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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/CFO lalo.perez@cityofpaloalto.org. 1. Discussion. About Palo Alto What caused the problem? What mitigating actions has the City taken?

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Discussion

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  1. So You Need to Reduce Retirement Costs: Contracting for Reduced Retirement BenefitsCSMFO Annual Conference February 29, 2012 Lalo Perez, ASD Director/CFOlalo.perez@cityofpaloalto.org 1

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

  3. 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

  4. Citywide Pension Expense

  5. Pension Contributions

  6. Citywide Health Care Expenses Growth based on CPI

  7. 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

  8. 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

  9. 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

  10. 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

  11. 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

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