Contracts Likely To Not Produce the Savings We Need

citycatWord trickled out prior to the Tuesday’s meeting that several of the bargaining groups had reached agreement with the city in principle on new contracts.  As it turns out that news was premature, but it seems very likely that in the coming weeks those contracts will be finalized.

There was suggestion on Tuesday however, that those contracts would fall well short of even the modest savings proposed by the council in June which placed the figure at 1.25 million dollars.  In fact, City Finance Director Paul Navazio indicated that there might be a 350,000 dollar shortfall in the projected savings based on the current trajectory of discussions.

The city, despite urging from council and the community, never set forth a plan for transparency in terms of these talks, so the public has largely been in the dark with the exception of a few tidbits that have leaked out every so often.  The city also never established a policy for vetting the new contracts to the public prior to approval.  One possibility would be once agreement in principle was reached to have a 30 day comment period by the public, have the process go through the Finance and Budget Commission and then have the item discussed in open council meeting.  That seems reasonable but unlikely to occur.

The new got worse on Tuesday as it became clear what it would mean if the city failed to reach the full $1.25 million in savings to close the remainder of the $3.4 million general fund deficit for the current fiscal year.  For starters, any savings extracted now would have twice the $350,000 number.  The reason for that is that with half the fiscal year already having ticked by us, the city will have to cut twice the services, staff, and other cuts to reach the same level of savings.

It gets worse because given the amount of time that has elapsed, the city may need to find additional savings anyway as Mr. Navazio warned on Tuesday night.  He spent a good deal of time dealing with the possibilities including a hard hiring freeze, the shutting off of 200 street lights, closing the community pool, and reducing funding for various services.

Despite these rather drastic cutting possibilities the city did not hesitate to add $400,000 in expenditures for a new Battalion Chief Model.  As we discussed on Wednesday, the council at least in principle approved the exploration of the new model.  They even called it cash savings.

But as we discovered on Tuesday night, while they may argue that it is cash savings, in point of fact, it is completely smoke and mirrors.

The cash savings aspect actually has nothing to do with the shift to the new management structure.  Instead it relies on a separate reserve staffing shift that would reduce the number of reserve staffers from 3 to 2.  Citygate in June recommended that the city reduce the number of relief staff to two per shift and then use overtime to cover the balance.  Their study found that the city used 3 relief staffers per shift but only needed .16 per shift.  The report estimates that the savings derived from this change would be around $360,000 per year, but even City Manager Bill Emlen questioned whether they would actually achieve that kind of savings given the cost of overtime.

The city then proposes to use that savings to pay the additional $181,000 estimated by Citygate to switch to a Battalion Chief model that the city and fire chief claim are desperately needed even though the fire department seems to be functioning fairly well without it and given the city’s fiscal picture, perhaps we could save the money.

However, it turns out the $200,000 that the city is claiming its saving with this reorganization is not quite true.

In the staff report, it appears they use an already deleted position of the Fire Division Chief for Prevention to off-set the cost of Assistant Fire Chief that they expect to eventually hire.  The result is that what looks like a saving of $177,000 actually breaks even. 

But as we discovered with budget discussion, it is worse than that, because they are planning to cut two fire positions anyway to balance this year’s budget given the shortfalls in the cuts from labor contracts along with the late time in which the agreements will have been reached.

In other words, what we really have is this:

Battalion Chief model: $180,000 in additional costs
Assistant Fire Chief: $210,000 in additional costs

There is no cost savings here because the Fire Division chief for prevention is already deleted and we are going to have to cut the two fire positions regardless of whether this project gets implemented.

The City Manager and Finance Director were pressed on this issue on Tuesday night by Councilmember Lamar Heystek, both merely said that they would not double-count the cuts and that if they implement this program they will have to find additional savings elsewhere.

Both the City Manager and Finance Director did their best to spin this in a positive manner.  The problem that Mr. Heystek was concerned about was of course not that the savings would be double-counted, but rather that if this program went forward, we would need to find additional savings to fund it and that is what Emlen and Navazio acknowledged.  They in effect admitted what we already knew–that they had not produced cost-savings here, just smoke and mirrors to mask the fact that while every other program in the city is being cut to the bone, the fire department is getting their pet project.

The reality is that while the city is in fiscal crisis, while the city has failed to achieve sufficient savings through the collective bargaining process, and while the city is now going to cut programs and services to the bone, they will in fact enact a $400,000 additional expenditure for the fire department to have their Battalion Chief model.  Can anyone point to me an explanation other than the fact that the firefighters unions has donated tens of thousands of dollars to council majority?

But as they say, getting back to the employee bargaining agreements, it is even worse than that.  Because the short-term deficit is only one half of this coin.  The city is facing a $42 million unfunded liability in retiree health benefits, it faces an unfunded liability and increase in the costs of pensions, and all these bargaining contracts are going to deal with is about three-quarters of the short-term budget shortfall and they are likely to do that in the form of furloughs which will simply be subtracted out of the next contract.  There will be no real change here and the city remains on its collision course.

Sue Greenwald captured the crisis the city faces in her comments on the fire staffing issue:

“At the direction we’re heading, we’re likely to see widespread local bankruptcies.  Under the bankruptcy scenario, all of the pension and benefits that the public sector employees have bargained so hard to achieve will be in jeopardy.  Public health and pension benefits can be stripped during bankruptcy.”

Unfortunately, a system that could have led us to a solution is going to become part of the larger problem.  And the firefighter deal means that all the rest of our services will be cut back a little more.

—David M. Greenwald reporting

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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12 Comments

  1. Gunrock

    Time to seriously consider an all-volunteer fire department. Could be done, has been done. Heck, ask the University to administer it. Clearly the city is clueless.

    After this three-member idiocracy’s continued support for development in the face of public opposition, blowing money on their firebuddy backers and complete inability to cut staff budgets, is it too soon to consider a three-way recall? Souza, Asmundson, Saylor need to go- they just don’t get it.

  2. nvn8v

    The university does administer a student firefighter program that serves as a staffing reserve and generally the ‘4th man’ on the fire engine in addition to the full time staff. Perhaps the city should seriously consider a reserve program now that there will (hopefully) be some changes at the Chief level.

  3. Phil

    I agree with Gunrock. We need a new City Council. We need to hold these folks accountable for horrible decisions which could bankrupt the City. This could actually be a good time for a recall on certain folks in CC…

    This is an issue that everyone in Davis should be able to agree on, outside of a small group that gains. Its simple: good government vs bad government. (Unfortunately we have the latter.)

  4. Rich Rifkin

    [quote]blowing money on their firebuddy backers and complete inability to cut staff budgets, is it too soon to consider a three-way recall?[/quote]In my column ([url]http://www.davisenterprise.com/story.php?id=621.0[/url]), which you can read in today’s Davis Enterprise, my concluding paragraph reads: [i]”If the City Council declares an impasse, I will be convinced they have changed. If not, the voters of Davis are going to have to change the City Council.”[/i]

    I’ve never been one to favor a recall. However, that idiotic vote on the fire department made me realize just how contemptuous the council majority is about the taxpayers (and frankly about the other city employees who will suffer from that irresponsibility).

  5. SODA

    Rather than a recall shouldn’t the ‘minority’ work to identify AND ELECT 2 new CC. I would hope Lemar will help in the efforts. This approach to me is the most expedient and probably successful. Comments?

  6. Frankly

    The UAW is refusing to compromise on Ford’s labor contract renewal because Ford managed to make a profit. The result will be that Ford has higher labor costs than their competitors after refusing a government bailout and managing a turnaround on their own. Now, possibly, Ford union labor was instrumental in making Ford profitable and deserves some type of reward. However, I suspect that a GM and Ford UAW worker are pretty standard given the union’s tendency to level the worker playing field.

    This illustrates the problem with union labor costs… there is a dysfunctional connection to the success or failure of the mother ship. What we need is to replace a percentage of their compensation with a company performance bonus… they would make a percent of the profit earned by the company, or give up a percent of the loss. For municipalities, we should start doing something similar based on projections of inflows, but without the higher upside if inflows exceed expectations (because public safety employees have no contribution to higher or lower inflows). This would provide some safety valve for economic downturns.

  7. David M. Greenwald

    I’m considering taking a very strong measure of sending out a mailer with a detailed article to the entire city highlighting some of the problems, particularly with regard to what happened on Tuesday and the purchased influence of the fire fighters union.

  8. Rich Rifkin

    Jeff, I do agree with you regarding the UAW position. However, I don’t completely agree with this: [quote]What we need is to replace a percentage of their compensation with a company performance bonus… [/quote] Most companies have this sort of thing — I expect Ford already does — or the employees tend to own company stock*, which rises or falls with the company’s profits.

    However, there is a problem with paying lower-level workers based on “company performance.” The guy at Ford who tightens the lug nuts on the assembly line can work his ass off for his entire shift, week after week, year after year, and his personal efforts will never affect “company performance.”

    The reason Ford has been profitable and GM and Chrysler have not been is not due to Ford hiring better assembly line employees or managing them better; or Ford’s low-level workers being better than the others’. It’s about designing and marketing cars and trucks which consumers prefer; and giving better post-purchase service. It’s also about managing their debt and efficiently utilizing their factory capacity.

    Given that, you don’t successfully motivate your employees whose performance does not materially affect the bottom line by giving the bonuses based on company performance. You should give them performance bonuses based on how well they do; or how well the small group in which they work does. But basing their pay on things like how profitable Ford is as a corporation is folly.

    *Warren Buffet is very critical of companies which pay out stock options ([url]http://www.nytimes.com/2002/03/11/business/stock-options-are-faulted-by-buffett.html[/url]) to employees who have little or no say in how valuable the stock will be. He has said that employees who generate income for the company should be paid accordingly. But employee fortunes should not rise or fall based on corporate performance, unless those employees are the few determining that performance. Moreover, Buffet is vehemently against giving top managers stock options when the contracts involve no downside risk for the managers, but potentially will have a huge cost for outside shareholders (whose positions are diluted by giving away stocks to insiders).

  9. rod s

    Sue’s right. However by waiting for the next election it will be too late and the damage will be done for the foreseeable future.

    I like David’s idea of doing a mailer to the residents, but one wonders if the electorate is too “a sleep at the switch” or “just doesn’t care” until it literally hits them over the head with bankruptcy or a huge increase in propety taxes. At this point I’d take BK. But I could get excited about a recall also. I’d be willing to chip in time and money to make some serious changes.

  10. Frankly

    Given that, you don’t successfully motivate your employees whose performance does not materially affect the bottom line by giving the bonuses based on company performance. You should give them performance bonuses based on how well they do; or how well the small group in which they work does. But basing their pay on things like how profitable Ford is as a corporation is folly

    Rich, I get your point and agree with it. However, I wasn’t considering pay for performance in this case. I was simply recommending a mechanism to help manage labor costs in down years. What has become apparent to me and I think a lot of Americans (in a recent Gallup poll only 48% of Americans approve of unionized labor… down from 59% a year ago) is that unions will take down the organization they work for before giving in. I am recommending a simple budget control mechanism that lessens the possibility that the union can destroy the city.

    Do something like this… tie 25% of compensation and 100% of accrueable annual retirement benefits to inflow projections with a graduated scale reduction for every dollar below the projections. I don’t know if this has been done, but it seems we have little choice. Non-unionized private companies these days have profit-sharing 401(k) programs. In the years where there is no profit, there is less or zero employer-paid contribution to the employee retirement plan. City managers and councils have no more control over changes to actual inflows than labor does, so there should be no trust issue to get in the way.

    Now, on top of some cost managing change, if the agency, department or company wants to negotiate with the union to implement a pay-for-performance system that puts some worker compensation at risk so to reward the top performers with periodic performance bonuses (not merit pay increases that ratchet up compensation), I am all for that too. The measurements for these bonuses need to be focused on motivating the desired performance results (the “what gets measured, gets done” rule). Somehow I don’t see any union going for this type of program unless it is forced on them. Then they would fight it all the way preferring instead pay by seniority and rank.

    We need to take advantage of the current near crisis to negotiate an agreement that helps prevent the same problems from occuring.

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