City Gambles It Can Achieve Pension Reform Outside of Collective Bargaining Process
Written by David Greenwald Tuesday, 02 February 2010 05:32
The Vanguard along with Councilmember Sue Greenwald and Lamar Heystek have criticized the contract agreements that have come forth out of the collective bargaining process in part because they have failed to take on the most serious of the structural problems. Much time has focused on city pensions that exploded in the last decade as the city expanded their PERS coverage for public safety employees giving them 3% at 50 and giving other employees 2.5% at 55.As Councilmember Heystek said following the approval of the firefighter contract in December,
"The biggest problem that I have with the contract is that it does very little to address our structural challenges in any meaningful way and it sets the tone for the contracts that we are poised to consider and adopt in the very near future."He continued:
"Things that concern me the most are those things that some of us would trust future councils to go farther on. The issues of vesting or new hires, retiree medical benefits, the sharing in the decrease in PERS rates, etc. All these things, we tell that we are going to give them a letter and tell them this is what our thinking was and this is what we would do in the future. There is nothing to guarantee that any of us will be on a future council to effect any change. So when we say that we're going to have to count on future councils to continue and carry the torch, I can't as much as I'd like to trust people who are following us to do that kind of work, there's nothing that guarantees that they will do that. In fact, as we continue to play politics with certain bargaining groups, the prospect that we will drive a harder bargain will be less."However, at least on pensions the plan for the city may not be for the next council to carry the torch, instead, the city may believe it can implement a two-tier pension system after the MOUs are signed.
They can do this, they think, because by changing the formula for new hires, they are not affecting existing employees.
We see this rationale embedded in language in the management MOU.
The city's staff report from January 12 reads:
"One of the City’s Council’s objectives was to explore differential compensation packages for future employees. Included in the MOU for the Individual Management Employees is language that acknowledges the City’s intention to implement a reduced second-tier retirement benefit for new employees, as early as July 1, 2010."It continues:
"The City anticipates taking steps to establish a reduced retirement benefit formula, with minimum required employee contributions, for all new-non-safety employees during the term of the contract."Only the management contract contains the following language as fire would apparently not even discuss it and PASEA pulled it at the last second. This is SECTION 4. PERS RETIRMENT SYSTEM, subsection A:
"The EMPLOYEES acknowledges the City’s intention to implement a reduced second-tier retirement benefit for new employees, as early as July 1, 2010. The City expects to engage in discussions with other cities within the region which have an interest in implementing standardized, sustainable retirement plans for their local government employees; provided, the City may move forward to implement a second tier retirement benefit notwithstanding anyKey in on that last sentence: "the parties understand that the city is not required to meet and confer regarding implementation of a second tier retirement benefit for new employees."
decisions on the issue reached by other cities within the region.
The City anticipates taking steps to establish a reduced retirement benefit formula, with minimum required employee contributions, for all new non-safety employees during the term of the contract. This provision does not affect the City’s rights to pursue a second-tier retirement plan for new employees and the parties understand that the city is not required to meet and confer regarding implementation of a second tier retirement benefit for new employees."
The city apparently believes that it can implement a second tier retirement benefits for new employees without approval from the bargaining units.
Now let us back up a step here because the claim that the Vanguard among others have made is that the city blew its real chance for reform when it failed to obtain agreements from the bargaining units to address pensions in this round of negotiations. Our logic is fairly simple in that, this is the year with the $3.5 million deficit, this is the year where all of the political pressure is on the city to make reforms, if we cannot make the reforms this year, there is no way that future councils will have the leverage.
As much as the MOUs failed to address these issues, the city has failed to utilize its leverage.
This language is a potential game-changer, but in our view very risky. It is notable that the only group to agree to this language even was the management group which is a bargaining unit but not an actual union like the firefighters or PASEA. We do not believe any union would agree to this language and have to question the council for even allowing it to be placed into a contract for a group that was not union.
The Vanguard spoke with a number of unions across the state and not one of them believes that the city can implement a second tier outside of the collective bargaining process. They do not believe it is legal and believe that any changes in an employee contract have to be done through the collective bargaining process. The Vanguard concurs.
One pointed us to language in the Legislative Analysts Report about the legal risk the state makes in trying to unilaterally increase employee contributions for PERS pensions.
"For example, it is quite unclear if the state can unilaterally -- without agreements with its employee unions -- increase required employee contributions for CalPERS pensions. While the state's collective bargaining law explicitly gives the Legislature the authority to not fund some costs -- such as salaries -- included in state employee collective bargaining agreements, retirement funding decisions are subject to much more stringent legal restrictions."A key note may be that "retirement funding decisions are subject to much more stringent legal restrictions."
The city appears to acknowledge this problem and appears set to negotiate these reforms. But that really gets us back to the first problem, outside of the MOU where is the city's leverage? This was the year where all the pressure was on the bargaining units and the city had all of the leverage. Outside of the MOU, what incentive does a bargaining unit have to negotiate away retirement pensions for future members and once these future members become members, what is to preclude the city from upgrading the pension benefits to make for a more coherent system?
Moreover, if the city does this outside of the collective bargaining process, we believe that the unions would have no choice but to sue. Remember it is not just the city's bargaining groups with a stake in this process, it is all bargaining groups across the state and Davis would set a precedent if they were allowed to create a two-tiered system outside of the collective bargaining process.
So from our standpoint, the city is running a tremendous risk by failing to lock changes into the MOU. The other key point to note is that while the city and management have agreed to this language, safety have not.
Indeed the language in the management group MOU specifically precludes safety employees:
"The City anticipates taking steps to establish a reduced retirement benefit formula, with minimum required employee contributions, for all new non-safety employees during the term of the contract."So even if the city can create a two-tiered system, they are not fixing the formula for the most lucrative and unsustainable employees, the safety employees who retire at 50 and get 3% of their final contract for every year of service.
Bottom line here is that the city probably squandered their chance when they failed to actually lock in a second tier pension reduction into this round of MOUs. But all may not be lost.
Ed Mendel of Calpensions.org reported yesterday that the CHP Union CEO, Jon Hamm is considering negotiating a "two-tier" retirement system.
Writes Mr. Mendel:
Jon Hamm, the CEO of the California Association of Highway Patrolmen, said he is concerned about “pension envy” among private-sector workers with dwindling retirement security as corporations switch to 401(k) individual investment plans.Mr. Hamm seems to be acknowledging what I have been saying for a long time, unless concessions are made at some point a more draconian approach for pension reform will pass the legislature. One such initiative is in the works this year but at this point unlikely to pass. But there will come a time.
Hamm said “public employee unions are becoming villains” because some are playing on public fears. He also said assuming that economic growth will return to “normal” and generate the big pension investment earnings of the past could backfire.
“I never thought that negotiating a ‘two-tier’ retirement system would be something that I would ever consider,” Hamm said.
“But I have come to the conclusion it’s a very strong likelihood I would be looking out for future employees by negotiating a second-tier retirement system,” he said. “The last thing we want to do is leave it to the initiative process.”
My concern is fundamental here and that is that while public safety pensions, $100,000 pensions, and pension spiking are in the news, the average person who receives a pension is making around $27,000 per year upon retirement, not $100,000. Pension reform plans such as the one being proposed would reduce that even more. Many public employees not in city service have been asked to forgo salary increases in the belief that at least they will have security in retirement and now that is being threatened. And it is being threatened because of the people at the top have abused the system.
Mr. Mendel writes,
"Creating a second tier of lower benefits for new hires is one way to lower pension costs. But significant savings can take decades, until employees with the lower benefits begin to retire.This is where I disagree with Mr. Mendel. A second tier is the beginning of the reform process. Another portion is to ask public employees to pay more into their retirement. An appropriate solution however is not to take away from what they have already received in future contracts.
Pensions promised current employees and retirees are regarded as vested rights, protected by contract law, that cannot be reduced without providing something of equal value."
Moreover and this gets back to the city of Davis, the collective bargaining process is sacrosanct, it should not be subverted. And it probably cannot be done so legally.
The collective bargaining process is much like the legal system, it is adversarial and it works best when both sides fight hard for their own interests and through a system of compromises and bargains arrive at a deal to the mutual benefit of both sides. Where the process has broken down at the local level is by allowing some groups to buy influence into the system.
By buying influence through contributions, these groups have elected public officials that are representing their bargaining groups as much as the public. Now suddenly one does not have an adversarial system of give and take.
The city of Davis has made a huge error, they gave up their advantage of leverage in order to get an agreement. Why did they absolutely need an agreement this year? They should have held out for a contract that actually addressed the pension system and the unfunded liabilities.
Moreover, while Councilmember Souza has downplayed the problematic nature of the cafeteria cash out, that benefit alone costs the city $4 million per year. That is a huge liability to the city that could be used to plug the immediate deficit while the city works longterm to fix the structural issues that could lead to far worse problems.
Unfortunately all of this needed to occur during THIS MOU through the bargaining process, by missing this chance, the city has probably missed its opportunity to correct itself fiscally.
---David M. Greenwald reporting
Maybe the emperor DOES have new clothes. Maybe we just need to squint a little harder. Or maybe, yet again, Sue Greenwald sees and speaks the truth, and, once again, her statements are brushed aside. She predicted the likehood that the city would want to do a two-tiered system years ago, before the last election, during previous negotiations. She was ignored then, too.
Frankly I am appalled at how quickly folks are ready to embrace a two tier system. It does benefit the city by weakening the union, that is certain. But the fundamental injustice of "I got mine, cause I was in the front of the line" is not something that I want to embrace as a member of the city. I think that the city needs to look closely at what the compensation package is trying to accomplish. To start with, health insurance should be just that, and not looked on as additional compensation. Aside from the minimum amount needed to encourage folks who already have access to healthcare to opt out, there should be no windfall for individuals who are lucky enough to have healthcare through another avenue.
We also need to consider the impact on the morale of future new workers and the ethics of a two tier system. If the present rate is unsustainable we need to get the unions to step up to addressing this issue directly, not on the backs of future workers.
Yes, personnel morale problems and resentments were part of what Sue predicted could be the long-term outcome of the negotiations before the last election. Too bad we are losing Lamar soon. At least with him there we had some chance of "1+1 = 2" being taken seriously.
David: there is no way at this time to go back
There is: an addendum to each union's MOU creating a joint labor-management council, with powers narrowly tailored to verifying available funds, and recommending possible changes going forward. Beats the hell out of the four-way gunfight we have now.
You're right, Barbara.
Going back years and years, beginning with contract that conferred to the firefighters a 36% pay increase over 3 years (if I remember correctly) AFTER the firefighters had been granted 3% at 50 retirement, which was supposed to be a trade-off for salary moderation, I have been arguing that our unsustainable benefit and compensation votes would result in a two-tiered system, and that that this would be incredibly unfair to the younger generation.
I passionately made the same argument when the council voted for enhanced benefits for non-public safety employees, locking in a 2.5 percent at 55 formula for up to about 70 years for the newest existing employees, leaving the next generation to pay for it, regardless of circumstances.
I am on record arguing this for years. I wrote an op-ed for the Aggie trying to get students to understand what was being done to them.
I begged the council to give extra retirement in the form of defined contributions, to allow flexibility if times changed.
I warned again and again that we were headed for a two-tiered system which is the epitome of social injustice.
Yet David Greenwald, who disingenuously purports to be an ally, chose to post 10 minute clip when I am crumbling under the strain of 7 years of fighting the losing battle in closed session, and seeing staff reports spin the data on behalf of the council majority to say the city has saved hundreds and thousands of dollars while putting in place their two-tiered system, writes two devastating articles assuring that this 10 minute episode out of a 10 year career of public service gets maximum press coverage (no, David, that didn't happen by accident).
On the same night that I acted in a less than stellar manner after my vote had been misrepresented (and, actually, had been showing frustration and strain before the incident), I also gave an analysis of the regressive nature of the current contracts and the current reforms, which David did not report.
David, I agree with you on this issue, but I am appalled at your manipulative and devastatingly effective political shenanigans.
If you really care about the issues, rather than your own and your wife’s own personal political ambitions, you don’t go out of your way to destroy the incumbent who has been carrying the torch.
David, the damage you have done with your selective reporting of myself performing poorly under strain while arguing the positions you purport to share, has not, unfortunately gone away, nor will it. You have handed the opponents of your own position a weapon which they will never drop, regardless of what I write or don't write.
I believe you should be held accountable by those who care about the issues more than they care about your personal attempts to increase your own power and influence, and you wife's political ambitions.
You assured that the entire region focused on the fact that I expressed anger and frustration, rather than the the points I was trying to make about the unsustainable and regressive labor contracts. You assured that one of the few elected officials who share your views has been diminished and discredited. You put petty personal and factional concerns above the issues you purport to care about.
[edit]
I have been a union man for several decades now and I agree with what the gentleman above said, I don't get why you're pushing for a two-tiered system. That means people like me get more than younger people. The other week you called the cafeteria benefit unfair since it was an unequal benefit, but what is this? Sue, tell me, do you make this stuff up as you go along? I sometimes what if you don't support things because they're your idea and oppose things because they're someone else's idea. Explain to me this one, why is the cafeteria benefit unfair, but the two-tiered benefit fair?
Weinberg,
I am against the two-tiered system because it is unfair to the younger generations. I am against the cafeteria cash-out because it is unfair; one person doing exactly the same job can bring home $17,800 cash if their spouse has a job with health person, whereas another person doing the same who doesn't have a spouse with health insurance cannot. This seems pretty straightforward to me.
I have been consistently arguing both positions for years. I am in favor of a sustainable system of compensation that is more progressive in nature, and that gives the next generation the same benefits is the existing generation.
We also need to consider the impact on the morale of future new workers and the ethics of a two tier system
What a beautiful thing for unions, they play the biggest role in securing unsustainable pay and benefits, and then watch us wring our hands over the injustice of paying new employees what they are worth.
The progressive mindset over compensation continues to confound me. There is some overriding or underlying view of relative economic class stratification that seems to get in the way of good business. It is egalitarian but statist. My mom and dad taught me early that life would not treat me fair… time passes and s**t happens… some people are luckier than others… move on… get over it… pick a new direction if necessary to find happiness.
If you believe you are not paid well enough, then quit and get a different job. The correct level of compensation is that at which management can hire qualified candidates. So give me a break over "ethics" and "fairness"... for half the pay and half the benefits, qualified young men and women would be lined up a mile long to get these jobs.
HI Sue,
There have been negative and supportive remarks. I am not trying to take sides here. I just want to keep this thread on topic.
Discussion of what happened between Ruth and Sue can continue on either of these threads:
The council meeting:
http://www.davisvanguard.org/i...&Itemid=79
After the meeting:
http://www.davisvanguard.org/i...&Itemid=79
I also urge that you submit your own article if you want to discuss it further on a new thread.
David, please delete you own comment. The point is that you framed last week's discussion in terms of a dispute between Sue and Ruth. Now, I wish to bring up a totally different point, which is why you chose to select a 10 minute period when I was crumbling under pressure to write two articles about, while neglecting to report my comments about the regress labor contract.
Now, I and a few folks are trying to bring up the topic of David and Sue, which is a completely different from the topic of Ruth and Sue, and you are insisting in forcing it back into the discussion framed in your own terms.
This is not free speech.
For everyone's information.
I have removed a number of posts in my role as a moderator here, and restored a couple of Sue's comments.
Threads are moderated at times. On other threads, I have occasionally removed personal attacks, and have always left an [edit] note when I've done so. This thread got, in my opinion, way off topic and very contentious, so I took the more extreme action of removing entire posts. The goal is to keep this thread on topic. Please stick to the topic at hand.
Sorry, but I would prefer not to debate moderation practices here. If anyone wants to discuss how the Vanguard is moderated, contact me at donshor @ gmail. com.
Boone: unions, they play the biggest role in securing unsustainable pay and benefits
No, that responsibility is *shared*. If management is unable to negotiate sustainable wages and benefits, you need to think about getting new management. And I still think the best way forward is to set up a neutral arbiter to sort out the facts.
Neutral: I agree too. However, I have much lower performance expectations than some for government management. Notice that this same problem is happening in cities all over the state. Unions have longevity and a single-focus going for them. The business of running a city is fraught with a large a diverse list of management challenges while being hampered by politics and employees with much smaller stake in long-term goals. It is like playing a game of football where one team (the unions) recruit big and fast players to practice and play only football, and the other team (the cities) play baseball, basketball, hockey, swimming, sky diving, and football all at the same time with small and slow players.
I would like to hold city management’s feet to the fire on this, but I don’t think we will ever have enough horsepower compared to what unions can throw at it. I think unions have grown so powerful in their effectiveness to bargain that they are a menace to the business of government.
David... rakvet is correct. There were changes ~ 1996 when the retiree medical benetit went from Kaiser 2+ ($ figure, you can choose provider) at retirement, to 50% of Kaiser 2+ from retirement to age 60 when it returned to the full Kaiser 2+. At age 65, nearly all will go onto Medicare, so the dollar cost for supplement to medicare will be less than the Kaiser 2+, as I understand this. New hires after MOU's are adopted will be on yet another program, modelled after the State system. The two 'older' provisions will sunset in December 2014, and all will be on the new retiree medical. It's in the MOU's.
Jeff Boone, you've got it right. After years of decline the unions of America are gaining a stronghold again and did it by buying the Democrats. Obama and his Administration are beholding to the unions and it's only going to get worse. Bailing out GM and Chrysler was only done to take care of the UAW which pretty much kept most of their pay and benefits in line and gave them a big chunk of the company going ahead in the creditors line of the the bondholders which went against bankruptcy laws. Did Obama bail you out when you took a paycut or lost your job?Then the proposed Cadillac Healthcare Ins. tax in which everyone else had to pay taxes on unless you were in a union. This week the Dems are rushing through two pro union cabinet members ahead of Scott Brown's being seated tomorrow to appease unions because they know after Brown is seated it will be harder to put them in. Just a few examples, there's plenty more. The Dems are totally in bed with the unions.
