Rifkin’s Column Argues Fire MOU Fails to Solve Long-Term Budget Issues

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davis_firedepartmentFor those who have been following the budget and firefighter saga in Davis, it should have been little surprise that Davis Enterprise Columnist Rich Rifkin on Wednesday would write that the MOU agreement between the city and firefighters “doesn’t solve long-term mess.”

In a way, I debated whether I really needed to highlight his column on these pages, most of the arguments have been made before.  But I do so, because in a lot of ways, I think he raises a crucial point about the changing landscape in Davis.

I do believe that in most elections growth is the critical issue that divides Davis.  We saw a slight deviation from that back in 2006 when the issue of police oversight intruded onto the landscape.  One thing interesting is that while the issue may changed back in 2006, the lines of demarcation remained the same.  The more progressive element was more supportive of police oversight than the more pro-growth element.

In terms of the issue of this year’s elections, I both agree and disagree with Mr. Rifkin.  While it is true that Measure means that the council does not get the last word on peripheral growth, it does render the council’s positions as moot.  I think the neighbors of Chiles Ranch will attest to this fact.  And I can go down the list.

However, I do agree with Rich Rifkin, the most important issue facing the city of Davis is the long-term budget and that is indeed a problem that the City Council not only created but they and only they can fix.

What is interesting at least right now is that even here the dividing line on the council is the same cleavage with the council majority of Mayor Asmundson, Mayor Pro Tem Saylor, and Councilmember Souza holding the line and preserving the status quo while Councilmembers Greenwald and Heystek have been very strident in pushing for reform and fiscal responsibility.

The problem is I just do not know how much the average Davisite cares about this issue.  We had a townhall meeting back in May and had between 30 and 40 attendees.  Not a bad turnout, but not great.  Consistently we have seen packed rooms for issues such as the Palestinian Conflict, homeless, Measure J, woodburning stoves, Measure P, even the discussion of Willowbank drew a full audience.  However, when issues of the budget or the firefighters contract come up there are only a few interested parties.

I have often joked that I have to write about landuse issues on the Vanguard in order to insure I have an audience for other topics that I would rank as more important.  And I don’t mean to dismiss the importance of land use issues, however, I believe there are more pressing matters at the moment as long as Measure J remains in place.

I do want to get into the crux of the matter here as Rich Rifkin makes some good points that bear repeating.

The bottom line with the MOU is that it does not fix the long-term problems.  Although I think the short-term problems are not solved nearly as well as they imply either.  The city has implied over $800,000 in savings over three years but that is from the unsustainable baseline of continuing the current contract rather than reduction from actual spending in year 0.  Sue Greenwald has already found that the city only saves $57,000 in real dollars from year 0 to year 3.

But Rich Rifkin focuses on the long-term where I agree, the bulk of the city’s problem lies.  In most ways this is now a lost opportunity.

Mr. Rifkin writes:

“The chagrin is that the fire contract ignores our future reality. As a short-term document, it is not bad. The concept of capping the growth of total compensation is commendable. But the reason two of the five members of the council gave it a thumbs-down is because it has no long-term reform.

By putting off a solution for at least three more years, the current council is guaranteeing that when the crisis comes in 2017, it will be far more difficult to disentangle.”

The biggest problem is the unfunded liaiblity for retire health care benefits with most estimates placing that between $42 million and $65 million.

Writes Mr. Rifkin:

“We have no money to pay this bill.

The reason the expense is so great is because our pension program encourages city employees to retire absurdly young. A firefighter or a cop can get full health benefits and 90 percent of his highest salary at age 50 if he chooses to quit working. Desk workers in Davis can go on a full pension as early as age 55 and pay nothing out of pocket for their medical, dental or vision care.

(Starting in about 2026, new retirees under 60 will have to pay part of their premiums.)”

Rich Rifkin then turns his sights to the Sunday op-ed by Councilmembers Saylor and Souza, who he points out together took over $8000 in campaign contributions from the firefighters in the 2008 election.  They defend the deal they struck with Local 3494.

“Saylor and Souza point out, before the city started negotiating with the union, council members agreed to ‘guiding principles’ that they would follow.

One of those tenets was: ‘Strive to reduce the long-term liability of retiree medical costs, while retaining progressive elements of the city’s retiree medical insurance benefit.’

Ask any objective auditor whether the contract they reached with the firefighters ‘reduces the long-term liability.’ None will say it does.

We did not reduce the city’s share of this expense. We did not decide to wait until a retiree reaches age 65 before we started paying his bill. We did not drop the spousal or dependent benefit. We did not opt for a more modest health care package. And we did not change our pension formulas that encourage the early retirements for any new hires.

In short, the council dropped the ball. And the ball is going to land on the heads of the taxpayers in a few years.”

He continues:

“The op-ed by Saylor and Souza stresses a series of short-term changes, such as a 4 percent cut in wages for the firefighters. What the councilmen fail to mention is that in 2005, flush with firefighter financing, they voted to increase firefighter pay by 36 percent.

What made our City Council think that large a pay raise was affordable? It seems to me a bit disingenuous to slap yourself on the back for your great success in reducing salaries by a few percent when you were the ones responsible for raising their rates to an unsustainable level.”

Finally he calls it unethical for the council candidates to accept money from the people who do business with the city.

“I will pay attention to which special interests are funding which candidates. It is unethical for a council candidate to accept money from people who do business with the city. The firefighters financed all three members of the council who approved their recent deal. The two they did not fund in the last election voted no.

I hope voters in Davis will have the sense this year to vote no on any candidate who takes tainted cash and turns around and rewards his financiers.”

The advantage of this site is that I am regularly write pieces that are 1200 to 1500 words, occasionally they can go over 2000 words or even 3000 to 4000 words.  Mr. Rifkin only had 900 words to explain a rather complex problem and I think he did a very good job.

My hope is that the public as it becomes aware of this problem with gain concern for it and we are currently working on a way to do just that.

—David M. Greenwald reporting

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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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21 thoughts on “Rifkin’s Column Argues Fire MOU Fails to Solve Long-Term Budget Issues”

  1. Observer

    I fear there is little hope of avoiding economic collapse. As Sue rightly points out, people pay attention to things close to their own lives. The scratch on the new car is more important than the children starving in Ethiopia. The pay the firemen get is abstract; the smoke in my yard isn’t. The fire department has purchased 3 council members, and the electorate will elect the candidates who send out the most glossy fliers, which means the ones supported by the firemen. People will wake up when the bill comes due, but not before I fear.

  2. Rich Rifkin

    [quote]The pay the firemen get is abstract; the smoke in my yard isn’t.[/quote] Observer has this exactly right.

    Another way of saying the same thing is that the amount firefighters are paid matters 100% to them, so they will do whatever they can to work the system to their advantage. On the other hand, how much firefighters are paid is not the primary concern of anyone in the general public.

    Most of us have thousands of concerns in our lives which take priority. So even if 90% of the people agree this is a problem, they will never organize an effective political action committee to fix it.

    Perhaps the most famous academic to study this issue was Mancur Olson in his book, “The Logic of Collective Action.” ([url]http://books.google.com/books?id=jzTeOLtf7_wC&dq=The+Logic+of+Collective+Action&printsec=frontcover&source=bn&hl=en&ei=hn1HS-vAO4LgsQOp6eH1Dw&sa=X&oi=book_result&ct=result&resnum=4&ved=0CBgQ6AEwAw#v=onepage&q=&f=false[/url]) It’s been 25 years since I read that, but I still recall the message: the costs of organizing a small group for collective action are low and the benefits to individual members in the group are high; the costs of organizing a large group for collective action are high and the benefits to individual members are low. Thus, small groups have a huge advantage in a democracy.

    A good national example of this is with sugar policy. Three hundred million Americans consume processed sugar. A couple thousand or so agribusinesses in the United States grow sugar in our country. Sugar consumers* have a very high cost of organizing and very little to benefit from doing so**. The result is that, due to import quotas and tariffs, Americans produce far more high-cost sugar domestically than is economical and American consumers pay roughly double the world market price for sugar. [quote]The fire department has purchased 3 council members, and the electorate will elect the candidates who send out the most glossy fliers, which means the ones supported by the firemen. [/quote] David, speaking of glossy fliers regarding fire policy in Davis, did you get my editing notes on the Vanguard flier? (For those who don’t know, the Vanguard is planning to send out a flier which discusses some of these same issues.)

    ————-

    *Large industrial sugar consumers, like big candy companies and soda manufacturers, by contrast, have an incentive to organize and they are organized and effective. Thus, they have won exceptions allowing them special sugar import licenses to get around the quotas. Also, some of the big corporate sugar users own large stakes in American sugar agribusinesses. However, small companies, like bakeries, restaurants and small food processors have been ineffective, perhaps because there are just too many of them to organize.

    **If you spend, say, $80,000 a year on various items from rent to transportation to clothing to taxes to food and so on, maybe $50 of your budget is spent on sugar (including the sugar in sodas, cakes, ice cream, coffee, tea, candy, etc.). In other words, about 15 cents per day or 0.0625% of your money goes to sugar. If we did not have a strong sugar lobby, pushing for policies to make the price higher, you might save half of that, or about 7.5 cents a day. So to the individual getting screwed, it’s just not that big of a deal. But to the screwer, it makes him very, very wealthy.

  3. David M. Greenwald

    Rich:

    Good description of the collective action paradox. From Olson’s work we also discover why voluntary taxation of other such things cannot work in a democracy. It’s become a cornerstone of political science. Basically in large groups, an individual’s contribution is not noticeable. Collective goods such as good public policy are shared by everyone regardless of participation. Therefore for an individual who is acting in a self-interested rational manner, they will gain the same benefit regardless of the amount they participate and therefore have the incentive to not participate.

    I did get your editing notes, thank you. I’m hoping to send those out in a week or two. Anyone who wants to voluntarily contribute to the effort, click the donate button above.

  4. Greg Kuperberg

    It would be nice to see a realistic estimate of how much people expect the city to save with a better fire department contract. You guys have preached a great deal that the firefighters are overpaid, that they’re bleeding the city dry, but for all that, I have not seen a clear explanation, measured in dollars, of what you hope to accomplish.

  5. wdf1

    Most of us have thousands of concerns in our lives which take priority. So even if 90% of the people agree this is a problem, they will never organize an effective political action committee to fix it.

    But this can become an actionable problem for local residents if we see enough reduction in other services or an unacceptable proposesd increase in fees and taxes. Then we local voters wonder why this situation is happening and potentially vote in city council candidates who might change it.

    Maybe an anology here (obviously a negative characterization, but makes the point) is like a parasite feeding too much off of its host. The host is killed and the parasite also dies.

    In that analogy, there’s such a thing as being too greedy, and maybe that’s what is going on.

    The Davis Voice republished Saylor’s and Souza’s op-ed piece from last Sunday. The editor of the blog invited discussion on the topic at the end of the posting. I posted a comment suggesting a response from the authors to Rifkin’s column criticizing the contract, but so far there has been no response.

    [url]http://www.davisvoice.com/2010/01/firefighter-contract-strikes-a-balance/[/url]

    I would have thought Souza would respond, because he has been a contributing writer to that blog before.

  6. wdf1

    Consistently we have seen packed rooms for issues such as the Palestinian Conflict, homeless, Measure J, woodburning stoves, Measure P, even the discussion of Willowbank drew a full audience. However, when issues of the budget or the firefighters contract come up there are only a few interested parties.

    A similar type of issue that is critically important to the state and its residents but doesn’t usually draw much voter interest because it doesn’t seem that sexy is water use policy.

  7. Rich Rifkin

    [i]”I have not seen a clear explanation, measured in dollars, of what you hope to accomplish.”[/i]

    The most important dollar number is $42 million to $65 million in unfunded retiree benefits. In an annual ongoing sense, that represents a current and ongoing cut in services of somewhere between $2.10 million and $3.25 million a year out of the (roughly $35 million) general fund on top of all the cuts in services we have already seen. And worse, the unfunded liability will likely grow and grow, eating away more and more of the general fund.

    [b]Here is how I see the problem:[/b]

    The City of Davis has a nominal revenue stream of X-number of dollars per year which grows by some percentage (on average) year over year, based on increased sales taxes, property taxes, utility fees and other fees. (City revenues also can be greatly impacted by state and federal policies.)

    At the same time the City has annual labor* and other operating costs and long-term capital costs of Y-number of dollars per year which grow by some percentage (on average) every year, based (mostly) on decisions of past city councils and whatever residential growth we have year over year in Davis.

    As long as X and Y over time are the same and grow over time at the same rates, there should be no fiscal problem. Even if you have short-term deficits due to a down economy, those can be handled in the short-run by using reserve funds. In the long run, the economy picks up and grows at a normal (or expected rate) and X and Y stay in rough balance. (When the economy is strong you can replenish your reserves.)

    [b]But in Davis, X and Y are not growing at the same rates.[/b] The long-run true cost of labor is causing Y to outpace the future expected revenue stream. That’s why the situation is not sustainable.

    The two areas of greatest concern are with 1) the unfunded liability for retiree medical, dental and vision care; and 2) the annual cost of funding pensions.

    On the City’s balance sheet, the retiree medical obligation is estimated to be between $42 million and $65 million. You don’t pay off a long-term debt all at once. In fact, a City does not ever have to pay down such a debt. If the amount does not increase, you can essentially pay the equivalent of the interest on the debt. That means a cost of $2.1 million (5% of $42 million) to #3.25 million (5% of $65 million) a year forever.

    [b]There are two problems with that: [/b]

    1) We don’t have the $2.1 million extra per year. To get it, the City will have to dramatically cut back services, including firing police officers, firefighters and a lot of other city staff, shutting down rec, senior and poverty programs and reducing further needed maintenance in our parks, greenbelts, streets**, sewers and other infrastructure.

    In other words, for the same amount of taxes paid, the citizens will be less safe and get much worse service; and

  8. Rich Rifkin

    2) the unfunded retiree medical liability will not hold steady, but will grow over time, because A) the high-rate of medical inflation; B) retirees are living longer; and C) our workforce in Davis keeps growing. Therefore, what looks like a $2.1-$3.25 million cut in services forever becomes a larger cut in services forever.

    [b]The second serious problem which will make expenses grow far larger than revenues down the road is the annual cost of funding pensions. [/b]

    Based on what we now know from CalPERS, the annual costs to the City of Davis (to fund the exact same number of pensions for the same number of employees making the same wages) will increase by about a half million in 2011 and another half million the year after that and eventually will scale up to another $2 million out of our general fund in 5 or 6 years. We don’t have the money to pay these millions of dollars, either. And the reduction in services will be more of the same.

    [b]Now, it must be said that the current fire contract does something new with regard to the City’s pension obligations that really does change this as a long-term problem. [/b]

    It caps the total funded compensation costs (salary, benefits and pension) at roughly what the City projects revenues to increase by. For 2010-11 that is 1.5%; and for the year after 2.0%. Thus, when CalPERS raises rates and Kaiser and Delta Dental increase premiums beyond those cap figures, the difference will be made up (for the first time) with lower salaries for firefighters (and presumably in the other contracts all employees). Thus, the second part of the Y problem will be solved*** if we institute total compensation caps on all employees as a long-run strategy.

    [b]So here is what in my view needs to be accomplished****: [/b]

    We need our total labor costs (including all retiree costs) to largely stop growing at all for a few years and to then grow over time at a rate equal to the growth of our available revenues.*****

    We need the highest paid workers (e.g., firefighters making $30,000 a year more than cops with equal time on the job) to take pay cuts; and we need all of our employees to retire later so the cost of their retiree medical is substantially less to the taxpayers.

    We could greatly reduce our liability by simply saying the City will not pay anything for retiree medical benefits until a retiree reaches age 65 for desk workers and 60 for fire and police. (That solves most of the problem.)

    We need to stop encouraging them to retire so young. We could do that by changing our pension formulas from 3% at 50 to 2.5% at 55 for safety and to 2.0% at 60 for non-safety.

    —————-

    *Labor costs include workman’s comp and other mandates, current salaries, health and other benefits, pensions and other retirement obligations.

    **Although Davis got a lot of one-time money for street repairs from the federal stimulus act, we are still short around $4 million for ordinary street and sidewalk repairs. This number has nothing to do with the recession. It was $3 million a couple of years ago, when our economy was strong. It likely will keep growing over the next 10 years and the result will be badly maintained streets and sidewalks, which lower the quality of life, damage cars and bikes and probably lower property values.

    *** The problem here is that employees may balk at this when it really does start eating away at their salaries. That is, at some point, when it costs an extra $2,000 a year for their cafeteria benefits, they might prefer a cheaper medical plan in place of losing $2,000 in salary. My guess is the caps will be a serious issue for labor in 3-4 years, if we still have them in the contracts.

    **** I don’t know the exact dollar terms off the top of my head.

    ***** Obviously, we need to encourage companies to do business here which pay more in taxes than they cost in services. However, because we have so many voter-imposed taxes (safety, parks, libraries, schools, sales, etc.) and because our utility bills are already so high and (with new water and sewage treatment plans) expected to grow so much higher, I don’t think it is realistic to think the voters of Davis willl vote to increase their taxes any more.

  9. David M. Greenwald

    On the pension issue, I’m not sure how LA and Davis are different in terms of future versus present pension obligations, but this is an astonishing graphic from the LA Times illustrating what happens to pension costs in LA:

    [img]http://www.latimes.com/media/graphic/2010-01/51464481.gif[/img]

  10. Rich Rifkin

    At next Tuesday’s CC meeting, there is this on the agenda:

    [b]Item 7 — Resolution Adopting a Memorandum of Understanding with Individual Management Employees[/b]

    That means the council majority has reached its second labor deal. My guess is that any changes from the previous accord with this bargaining unit should look similar to the changes in the fire contract. However, there is a possibility for one significant change that could not be done in the fire deal*:

    The non-safety workers in Davis do not pay any of the workers’ share of their pension costs. The city pays the agency share and the workers’ share. I have long-recommended this change. (Davis is one of very few agencies which pays its workers’ share.) I hope that the council will remedy this problem in this contract.

    *Fire and police pay the max workers’ share.

  11. Greg Kuperberg

    [i]The most important dollar number is $42 million to $65 million in unfunded retiree benefits.[/i]

    But I’m not asking you to estimate the size of the black cloud. What I want to know is, if we had a really good city council within the realistic range, how big of an umbrella would they get us? Are you saying that it’s feasible to clear up this entire $40-$60 million liability? Because, in your position, you can be content to make demands; but Bill Emlen and the city council have to actually deliver.

  12. Rich Rifkin

    [i]”Are you saying that it’s feasible to clear up this entire $40-$60 million liability?”[/i]

    Yes. I give the solution partly above and elsewhere in full in columns. The answer lies largely in having workers retire later, at lower cost to the taxpayers and making the general provision of city services less expensive. To do so (off the top of my head) we need to:

    1. Don’t give retiree medical benefits to non-safety retirees under age 65 and safety workers under 60;

    2. Cap the growth of total compensation so it increases no faster than the average rate of increase of nominal revenue growth. That does not fix the problem, but it assures it does not grow worse;

    3. Change the pension formulas downward for all new hires;

    4. Reduce our total fire department costs by no longer paying firefighters for the hours they sleep;

    5. Have non-safety employees pay the employee share;

    6. Reduce the quality of the medical benefits plan so that it is more in-line with the quality of plans offered by private employers;

    7. Reduce other aspects of the contracts which make the provision of city services much more expensive and are thus unfair to taxpayers, such as firefighters getting 14 paid holidays a year plus an average of 20 paid vacation days plus sick leave and so on, for a workforce which is only on the job 120 days a year, and giving firefighters as a group 1,104 paid hours per year to conduct union business;

    8. Consolidate our management structure so that we have fewer departments, and thus fewer department heads and reduced numbers of assistant department heads;

    9. Ensure that City of Davis retirees must vest in Davis (which is a good reform in the current contract) and reduce the cash pay-out for employees who don’t take the cafeteria benefit* to about 50% (the current contract moves it from 100% to 80%); and

    10. Start negotiating from a position of strength. It is not the case that municipal workers are in short supply or that other cities are hiring away the best people at higher rates. Every city is cutting back.

    [b]My estimation is that 75% of the unfunded liability problem will be solved by the very first change.[b] A combination of the other changes will take care of the last 25%.

    —————-

    * I am not sure what is the exact right percentage. You don’t want to make it 100% because that highly encourages employees who have spouses with insurance to take the $18,177 in cash. But you don’t want to make it 0%, because that will encourage employees to go off of their spouses lesser plans and move onto the City of Davis’s premium plans. Some middle area will maximize the City’s savings.

  13. Rich Rifkin

    [/b]Let me clarify No. 1. I am not saying a 63-year-old City of Davis retiree should not get to be covered by the City’s cafeteria plan. I am saying that he should cover his own premiums until he reaches age 65, at which time the city and MediCare will cover his full benefit until he dies.

    I would make 2 exceptions for young retirees: 1) Anyone who retired young due to a disability should be covered; and 2) Any fully vested retiree whose pension is less than 3 times the amount of the premium should get his full costs paid for, but anyone whose pension is greater than or equal to 4 times the cost of the premium can pay the full amount until he is 65. In between 3 and 4 times the premium cost, the city should have a sliding subsidy.

  14. Greg Kuperberg

    [i]Yes. I give the solution partly above and elsewhere in full in columns.[/i]

    It’s a snap, Rich. The only thing missing from your solution is getting the bargaining units to agree to it. Emlen and the city council seem to think that that’s the hard part. Are they wrong?

  15. Rich Rifkin

    [i]”The only thing missing from your solution is getting the bargaining units to agree to it.”[/i]

    The bargaining units have no leverage. The law in the state of California and the economy and the excess supply of labor has taken away all of their power.

    If the majority of the CC in Davis wanted to reform the contracts — the current majority does not — they could present the reforms in the negotiations. If the labor negotiators said “no dice,” the CC would have the authority to impose its terms until the labor reps changed their stance. That is essentially what happened in Palo Alto ([url]http://www.cityofpaloalto.org/knowzone/labor_negotiations/default.asp[/url])* for the PA employees. It’s since taken place in a handful of other agencies across the state. And because of that trend, labor groups are adjusting their positions downward statewide (including to some extent with our groups).

    *There is one differnce in Davis. We have a municipal ordinance (adopted in the early 1970s, according to what city attorney Harriet Steiner told me) which requires us to go into non-binding mediation once the City declares an impasse. This drags out the procedure for about 6 more weeks. In Palo Alto, they declared an impasse one week and imposed terms the next.

  16. Greg Kuperberg

    [i]The bargaining units have no leverage. The law in the state of California and the economy and the excess supply of labor has taken away all of their power.[/i]

    If you’re pointing to Palo Alto, then what you mean is that you want the city to lay people off left and right until they cry uncle. Or threaten to do it. Well, that’s an idea. In fact, it’s really [b]the[/b] idea, because anyone can rattle off a lot of figures and charts about how much the payroll costs.

    Whether it’s a good idea to threaten the city staff with sweeping layoffs is not so clear. It’s not at all clear that the threat is necessary or credible. Big layoffs would mean big reductions in city services, and a lot of voters would wonder whether it’s really necessary to declare a crisis.

  17. Rich Rifkin

    [i]”If you’re pointing to Palo Alto, then what you mean is that you want the city to lay people off left and right …”[/i]

    I presume you are being facetious. The only hope of saving the jobs of many crucial City of Davis employees is to make the reforms I have called for. And I believe the only likely way to achieve those reforms in the contracts is to do what was done in Palo Alto: impose terms via an impasse declaration.

    Palo Alto, in fact, says its actions saved jobs: “While other cities have resorted to layoffs, the City of Palo Alto is pursuing cost savings and taking every possible step to avoid employee layoffs.”

    As it happens, our CC is now in the impasse process with the DCEA. I don’t know what role I had in pushing the council in that direction. However, no one on the council and no one in staff had ever said anything about declaring an impasse before I advocated it in my column. (I interviewed Asmundson, Souza and Heystek for that piece; and it seemed like of those three, only Heystek had really given impasse much thought at that point.)

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