government of this fund, it may not last. At the same time, we are bing told that we will owe thousands of dollars to people who have not even paid into a retirement fund!. We get to watch overpaid management run up enormous benefits -1. SICK LEAVE (wasn't this supposed to be in case you were ill you would still have money for your expenses?) NOT ADDITIONAL PAID VACATION TIME, 2. UNUSED VACATION TIME, AN ADDITIONAL PERK ADDED. It should either be used or lost - it definitely should not not be left to accumulate! AND LAST BUT NOT LEAST, I THINK IT IS TIME TO DOWNSIZE - just try to try to get someone on the telephone - it seems you end up talking to every employee AND YOU STILL CAN'T GET AN ANSWER!!!

Posted by jardins, a resident of Midtown
on Sep 6, 2012 at 1:53 pm

@ Palo Alto Online writer of this article: this AIN'T giants steps!

* 1200 city workers, the article says.
* 200 managers--for that number of workers, and for a city the size of Palo Alto??!! And the salaries of these managers--and the fact that they pay ONLY 9% of their health costs, AND get a 3% pay raise??!!

Ye gods!

NOT giant steps but an ant's single footstep . . .

Posted by Dig Deeper into Mgmt Pockets, a resident of another community
on Sep 6, 2012 at 3:33 pm

"We know this is painful," Councilwoman Nancy Shepherd said toward the end of the discussion. "It's painful for the council, and I really appreciate the management group for making these changes so that we can bring ourselves back into sustainability."

Hell, they never publicly apologized to me for forcing retirement!

[Portion removed by Palo Alto Online staff.] BUT why don't they just take away all the fringe benefits like extra two weeks vacation a year, ability to save vacation pay and put it into deferred comp, tuition reimbursement (which no other employees get), etc. These managers STILL make tons of money. Clean management out like they did to union workers.

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