City Retiree Medical Benefits: Smart Financing or Voodoo Economics?

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In the City Council this past Tuesday, there was expected to be a routine explanation of the new GASB 45 reporting requirements on retiree medical benefits. What it became was a heated debate regarding the city’s budget, specifically the longstanding issue of structural deficit.

Paul Navazio, the city’s finance director, came before the council with the report that drew such conflicted remarks from the city council. Mayor Sue Greenwald brought down the hammer on the growing structural deficit from the commitments that the city has made, stressing that the city needs to be more committed to fiscal responsibility so that it can continue to afford the same level of service for its retirees.

Mayor Greenwald:

“Would it be fair to say that what we’re really looking at here when we do the accounting somewhat more correctly, is that we have an additional real annual deficit of about, citywide, 2.5 million to 4.2 million per year?”

Paul Navazio:

“Yeah, if we immediately implemented a fully pre-funded plan we would need to come up with another 2-4 million dollars to fully fund it… The long-term cost of this benefit exceeds what we’re building into our projections.”

Mayor Greenwald:

“And that’s really our deficit, right? I mean, nobody requires us to have a balanced budget anyway, except ourselves. So this 2.5 to 4.2 million deficit is equal to about 16% to 23% of our payroll, depending on the rate of return on the investment.”

Mayor Greenwald’s comments contrasted drastically with Councilmember Stephen Souza’s, who argued later that the city will deal with these issues because it is still here today, and therefore will continue to manage as it always has. This overly rosy outlook seemed ridiculous after Mr. Navazio was forced to admit by Mayor Greenwald that the city did in fact have a structural deficit that it was unsure of how to pay for.

Councilmember Stephen Souza:

“I have the faith that we’re gonna be able to take on each of these components, and one’s going to be more pressing than another, that’s just the way life is, that’s the way needs are, things break down faster than other things break down, needs arrive faster than other needs arrive, and we’re gonna address them as they come along, we’ve been doing that as a city, for almost, for over 90 years. And I have the faith that we’re gonna continue to do that for another 110 years, so that when we reach our 200th year anniversary as a city than we’ll be as fine a city as we are today 110 more years from today.”

Councilmember Souza even implied that the city might want to draw from its general reserve fund to pay for these deficits. The general reserve is onetime use money, meant for funding emergencies. To use it to pay for a structural deficit that recurs each year makes no sense.

According to the report, full funding of the City’s Retiree Medical Benefits would require annual contributions of about $4.3 to $6.0 million annually. Currently, the city only sets aside $1.8 million for this, and has this year only added another $500,000 to that number for fiscal year 2007/2008. This means that even after that half million, the structural deficit is still between $2.0 and $3.7 million, ANNUALLY.

The report recommended saving money in the long run by shifting gradually from the current method of pay-as-you-go funding to pre-funding of these benefits. However, to make that change will cost more money now, and as it is the budget is fairly strained. But more importantly, the model in the report assumed that health care premium rates are going to drop in the next several years, an assumption that Mayor Greenwald found to be very disconcerting.

Paul Navazio:

“They’re assuming for the short term…annual increases of health care premiums in the 10 to 11.5% range, and that’s consistent with what we’ve built into our own projections. I will say that the actuarial assumptions in this model assume that within the next ten year period, that the annual rate of increase would actually be reduced to 4.5% per year. This is an interesting assumption, one that we’re checking…nobody has a crystal ball on this, and health insurance has increased dramatically and continues to. Implicit in this assumption is the premise that health insurance costs can’t continue to increase in the current rates in perpetuity. If it keeps going at this current rate, than by 2020 health care will be 100% of GNP. There is an inherent assumption here that health care costs have to normalize.”

Mayor Greenwald:

“And they’re saying that this will happen in about ten years, right as the baby boomer generation starts to get old?”

Paul Navazio:

“Well by most economists standpoints, the current increases in health care rates are not sustainable. What that means for the future is something we’re going to look at.”

Mayor Greenwald:

“When I look at that 4.5%, it sounds like we’ll be lucky if our annual deficit is only 2.5 to 4.5 million. Because that 4.5% increase in the out-years that are being projected, are just based on the assumption that it can’t get any higher, so it has to come down, and I don’t know, it doesn’t give me a whole lot of confidence.”

The council meeting ended on the note that more research needed to be done by city staff, and more budget workshops needed to be held, before a decision could be made on how to properly address this issue. Mayor Greenwald made it clear that there may need to be some tightening of the city’s budgetary belt in order to deal with this, possibly including some salary cuts to city employees. While this idea may not sit well with a lot of employee’s of the city, it was the only idea that came out of the council at all on how to deal with this issue, and the fact of the matter is that the city cannot allow it’s unfunded liability to continue to build.

—Simon Efrein

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About The Author

David Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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68 thoughts on “City Retiree Medical Benefits: Smart Financing or Voodoo Economics?”

  1. Ann

    I don’t think the city would be in as bad a predicament that it’s in if the managers and supervisors weren’t being paid such ridiculously high salaries.

    When Mayor Greenwald talks about potentially cutting salaries I certainly hope she is talking about upper management as opposed to the average city employee who cannot afford to live in Davis. Salary cuts for some managers would be good. They are already overpaid for a city the size of Davis.

    Steve Souza clearly showed his lack of knowledge, interest, or care saying, “I have the faith that we’re gonna be able to take on each of these components, and one’s going to be more pressing than another, that’s just the way life is.”

    Thank goodness he is not mayor. “That’s just the way life is????”

    I’m surprised he’s not saying let’s have a parade and everything will be okay. That’s just the way life is…

    Isn’t there a saying that “ignorance is bliss.”

    He’s proven it.

  2. Ann

    I don’t think the city would be in as bad a predicament that it’s in if the managers and supervisors weren’t being paid such ridiculously high salaries.

    When Mayor Greenwald talks about potentially cutting salaries I certainly hope she is talking about upper management as opposed to the average city employee who cannot afford to live in Davis. Salary cuts for some managers would be good. They are already overpaid for a city the size of Davis.

    Steve Souza clearly showed his lack of knowledge, interest, or care saying, “I have the faith that we’re gonna be able to take on each of these components, and one’s going to be more pressing than another, that’s just the way life is.”

    Thank goodness he is not mayor. “That’s just the way life is????”

    I’m surprised he’s not saying let’s have a parade and everything will be okay. That’s just the way life is…

    Isn’t there a saying that “ignorance is bliss.”

    He’s proven it.

  3. Ann

    I don’t think the city would be in as bad a predicament that it’s in if the managers and supervisors weren’t being paid such ridiculously high salaries.

    When Mayor Greenwald talks about potentially cutting salaries I certainly hope she is talking about upper management as opposed to the average city employee who cannot afford to live in Davis. Salary cuts for some managers would be good. They are already overpaid for a city the size of Davis.

    Steve Souza clearly showed his lack of knowledge, interest, or care saying, “I have the faith that we’re gonna be able to take on each of these components, and one’s going to be more pressing than another, that’s just the way life is.”

    Thank goodness he is not mayor. “That’s just the way life is????”

    I’m surprised he’s not saying let’s have a parade and everything will be okay. That’s just the way life is…

    Isn’t there a saying that “ignorance is bliss.”

    He’s proven it.

  4. Ann

    I don’t think the city would be in as bad a predicament that it’s in if the managers and supervisors weren’t being paid such ridiculously high salaries.

    When Mayor Greenwald talks about potentially cutting salaries I certainly hope she is talking about upper management as opposed to the average city employee who cannot afford to live in Davis. Salary cuts for some managers would be good. They are already overpaid for a city the size of Davis.

    Steve Souza clearly showed his lack of knowledge, interest, or care saying, “I have the faith that we’re gonna be able to take on each of these components, and one’s going to be more pressing than another, that’s just the way life is.”

    Thank goodness he is not mayor. “That’s just the way life is????”

    I’m surprised he’s not saying let’s have a parade and everything will be okay. That’s just the way life is…

    Isn’t there a saying that “ignorance is bliss.”

    He’s proven it.

  5. Davis Republican

    This is a huge issue for government. Until now, post-employment benefits were basically funded through a ponzi scheme – pay as you go, and assume(hope) that as retiree costs increase, so does the entire budget, leaving the proportion of retiree costs to budget relatively similiar. Now, with the new accounting rules, governments have to identify their unfunded liability…note that they must identify, not actually fund the liability.

    That being said, it is good government to ensure that you can pay tomorrow what you’ve promised to pay today. Generous retirement benefits and skyrocketting health care costs now make this task daunting. The new accounting rules will rightfully force cities to deal with this issue now, and potentially make some difficult decisions, like whether or not to reduce retirement benefits…or increase taxes, which isn’t likely to happen because of the 2/3 vote requirement.

    The city can set up a trust fund to be used solely for these unfunded obligations. Trusts can earn higher investment earnings than a city because they are not subject to the legal restrictions placed on investments permitted in city portfolios. In setting up such a trust, the city could choose to use some of its existing General Fund reserve…this would be a one-time expenditure to set up the fund.

    Great article…tough choices ahead for the city.

  6. Davis Republican

    This is a huge issue for government. Until now, post-employment benefits were basically funded through a ponzi scheme – pay as you go, and assume(hope) that as retiree costs increase, so does the entire budget, leaving the proportion of retiree costs to budget relatively similiar. Now, with the new accounting rules, governments have to identify their unfunded liability…note that they must identify, not actually fund the liability.

    That being said, it is good government to ensure that you can pay tomorrow what you’ve promised to pay today. Generous retirement benefits and skyrocketting health care costs now make this task daunting. The new accounting rules will rightfully force cities to deal with this issue now, and potentially make some difficult decisions, like whether or not to reduce retirement benefits…or increase taxes, which isn’t likely to happen because of the 2/3 vote requirement.

    The city can set up a trust fund to be used solely for these unfunded obligations. Trusts can earn higher investment earnings than a city because they are not subject to the legal restrictions placed on investments permitted in city portfolios. In setting up such a trust, the city could choose to use some of its existing General Fund reserve…this would be a one-time expenditure to set up the fund.

    Great article…tough choices ahead for the city.

  7. Davis Republican

    This is a huge issue for government. Until now, post-employment benefits were basically funded through a ponzi scheme – pay as you go, and assume(hope) that as retiree costs increase, so does the entire budget, leaving the proportion of retiree costs to budget relatively similiar. Now, with the new accounting rules, governments have to identify their unfunded liability…note that they must identify, not actually fund the liability.

    That being said, it is good government to ensure that you can pay tomorrow what you’ve promised to pay today. Generous retirement benefits and skyrocketting health care costs now make this task daunting. The new accounting rules will rightfully force cities to deal with this issue now, and potentially make some difficult decisions, like whether or not to reduce retirement benefits…or increase taxes, which isn’t likely to happen because of the 2/3 vote requirement.

    The city can set up a trust fund to be used solely for these unfunded obligations. Trusts can earn higher investment earnings than a city because they are not subject to the legal restrictions placed on investments permitted in city portfolios. In setting up such a trust, the city could choose to use some of its existing General Fund reserve…this would be a one-time expenditure to set up the fund.

    Great article…tough choices ahead for the city.

  8. Davis Republican

    This is a huge issue for government. Until now, post-employment benefits were basically funded through a ponzi scheme – pay as you go, and assume(hope) that as retiree costs increase, so does the entire budget, leaving the proportion of retiree costs to budget relatively similiar. Now, with the new accounting rules, governments have to identify their unfunded liability…note that they must identify, not actually fund the liability.

    That being said, it is good government to ensure that you can pay tomorrow what you’ve promised to pay today. Generous retirement benefits and skyrocketting health care costs now make this task daunting. The new accounting rules will rightfully force cities to deal with this issue now, and potentially make some difficult decisions, like whether or not to reduce retirement benefits…or increase taxes, which isn’t likely to happen because of the 2/3 vote requirement.

    The city can set up a trust fund to be used solely for these unfunded obligations. Trusts can earn higher investment earnings than a city because they are not subject to the legal restrictions placed on investments permitted in city portfolios. In setting up such a trust, the city could choose to use some of its existing General Fund reserve…this would be a one-time expenditure to set up the fund.

    Great article…tough choices ahead for the city.

  9. Vincente

    Souza is being stunningly irresponsible here. He has faith? He is a public official, he is not supposed to have faith, he’s supposed to have sound judgment and reasoning for the decisions he makes.

  10. Vincente

    Souza is being stunningly irresponsible here. He has faith? He is a public official, he is not supposed to have faith, he’s supposed to have sound judgment and reasoning for the decisions he makes.

  11. Vincente

    Souza is being stunningly irresponsible here. He has faith? He is a public official, he is not supposed to have faith, he’s supposed to have sound judgment and reasoning for the decisions he makes.

  12. Vincente

    Souza is being stunningly irresponsible here. He has faith? He is a public official, he is not supposed to have faith, he’s supposed to have sound judgment and reasoning for the decisions he makes.

  13. wondering

    The city should cut back on the benifits to there retired employees. If Davis is not going to grow, davis will not be able to pay for these benifits. I don’t think another tax on davis citizens for poor long term planning by the city managers is going to pass.

  14. wondering

    The city should cut back on the benifits to there retired employees. If Davis is not going to grow, davis will not be able to pay for these benifits. I don’t think another tax on davis citizens for poor long term planning by the city managers is going to pass.

  15. wondering

    The city should cut back on the benifits to there retired employees. If Davis is not going to grow, davis will not be able to pay for these benifits. I don’t think another tax on davis citizens for poor long term planning by the city managers is going to pass.

  16. wondering

    The city should cut back on the benifits to there retired employees. If Davis is not going to grow, davis will not be able to pay for these benifits. I don’t think another tax on davis citizens for poor long term planning by the city managers is going to pass.

  17. Vincente

    It’s not that simple wondering, you can cut future employees benefits, you cannot cut benefits that have already been locked into place by past agreements, that’s why this is such a bad structural problem.

  18. Vincente

    It’s not that simple wondering, you can cut future employees benefits, you cannot cut benefits that have already been locked into place by past agreements, that’s why this is such a bad structural problem.

  19. Vincente

    It’s not that simple wondering, you can cut future employees benefits, you cannot cut benefits that have already been locked into place by past agreements, that’s why this is such a bad structural problem.

  20. Vincente

    It’s not that simple wondering, you can cut future employees benefits, you cannot cut benefits that have already been locked into place by past agreements, that’s why this is such a bad structural problem.

  21. Rich Rifkin

    “The report recommended saving money in the long run by shifting gradually from the current method of pay-as-you-go funding to pre-funding of these benefits.”

    In my opinion, the city ought to determine a fixed percentage of its budget that it wants to expend on all labor load (i.e., benefits plus other add-ons to salaries). Say that number is 20 percent. In a $25 million budget, that would be $5 million a year to pay for the present value cost of all current health care insurance premiums, all pension contributions, all unemployment insurance, all workers’ compensation and all future retiree benefits. If one expense category goes up dramatically, then cuts would have to be made in other areas to maintain the 20% cap. And if the costs were determined on a present value basis, you wouldn’t have to worry about consequences down the road.

    “The model in the report assumed that health care premium rates are going to drop in the next several years, an assumption that Mayor Greenwald found to be very disconcerting.”

    As your later quote from Paul Navazio made clear, this statement (by the Vanguard) is incorrect. The assumption is not “that health care premium rates are going to drop in the next several years,” but that the annual rate of inflation in health care premiums is going to drop. In other words, rather than going up by 10% each year, they will only go up by 5% per annum.

    I believe that is a reasonable assumption. To understand why, you have to understand what factors have caused U.S. health care costs to rise so much in the last 15 years.

    Most of that has been the adoption of advanced technology. (This is not a disputed contention.) If we had not developed and incorporated so many new drugs and new machines and new techniques in our medical system over the past decade and a half, the annual per capita expense of medical care would not have inflated very much (beyond ordinary 3% inflation).

    There are a couple of other factors which contributed: more older people, and older people living longer and demanding world class health care and convalescent care. But in total dollar terms, the gerentological factors pale compared with the technological factors. (Of course, they can work in combination, where new machines keep older people alive much longer.)

    So why will that change? Why won’t we continue to incorporate new and better technologies? The only answer is that we cannot afford to. We are currently spending a much larger share of our GDP on health care than any other country in the world. And incorporating new machines that help (for example) heart patients live an extra 6 months on average at a cost of $1,000 per year per American at some point become too extravagant and the market says, no thank you. I believe we have just about reached that point.

    Even though it seems like the health care industry doesn’t operate under normal market constraints — such as the housing industry does — in the long run it does. As we have seen with our recent decline in home prices, what seemed like an endless inflation in the cost of housing in Davis (and our region) finally ran into a wall which said, “We cannot afford to pay the prices you are asking.” And the response of the market, of course, has been to lower the prices.

    I don’t expect any disinflation in medical expenses, but there is a point above which the payers — be they companies or cities or universities buying the medical plans, or individuals paying their own freight — say, “We cannot afford to pay the prices you are asking.” And when that happens, doctors and hospitals will have to stop buying and incorporating new and better technologies, all of which are ultimately paid for by health care consumers.

  22. Rich Rifkin

    “The report recommended saving money in the long run by shifting gradually from the current method of pay-as-you-go funding to pre-funding of these benefits.”

    In my opinion, the city ought to determine a fixed percentage of its budget that it wants to expend on all labor load (i.e., benefits plus other add-ons to salaries). Say that number is 20 percent. In a $25 million budget, that would be $5 million a year to pay for the present value cost of all current health care insurance premiums, all pension contributions, all unemployment insurance, all workers’ compensation and all future retiree benefits. If one expense category goes up dramatically, then cuts would have to be made in other areas to maintain the 20% cap. And if the costs were determined on a present value basis, you wouldn’t have to worry about consequences down the road.

    “The model in the report assumed that health care premium rates are going to drop in the next several years, an assumption that Mayor Greenwald found to be very disconcerting.”

    As your later quote from Paul Navazio made clear, this statement (by the Vanguard) is incorrect. The assumption is not “that health care premium rates are going to drop in the next several years,” but that the annual rate of inflation in health care premiums is going to drop. In other words, rather than going up by 10% each year, they will only go up by 5% per annum.

    I believe that is a reasonable assumption. To understand why, you have to understand what factors have caused U.S. health care costs to rise so much in the last 15 years.

    Most of that has been the adoption of advanced technology. (This is not a disputed contention.) If we had not developed and incorporated so many new drugs and new machines and new techniques in our medical system over the past decade and a half, the annual per capita expense of medical care would not have inflated very much (beyond ordinary 3% inflation).

    There are a couple of other factors which contributed: more older people, and older people living longer and demanding world class health care and convalescent care. But in total dollar terms, the gerentological factors pale compared with the technological factors. (Of course, they can work in combination, where new machines keep older people alive much longer.)

    So why will that change? Why won’t we continue to incorporate new and better technologies? The only answer is that we cannot afford to. We are currently spending a much larger share of our GDP on health care than any other country in the world. And incorporating new machines that help (for example) heart patients live an extra 6 months on average at a cost of $1,000 per year per American at some point become too extravagant and the market says, no thank you. I believe we have just about reached that point.

    Even though it seems like the health care industry doesn’t operate under normal market constraints — such as the housing industry does — in the long run it does. As we have seen with our recent decline in home prices, what seemed like an endless inflation in the cost of housing in Davis (and our region) finally ran into a wall which said, “We cannot afford to pay the prices you are asking.” And the response of the market, of course, has been to lower the prices.

    I don’t expect any disinflation in medical expenses, but there is a point above which the payers — be they companies or cities or universities buying the medical plans, or individuals paying their own freight — say, “We cannot afford to pay the prices you are asking.” And when that happens, doctors and hospitals will have to stop buying and incorporating new and better technologies, all of which are ultimately paid for by health care consumers.

  23. Rich Rifkin

    “The report recommended saving money in the long run by shifting gradually from the current method of pay-as-you-go funding to pre-funding of these benefits.”

    In my opinion, the city ought to determine a fixed percentage of its budget that it wants to expend on all labor load (i.e., benefits plus other add-ons to salaries). Say that number is 20 percent. In a $25 million budget, that would be $5 million a year to pay for the present value cost of all current health care insurance premiums, all pension contributions, all unemployment insurance, all workers’ compensation and all future retiree benefits. If one expense category goes up dramatically, then cuts would have to be made in other areas to maintain the 20% cap. And if the costs were determined on a present value basis, you wouldn’t have to worry about consequences down the road.

    “The model in the report assumed that health care premium rates are going to drop in the next several years, an assumption that Mayor Greenwald found to be very disconcerting.”

    As your later quote from Paul Navazio made clear, this statement (by the Vanguard) is incorrect. The assumption is not “that health care premium rates are going to drop in the next several years,” but that the annual rate of inflation in health care premiums is going to drop. In other words, rather than going up by 10% each year, they will only go up by 5% per annum.

    I believe that is a reasonable assumption. To understand why, you have to understand what factors have caused U.S. health care costs to rise so much in the last 15 years.

    Most of that has been the adoption of advanced technology. (This is not a disputed contention.) If we had not developed and incorporated so many new drugs and new machines and new techniques in our medical system over the past decade and a half, the annual per capita expense of medical care would not have inflated very much (beyond ordinary 3% inflation).

    There are a couple of other factors which contributed: more older people, and older people living longer and demanding world class health care and convalescent care. But in total dollar terms, the gerentological factors pale compared with the technological factors. (Of course, they can work in combination, where new machines keep older people alive much longer.)

    So why will that change? Why won’t we continue to incorporate new and better technologies? The only answer is that we cannot afford to. We are currently spending a much larger share of our GDP on health care than any other country in the world. And incorporating new machines that help (for example) heart patients live an extra 6 months on average at a cost of $1,000 per year per American at some point become too extravagant and the market says, no thank you. I believe we have just about reached that point.

    Even though it seems like the health care industry doesn’t operate under normal market constraints — such as the housing industry does — in the long run it does. As we have seen with our recent decline in home prices, what seemed like an endless inflation in the cost of housing in Davis (and our region) finally ran into a wall which said, “We cannot afford to pay the prices you are asking.” And the response of the market, of course, has been to lower the prices.

    I don’t expect any disinflation in medical expenses, but there is a point above which the payers — be they companies or cities or universities buying the medical plans, or individuals paying their own freight — say, “We cannot afford to pay the prices you are asking.” And when that happens, doctors and hospitals will have to stop buying and incorporating new and better technologies, all of which are ultimately paid for by health care consumers.

  24. Rich Rifkin

    “The report recommended saving money in the long run by shifting gradually from the current method of pay-as-you-go funding to pre-funding of these benefits.”

    In my opinion, the city ought to determine a fixed percentage of its budget that it wants to expend on all labor load (i.e., benefits plus other add-ons to salaries). Say that number is 20 percent. In a $25 million budget, that would be $5 million a year to pay for the present value cost of all current health care insurance premiums, all pension contributions, all unemployment insurance, all workers’ compensation and all future retiree benefits. If one expense category goes up dramatically, then cuts would have to be made in other areas to maintain the 20% cap. And if the costs were determined on a present value basis, you wouldn’t have to worry about consequences down the road.

    “The model in the report assumed that health care premium rates are going to drop in the next several years, an assumption that Mayor Greenwald found to be very disconcerting.”

    As your later quote from Paul Navazio made clear, this statement (by the Vanguard) is incorrect. The assumption is not “that health care premium rates are going to drop in the next several years,” but that the annual rate of inflation in health care premiums is going to drop. In other words, rather than going up by 10% each year, they will only go up by 5% per annum.

    I believe that is a reasonable assumption. To understand why, you have to understand what factors have caused U.S. health care costs to rise so much in the last 15 years.

    Most of that has been the adoption of advanced technology. (This is not a disputed contention.) If we had not developed and incorporated so many new drugs and new machines and new techniques in our medical system over the past decade and a half, the annual per capita expense of medical care would not have inflated very much (beyond ordinary 3% inflation).

    There are a couple of other factors which contributed: more older people, and older people living longer and demanding world class health care and convalescent care. But in total dollar terms, the gerentological factors pale compared with the technological factors. (Of course, they can work in combination, where new machines keep older people alive much longer.)

    So why will that change? Why won’t we continue to incorporate new and better technologies? The only answer is that we cannot afford to. We are currently spending a much larger share of our GDP on health care than any other country in the world. And incorporating new machines that help (for example) heart patients live an extra 6 months on average at a cost of $1,000 per year per American at some point become too extravagant and the market says, no thank you. I believe we have just about reached that point.

    Even though it seems like the health care industry doesn’t operate under normal market constraints — such as the housing industry does — in the long run it does. As we have seen with our recent decline in home prices, what seemed like an endless inflation in the cost of housing in Davis (and our region) finally ran into a wall which said, “We cannot afford to pay the prices you are asking.” And the response of the market, of course, has been to lower the prices.

    I don’t expect any disinflation in medical expenses, but there is a point above which the payers — be they companies or cities or universities buying the medical plans, or individuals paying their own freight — say, “We cannot afford to pay the prices you are asking.” And when that happens, doctors and hospitals will have to stop buying and incorporating new and better technologies, all of which are ultimately paid for by health care consumers.

  25. Rich Rifkin

    “The city can set up a trust fund to be used solely for these unfunded obligations. Trusts can earn higher investment earnings than a city because they are not subject to the legal restrictions placed on investments permitted in city portfolios.”

    Paul Navazio explained to me how this works: the “trust fund” which the city would pay into would be done with PERS (the Public Employee Retirement System). Davis would send the money to PERS, and PERS would invest it and manage it.

  26. Rich Rifkin

    “The city can set up a trust fund to be used solely for these unfunded obligations. Trusts can earn higher investment earnings than a city because they are not subject to the legal restrictions placed on investments permitted in city portfolios.”

    Paul Navazio explained to me how this works: the “trust fund” which the city would pay into would be done with PERS (the Public Employee Retirement System). Davis would send the money to PERS, and PERS would invest it and manage it.

  27. Rich Rifkin

    “The city can set up a trust fund to be used solely for these unfunded obligations. Trusts can earn higher investment earnings than a city because they are not subject to the legal restrictions placed on investments permitted in city portfolios.”

    Paul Navazio explained to me how this works: the “trust fund” which the city would pay into would be done with PERS (the Public Employee Retirement System). Davis would send the money to PERS, and PERS would invest it and manage it.

  28. Rich Rifkin

    “The city can set up a trust fund to be used solely for these unfunded obligations. Trusts can earn higher investment earnings than a city because they are not subject to the legal restrictions placed on investments permitted in city portfolios.”

    Paul Navazio explained to me how this works: the “trust fund” which the city would pay into would be done with PERS (the Public Employee Retirement System). Davis would send the money to PERS, and PERS would invest it and manage it.

  29. Vincente

    “As your later quote from Paul Navazio made clear, this statement (by the Vanguard) is incorrect. “

    You are correct–he should have said that the projected increase will decline rather than the actual rates. You can probably forgive him since it’s I think only his third or fourth article. And the rest of the article makes clear his intent.

    Nevertheless the point of disagreement is how reasonable the assumption is that the rates will increase by 4% in the future as opposed to 10% that they currently are.

    The primary concern of many of us is this: the city claims it has “fixed” its structural deficit, but has instead tied that less conservative assumption.

    You are assuming a market correction, the question is when will that occur. To me it is irresponsible to proceed as though the market will correct itself because frankly over the past 15 years it has not.

    Again, you might be right but when you are planning such a large projected budget I think it is irresponsible to claim you have fixed the problem when you are basing that on very liberal assumptions.

  30. Vincente

    “As your later quote from Paul Navazio made clear, this statement (by the Vanguard) is incorrect. “

    You are correct–he should have said that the projected increase will decline rather than the actual rates. You can probably forgive him since it’s I think only his third or fourth article. And the rest of the article makes clear his intent.

    Nevertheless the point of disagreement is how reasonable the assumption is that the rates will increase by 4% in the future as opposed to 10% that they currently are.

    The primary concern of many of us is this: the city claims it has “fixed” its structural deficit, but has instead tied that less conservative assumption.

    You are assuming a market correction, the question is when will that occur. To me it is irresponsible to proceed as though the market will correct itself because frankly over the past 15 years it has not.

    Again, you might be right but when you are planning such a large projected budget I think it is irresponsible to claim you have fixed the problem when you are basing that on very liberal assumptions.

  31. Vincente

    “As your later quote from Paul Navazio made clear, this statement (by the Vanguard) is incorrect. “

    You are correct–he should have said that the projected increase will decline rather than the actual rates. You can probably forgive him since it’s I think only his third or fourth article. And the rest of the article makes clear his intent.

    Nevertheless the point of disagreement is how reasonable the assumption is that the rates will increase by 4% in the future as opposed to 10% that they currently are.

    The primary concern of many of us is this: the city claims it has “fixed” its structural deficit, but has instead tied that less conservative assumption.

    You are assuming a market correction, the question is when will that occur. To me it is irresponsible to proceed as though the market will correct itself because frankly over the past 15 years it has not.

    Again, you might be right but when you are planning such a large projected budget I think it is irresponsible to claim you have fixed the problem when you are basing that on very liberal assumptions.

  32. Vincente

    “As your later quote from Paul Navazio made clear, this statement (by the Vanguard) is incorrect. “

    You are correct–he should have said that the projected increase will decline rather than the actual rates. You can probably forgive him since it’s I think only his third or fourth article. And the rest of the article makes clear his intent.

    Nevertheless the point of disagreement is how reasonable the assumption is that the rates will increase by 4% in the future as opposed to 10% that they currently are.

    The primary concern of many of us is this: the city claims it has “fixed” its structural deficit, but has instead tied that less conservative assumption.

    You are assuming a market correction, the question is when will that occur. To me it is irresponsible to proceed as though the market will correct itself because frankly over the past 15 years it has not.

    Again, you might be right but when you are planning such a large projected budget I think it is irresponsible to claim you have fixed the problem when you are basing that on very liberal assumptions.

  33. Davis Republican

    Rich Rifkin said:
    “Most of that has been the adoption of advanced technology…the annual per capita expense of medical care would not have inflated very much (beyond ordinary 3% inflation).”

    I have never seen any study that showed that technology was the overwhelming factor behind double-digit health care increases. Sure, it has a significant impact, but NOT that significant…increased utilization has a far greater impact: http://www.pwc.com/extweb/pwcpublications.nsf/docid/BB82984D3A7DF2A485257267003C98BC

    And health care does not operate like a normal market because consumers (1) don’t have prices and (2) don’t make decisions based on the price of health care due to the third party payer system. We need better price and quality information and we need to move away from the third party payer system.

  34. Davis Republican

    Rich Rifkin said:
    “Most of that has been the adoption of advanced technology…the annual per capita expense of medical care would not have inflated very much (beyond ordinary 3% inflation).”

    I have never seen any study that showed that technology was the overwhelming factor behind double-digit health care increases. Sure, it has a significant impact, but NOT that significant…increased utilization has a far greater impact: http://www.pwc.com/extweb/pwcpublications.nsf/docid/BB82984D3A7DF2A485257267003C98BC

    And health care does not operate like a normal market because consumers (1) don’t have prices and (2) don’t make decisions based on the price of health care due to the third party payer system. We need better price and quality information and we need to move away from the third party payer system.

  35. Davis Republican

    Rich Rifkin said:
    “Most of that has been the adoption of advanced technology…the annual per capita expense of medical care would not have inflated very much (beyond ordinary 3% inflation).”

    I have never seen any study that showed that technology was the overwhelming factor behind double-digit health care increases. Sure, it has a significant impact, but NOT that significant…increased utilization has a far greater impact: http://www.pwc.com/extweb/pwcpublications.nsf/docid/BB82984D3A7DF2A485257267003C98BC

    And health care does not operate like a normal market because consumers (1) don’t have prices and (2) don’t make decisions based on the price of health care due to the third party payer system. We need better price and quality information and we need to move away from the third party payer system.

  36. Davis Republican

    Rich Rifkin said:
    “Most of that has been the adoption of advanced technology…the annual per capita expense of medical care would not have inflated very much (beyond ordinary 3% inflation).”

    I have never seen any study that showed that technology was the overwhelming factor behind double-digit health care increases. Sure, it has a significant impact, but NOT that significant…increased utilization has a far greater impact: http://www.pwc.com/extweb/pwcpublications.nsf/docid/BB82984D3A7DF2A485257267003C98BC

    And health care does not operate like a normal market because consumers (1) don’t have prices and (2) don’t make decisions based on the price of health care due to the third party payer system. We need better price and quality information and we need to move away from the third party payer system.

  37. Sue Greenwald

    The city’s assumption is that medical insurance costs would rise between 10 and 11% for the first ten years, and then drop to 4.5%.

    The assumptions for the first ten years might even be high.

    I was trying to point out that the reduction to a 4.5% annual increase after 10 years would either be low, or else imply that future seniors might not get the level of care that they expect.

  38. Sue Greenwald

    The city’s assumption is that medical insurance costs would rise between 10 and 11% for the first ten years, and then drop to 4.5%.

    The assumptions for the first ten years might even be high.

    I was trying to point out that the reduction to a 4.5% annual increase after 10 years would either be low, or else imply that future seniors might not get the level of care that they expect.

  39. Sue Greenwald

    The city’s assumption is that medical insurance costs would rise between 10 and 11% for the first ten years, and then drop to 4.5%.

    The assumptions for the first ten years might even be high.

    I was trying to point out that the reduction to a 4.5% annual increase after 10 years would either be low, or else imply that future seniors might not get the level of care that they expect.

  40. Sue Greenwald

    The city’s assumption is that medical insurance costs would rise between 10 and 11% for the first ten years, and then drop to 4.5%.

    The assumptions for the first ten years might even be high.

    I was trying to point out that the reduction to a 4.5% annual increase after 10 years would either be low, or else imply that future seniors might not get the level of care that they expect.

  41. Sue Greenwald

    Re 9:25 post:

    I said something to the effect that we should be thinking about exercising significant restraint in salary increases for our highest paid workers. This is where we take the huge hits to our budget. I have always argued for giving somewhat higher increases to our lower and middle salary levels, and lower increases to our highest paid workers. It does not cost us much to give reasonable salary increases to our lower paid workers. I have consistently lost this battle.

    I stressed that we should keep paying full retiree medical. Otherwise, I fear that low and moderate wage workers will not be able to afford insurance in their very old age, particularly since our retirement benefits are only inflation adjusted at a rate of 2% a year. A couple of years of triple digit inflation, or a period of sustained 3 to 5% a year inflation, for example, would significantly erode even the very generous pensions of our retirees. This is especially true since this council lowered the age at which even our desk workers can retire at full benefits to 55 (I voted against this).

    Hence, many workers can expect to be retired for over 35 to 40 years.. This is both very expensive for the city, and puts our retirees at risk of pensions severely eroded by inflation.

    The cumulative impact of our proposed capitol improvement projects, our list of unmet needs, and our unfunded liabilities
    are staggering, and tough choices will have to be made, either by us or by future councils.

  42. Sue Greenwald

    Re 9:25 post:

    I said something to the effect that we should be thinking about exercising significant restraint in salary increases for our highest paid workers. This is where we take the huge hits to our budget. I have always argued for giving somewhat higher increases to our lower and middle salary levels, and lower increases to our highest paid workers. It does not cost us much to give reasonable salary increases to our lower paid workers. I have consistently lost this battle.

    I stressed that we should keep paying full retiree medical. Otherwise, I fear that low and moderate wage workers will not be able to afford insurance in their very old age, particularly since our retirement benefits are only inflation adjusted at a rate of 2% a year. A couple of years of triple digit inflation, or a period of sustained 3 to 5% a year inflation, for example, would significantly erode even the very generous pensions of our retirees. This is especially true since this council lowered the age at which even our desk workers can retire at full benefits to 55 (I voted against this).

    Hence, many workers can expect to be retired for over 35 to 40 years.. This is both very expensive for the city, and puts our retirees at risk of pensions severely eroded by inflation.

    The cumulative impact of our proposed capitol improvement projects, our list of unmet needs, and our unfunded liabilities
    are staggering, and tough choices will have to be made, either by us or by future councils.

  43. Sue Greenwald

    Re 9:25 post:

    I said something to the effect that we should be thinking about exercising significant restraint in salary increases for our highest paid workers. This is where we take the huge hits to our budget. I have always argued for giving somewhat higher increases to our lower and middle salary levels, and lower increases to our highest paid workers. It does not cost us much to give reasonable salary increases to our lower paid workers. I have consistently lost this battle.

    I stressed that we should keep paying full retiree medical. Otherwise, I fear that low and moderate wage workers will not be able to afford insurance in their very old age, particularly since our retirement benefits are only inflation adjusted at a rate of 2% a year. A couple of years of triple digit inflation, or a period of sustained 3 to 5% a year inflation, for example, would significantly erode even the very generous pensions of our retirees. This is especially true since this council lowered the age at which even our desk workers can retire at full benefits to 55 (I voted against this).

    Hence, many workers can expect to be retired for over 35 to 40 years.. This is both very expensive for the city, and puts our retirees at risk of pensions severely eroded by inflation.

    The cumulative impact of our proposed capitol improvement projects, our list of unmet needs, and our unfunded liabilities
    are staggering, and tough choices will have to be made, either by us or by future councils.

  44. Sue Greenwald

    Re 9:25 post:

    I said something to the effect that we should be thinking about exercising significant restraint in salary increases for our highest paid workers. This is where we take the huge hits to our budget. I have always argued for giving somewhat higher increases to our lower and middle salary levels, and lower increases to our highest paid workers. It does not cost us much to give reasonable salary increases to our lower paid workers. I have consistently lost this battle.

    I stressed that we should keep paying full retiree medical. Otherwise, I fear that low and moderate wage workers will not be able to afford insurance in their very old age, particularly since our retirement benefits are only inflation adjusted at a rate of 2% a year. A couple of years of triple digit inflation, or a period of sustained 3 to 5% a year inflation, for example, would significantly erode even the very generous pensions of our retirees. This is especially true since this council lowered the age at which even our desk workers can retire at full benefits to 55 (I voted against this).

    Hence, many workers can expect to be retired for over 35 to 40 years.. This is both very expensive for the city, and puts our retirees at risk of pensions severely eroded by inflation.

    The cumulative impact of our proposed capitol improvement projects, our list of unmet needs, and our unfunded liabilities
    are staggering, and tough choices will have to be made, either by us or by future councils.

  45. Anonymous

    Just a note: Sue Greenwald will be a beneficiary of full retirement medical benefits once she leaves office. She was elected to two terms = 8 years employment by the city, which meets the 5 year requirement for this benefit. Councilmembers elected to one term do not meet this requirement.

  46. Anonymous

    Just a note: Sue Greenwald will be a beneficiary of full retirement medical benefits once she leaves office. She was elected to two terms = 8 years employment by the city, which meets the 5 year requirement for this benefit. Councilmembers elected to one term do not meet this requirement.

  47. Anonymous

    Just a note: Sue Greenwald will be a beneficiary of full retirement medical benefits once she leaves office. She was elected to two terms = 8 years employment by the city, which meets the 5 year requirement for this benefit. Councilmembers elected to one term do not meet this requirement.

  48. Anonymous

    Just a note: Sue Greenwald will be a beneficiary of full retirement medical benefits once she leaves office. She was elected to two terms = 8 years employment by the city, which meets the 5 year requirement for this benefit. Councilmembers elected to one term do not meet this requirement.

  49. Rich Rifkin

    “Sue Greenwald will be a beneficiary of full retirement medical benefits once she leaves office.”

    Sue can answer this better for herself, but I don’t believe that is true for two reasons: 1) I don’t think city counsel members qualify for PERS benefits, as they are not “employees”; and 2) unless I am quite mistaken, Sue is much too young to qualify for PERS retirement benefits at this point.

    “I stressed that we should keep paying full retiree medical. Otherwise, I fear that low and moderate wage workers will not be able to afford insurance in their very old age.”

    Sue, if you restrict this benefit only to people who retire with the City of Davis who have worked for the city for 30 or more years, then I agree with you. It is still a VERY generous benefit, considering a person retiring at 65 can expect to receive it for another 20 years or more.

    But where I strongly disagree with this policy is with people who retire from the city of Davis after only a short period of employment. Currently, full lifetime retiree medical benefits are awarded to city employees after only 5 years with the City of Davis. That is terribly excessive.

    When someone comes to work for Davis at age 25 and stays until she is 65, she deserves to be rewarded for her lengthy service. But when a department head comes to Davis from Gilroy, for example, stays a short period, and then retires, we (the taxpayers) ought not have to keep rewarding that short service for decades to come.

    For employees who stay between 20 and 30 years, I think we could offer them a partial medical retiree benefit, but not a complete one. In other words, the city could pay 50% of the cost of the plan, with a capped annual percentage increase. If we did that with those employees, then we not only would be paying less, but we would know exactly how much the long-term increases in expenses would be.

    ****

    P.S. One of the most interesting, and I think realistic, things that Sue ever told me — I don’t know if recall saying this, Sue — was that one of the main reasons some city staff positions are so well paid, both in salary and benefits, is because the negotiations (I think by state law) are done behind closed doors, entirely out of public view. If the public could witness what was going on, it would be a lot harder for some of the public employees unions to demand what they do.

  50. Rich Rifkin

    “Sue Greenwald will be a beneficiary of full retirement medical benefits once she leaves office.”

    Sue can answer this better for herself, but I don’t believe that is true for two reasons: 1) I don’t think city counsel members qualify for PERS benefits, as they are not “employees”; and 2) unless I am quite mistaken, Sue is much too young to qualify for PERS retirement benefits at this point.

    “I stressed that we should keep paying full retiree medical. Otherwise, I fear that low and moderate wage workers will not be able to afford insurance in their very old age.”

    Sue, if you restrict this benefit only to people who retire with the City of Davis who have worked for the city for 30 or more years, then I agree with you. It is still a VERY generous benefit, considering a person retiring at 65 can expect to receive it for another 20 years or more.

    But where I strongly disagree with this policy is with people who retire from the city of Davis after only a short period of employment. Currently, full lifetime retiree medical benefits are awarded to city employees after only 5 years with the City of Davis. That is terribly excessive.

    When someone comes to work for Davis at age 25 and stays until she is 65, she deserves to be rewarded for her lengthy service. But when a department head comes to Davis from Gilroy, for example, stays a short period, and then retires, we (the taxpayers) ought not have to keep rewarding that short service for decades to come.

    For employees who stay between 20 and 30 years, I think we could offer them a partial medical retiree benefit, but not a complete one. In other words, the city could pay 50% of the cost of the plan, with a capped annual percentage increase. If we did that with those employees, then we not only would be paying less, but we would know exactly how much the long-term increases in expenses would be.

    ****

    P.S. One of the most interesting, and I think realistic, things that Sue ever told me — I don’t know if recall saying this, Sue — was that one of the main reasons some city staff positions are so well paid, both in salary and benefits, is because the negotiations (I think by state law) are done behind closed doors, entirely out of public view. If the public could witness what was going on, it would be a lot harder for some of the public employees unions to demand what they do.

  51. Rich Rifkin

    “Sue Greenwald will be a beneficiary of full retirement medical benefits once she leaves office.”

    Sue can answer this better for herself, but I don’t believe that is true for two reasons: 1) I don’t think city counsel members qualify for PERS benefits, as they are not “employees”; and 2) unless I am quite mistaken, Sue is much too young to qualify for PERS retirement benefits at this point.

    “I stressed that we should keep paying full retiree medical. Otherwise, I fear that low and moderate wage workers will not be able to afford insurance in their very old age.”

    Sue, if you restrict this benefit only to people who retire with the City of Davis who have worked for the city for 30 or more years, then I agree with you. It is still a VERY generous benefit, considering a person retiring at 65 can expect to receive it for another 20 years or more.

    But where I strongly disagree with this policy is with people who retire from the city of Davis after only a short period of employment. Currently, full lifetime retiree medical benefits are awarded to city employees after only 5 years with the City of Davis. That is terribly excessive.

    When someone comes to work for Davis at age 25 and stays until she is 65, she deserves to be rewarded for her lengthy service. But when a department head comes to Davis from Gilroy, for example, stays a short period, and then retires, we (the taxpayers) ought not have to keep rewarding that short service for decades to come.

    For employees who stay between 20 and 30 years, I think we could offer them a partial medical retiree benefit, but not a complete one. In other words, the city could pay 50% of the cost of the plan, with a capped annual percentage increase. If we did that with those employees, then we not only would be paying less, but we would know exactly how much the long-term increases in expenses would be.

    ****

    P.S. One of the most interesting, and I think realistic, things that Sue ever told me — I don’t know if recall saying this, Sue — was that one of the main reasons some city staff positions are so well paid, both in salary and benefits, is because the negotiations (I think by state law) are done behind closed doors, entirely out of public view. If the public could witness what was going on, it would be a lot harder for some of the public employees unions to demand what they do.

  52. Rich Rifkin

    “Sue Greenwald will be a beneficiary of full retirement medical benefits once she leaves office.”

    Sue can answer this better for herself, but I don’t believe that is true for two reasons: 1) I don’t think city counsel members qualify for PERS benefits, as they are not “employees”; and 2) unless I am quite mistaken, Sue is much too young to qualify for PERS retirement benefits at this point.

    “I stressed that we should keep paying full retiree medical. Otherwise, I fear that low and moderate wage workers will not be able to afford insurance in their very old age.”

    Sue, if you restrict this benefit only to people who retire with the City of Davis who have worked for the city for 30 or more years, then I agree with you. It is still a VERY generous benefit, considering a person retiring at 65 can expect to receive it for another 20 years or more.

    But where I strongly disagree with this policy is with people who retire from the city of Davis after only a short period of employment. Currently, full lifetime retiree medical benefits are awarded to city employees after only 5 years with the City of Davis. That is terribly excessive.

    When someone comes to work for Davis at age 25 and stays until she is 65, she deserves to be rewarded for her lengthy service. But when a department head comes to Davis from Gilroy, for example, stays a short period, and then retires, we (the taxpayers) ought not have to keep rewarding that short service for decades to come.

    For employees who stay between 20 and 30 years, I think we could offer them a partial medical retiree benefit, but not a complete one. In other words, the city could pay 50% of the cost of the plan, with a capped annual percentage increase. If we did that with those employees, then we not only would be paying less, but we would know exactly how much the long-term increases in expenses would be.

    ****

    P.S. One of the most interesting, and I think realistic, things that Sue ever told me — I don’t know if recall saying this, Sue — was that one of the main reasons some city staff positions are so well paid, both in salary and benefits, is because the negotiations (I think by state law) are done behind closed doors, entirely out of public view. If the public could witness what was going on, it would be a lot harder for some of the public employees unions to demand what they do.

  53. No on

    Councilman Souza..I think that you should take heed of your own public admonition to the NO on Xers to “get our heads out of the sand!” We are living in a new reality of LIMITS… water, energy, infrastructure capacity, MONEY. The California bonanza that began after
    WWII is rapidty coming to an end and sustainability rather than polyanna economic “kiting” is the new game.

  54. No on

    Councilman Souza..I think that you should take heed of your own public admonition to the NO on Xers to “get our heads out of the sand!” We are living in a new reality of LIMITS… water, energy, infrastructure capacity, MONEY. The California bonanza that began after
    WWII is rapidty coming to an end and sustainability rather than polyanna economic “kiting” is the new game.

  55. No on

    Councilman Souza..I think that you should take heed of your own public admonition to the NO on Xers to “get our heads out of the sand!” We are living in a new reality of LIMITS… water, energy, infrastructure capacity, MONEY. The California bonanza that began after
    WWII is rapidty coming to an end and sustainability rather than polyanna economic “kiting” is the new game.

  56. No on

    Councilman Souza..I think that you should take heed of your own public admonition to the NO on Xers to “get our heads out of the sand!” We are living in a new reality of LIMITS… water, energy, infrastructure capacity, MONEY. The California bonanza that began after
    WWII is rapidty coming to an end and sustainability rather than polyanna economic “kiting” is the new game.

  57. Anonymous

    city staff are WAY overpaid. unbelievable that so many staff are paid in six-digit numbers. City of Davis, Inc. needs to reign in the executive salaries. Heck, even mid-level folks are making 80,000+ due to the cash payout for spousal benefits- that alone can increase the salary by almost 10,000 per year. cushy jobs indeed.

  58. Anonymous

    city staff are WAY overpaid. unbelievable that so many staff are paid in six-digit numbers. City of Davis, Inc. needs to reign in the executive salaries. Heck, even mid-level folks are making 80,000+ due to the cash payout for spousal benefits- that alone can increase the salary by almost 10,000 per year. cushy jobs indeed.

  59. Anonymous

    city staff are WAY overpaid. unbelievable that so many staff are paid in six-digit numbers. City of Davis, Inc. needs to reign in the executive salaries. Heck, even mid-level folks are making 80,000+ due to the cash payout for spousal benefits- that alone can increase the salary by almost 10,000 per year. cushy jobs indeed.

  60. Anonymous

    city staff are WAY overpaid. unbelievable that so many staff are paid in six-digit numbers. City of Davis, Inc. needs to reign in the executive salaries. Heck, even mid-level folks are making 80,000+ due to the cash payout for spousal benefits- that alone can increase the salary by almost 10,000 per year. cushy jobs indeed.

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