Analysis: Last Round of MOUs Went Further Than You Think

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contract-stockThere has been a conventional belief that the city MOUs in 2012 did not go nearly far enough in terms of savings. We have made the argument repeatedly that the city got about as much as it could, particularly given where the council left off in 2009-2010 with very small concessions from employee groups.

However, one source this weekend reminded the Vanguard just how much of a heavy lift the council actually made.

In 2010, the Vanguard ran a story, “Davis’ Cafeteria Cash Out Plan Dwarfs That Paid by Other Cities.”

The cafeteria cash-out plan applies to those employees who are covered under the health plan of a spouse.  Since they do not need to take that particular benefit, the city compensates them in cash payouts. As recently as the pre-2009 MOUs, the city paid out the entire cost of the benefit to employees, $1,774.12 per month.

There has been a lot said that the city of Davis, while generous in its pay and benefits, has merely given out what other cities have. However, this was not the case for cafeteria cash outs; when the Vanguard did a quick survey of eight other communities, no one gave out more than $565 per month and some gave out nothing.

There is something to be said for an inducement to take a small quantity of cash rather than the full health benefit, but the city gained zero advantage giving out the full cost.

The 2009-2010 MOUs reduced the maximum cash out for many bargaining units to $1483 and in some units set up a second tier to give new employees only $500.

But that did not go nearly far enough. So one of the biggest savings was that, in the last round of MOUs, the city reduced over time the cash out from $1483 down to $500. This is not insignificant as it produced $1.7 million in savings.

If you are an employee, this is a major hit. For many, it meant nearly a $1000 cash reduction in pay or nearly $12,000 for the year. That represented a take home pay cut up of up to 30% for many employees.

This was, however, not the end of the changes.

After 2009, the city was still picking up a portion of the employee share of the retirement costs. In the 2012 contract, miscellaneous employees’ share went from 5 percent to 7 percent on January 1, 2013 and then to 8 percent on January 1, 2014. The city did agree to offset that immediate cost by giving a 2% pay increase, however, as over time picking up that share of the employee costs will save the city money.

The city also implemented a two-tier retirement benefit for everyone except DCEA and Fire because the city could not impose that benefit. The new benefit for non-sworn employees is a 2% @ 62 formula and sworn employees is 2.7% @ 57. CalPERS estimates that this will save jurisdictions 4.7 percent annually.

Again, that is a benefit that the city will realize down the line.

In addition, the city watered down retiree medical benefits. In 2012, retiree health consumed 20 percent of payroll. The new contract brought it down to 17.25 percent. These are substantial savings that ended up coming directly out of the pocket of employees.

Health costs have risen at an alarming rate and continue to increase. The city council identified a need to effectively manage health benefit costs while maintaining comprehensive coverage for all employees. To help rein in escalating health benefit costs while maintaining coverage for all employees, the agreement created a 50/50 cost sharing provision with future increases to health care costs shared between the city and the employee.

There is still a belief that the city could have gotten more – but from our vantage point the city got a lot and did so with only two bargaining units going to impasse. Moreover, despite the labor differences, the firefighters’ union only backed one candidate and that candidate finished fourth. The firefighters only contributed $100 to Sheila Allen’s campaign, a far cry from previous efforts.

Contrary to one line of thought, the source indicated that it was remarkable that the council and city made as much progress as they did in only one round of negotiations.

As we move forward, we are only a year away from the expiration of the five current labor contracts. There has already been talk about the council finding additional savings with DCEA and fire.

However, one labor leader in the city pushed back that the city needs to lay out more clearly its vision for the future of employee compensation. Understandably they are concerned about the impact of future cuts on the ability, particularly, of low-level employees to make enough of a living for it to be worth staying on as employees.

While the public may disagree with this premise, it behooves the city to lay out their cards as soon as possible so there can be an informed discussion and decision making.

—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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74 thoughts on “Analysis: Last Round of MOUs Went Further Than You Think”

  1. Michael Harrington

    Not if the City spends on road and bike path repairs, the so called unmet needs of Saylor Souza era. Your logic is the same. Hold off cuts by holding off spending on critical infra structure maintenance. Besides if the city wants our parcel tax money they have to demonstrate to us good sound fiscal policies. No, we are not going to give them the easy parcel money until we see the overall employee costs where they need to be. Carson was right in his article. The surface water plant and rates debacle are fresh reminders our city government is seriously screwed up.

    1. David Greenwald Post author

      My logic is not the same. The only way to deal with roads in a realistic way is to pay a large amount upfront which requires bonds and we cannot get those bonds without a parcel tax.

      1. Rich RifkinWDE 73

        “we cannot get those bonds without a parcel tax.”

        We can get those bonds without a parcel tax, if we opt instead for an ad valorem tax. The great advantage of ad valorem is that, while not perfectly equitable given the low assessed values of some old properties in Davis, it is far, far more equitable than a one-size fits all parcel tax.

        Under ad valorem, the person with a small cottage worth $300,000 pays one-fifth as much as the person with a $1.5 million mansion and one-tenth as much as the owner of a commercial property assessed at $3 million. Under a parcel tax, all residential properties from low to high pay the same flat amount. Yet, insofar as road improvements in Davis benefit all properties by some relative percentage, very expensive properties benefit far more in absolute terms, and thus it is far fairer (and probably far less regressive) to base the tax on property values, as much as we legally can.

        1. Frankly

          ad valorem will suffer the same fate as CBFR for the same reason that it is too complicated for the average voters and people tend to vote against things they cannot easily understand…. and the fact that it unfairly targets classes of people while also capturing unintended victims that don’t fit into such nice and neat politically correct class categories. Those in the impacted class, and those impacted but not in the correct class, and those that don’t understand it…. they will all conspire to kill any ad valorem tax increase measure.

          And another thing contributing to the death of ad valorem as an idea… you leave out that the Fed and the State have already fully leveraged progressive taxation… especially when considering the increase in entitlement benefits to the lower income classes that higher earners are paying for. The middle class and upper middle class are actually quite pissed off at their crappy financial circumstances…. stuck on a rat’s race wheel going nowhere as more politicos suggest yet another social justice-drive tax scheme to “soak the rich”.

          The only group of wealthy not so pissed off are the public sector employees that know where their bread is buttered.

          1. Rich RifkinWDE 73

            “ad valorem will suffer the same fate as CBFR for the same reason that it is too complicated for the average voters and people tend to vote against things they cannot easily understand”

            Ad valorem is simple. It’s a straight percentage for all properties based on assessed value. It is how our property tax is now figured.

            Say we set the rate at 25 cents per $1,000 in assessed value. If your property were assessed at $100,000, you would owe $25. If your property were assessed at $200,000, you would owe $50. If your property were assessed at $1,000,000, you would owe $250.

            By contrast, under the far more unfair system of a parcel tax, you would pay $100 if your property were assessed at $100,000, $200,000 or $1 million, even though in absolute terms, the million dollar property owner gets a far bigger gain from good roads.

          2. Frankly

            I understand that.

            But then you have me and my neighbor. I have been in my home for 25 years and my assessed basis in Davis is caped at the purchase price of my house plus assessed value of improvements and/or appreciated value not to exceed 2% per year.

            My neighbor in the same floor plan model just moved in last year.

            My neighbor is already steamed about his property tax bill compared to mine. Of course I think he is an financial idiot for selling his previous house in Davis to “move up” given the known impact of his new property tax bill.

            And now you want to cause him that much more pain?

            Ad valorem is fair only from a social justice perspective… where people that have less should pay less. In general that seems to appeal to people’s sense of fairness (although I think a lot less so these days as our national and state government has ramped up the looting and redistribution machines). But the problem is that it has all sorts of other unintended impacts that people will not like.

            It is much cleaner for a supplemental parcel tax to be the same for each parcel. More people will accept that, IMO. However, I think not 2/3 of the people.

        2. Rob Williams

          I’m no lawyer but I think Prop 13 limits ad valorem property tax to 1% of assessed value (at time of sale) and that property tax can only increase 2% per year. e.g., see: http://en.wikipedia.org/wiki/California_Proposition_13_(1978). There might be some exceptions but I’m under the general impression that local agencies can not pass ad valorem property taxes.

          However, parcel taxes based on lot size or square footage of improved structures are apparently allowable (rather than flat rate per parcel) and have been passed [http://ballotpedia.org/Parcel_tax_elections_in_California].

          Parcel tax based on building square footage (say $0.05/ square foot / year) would be progressive in the sense that larger homes pay more.
          All else being equal, I’d be more inclined to vote for parcel taxes based on building size rather than flat rate per parcel (this goes for school and library district parcel taxes as well).

          1. Frankly

            I’d be more inclined to vote for parcel taxes based on building size.

            Let me guess… you live in a smallish building?

          2. Barack Palin

            So do people who live in smaller houses not cause as much damage to our city streets as people who live in larger houses?

          3. Rich RifkinWDE 73

            Rob Williams–I thought that, too. However, the City of Davis is considering an ad valorem tax for road repairs, and, having looked at Prop 13’s language, I believe it is permissible. Prop 13 requires a 2/3rds vote to increase the ad valorem tax above 1% of assessed value to pay for bonded indebtedness for ‘the improvement of real property.’

            Here is the key language, which comes from Section 1.b(2):

            Section 1. Maximum ad valorem tax on real property.

            (a) The maximum amount of any ad valorem tax on real property shall not exceed one percent (1%) of the full cash value of such property. The one percent (1%) tax to be collected by the counties and apportioned according to to the districts within the counties.

            (b) The limitation provided for in subdivision (a) shall not apply to ad valorem taxes or special assessments to pay the interest and redemption charges on any of the following:

            (1) Indebtedness approved by the voters prior to July 1, 1978.

            (2) Bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978, by two-thirds of the votes cast by the voters voting on the proposition.

          4. Rich RifkinWDE 73

            BP: “So do people who live in smaller houses not cause as much damage to our city streets as people who live in larger houses?”

            They probably do not, insofar as larger, more expensive properties come with more vehicles and more people. However, that is the wrong question.

            The right question is: Do people who own more valuable properties benefit more in absolute dollars from street improvements than people who own less valuable properties? And without a doubt, the answer to that is yes. So it would be very unfair to charge the same amount to different property owners when one is getting a much larger benefit from the improvement that the tax is paying for.

          5. Frankly

            Do people who own more valuable properties benefit more in absolute dollars from street improvements than people who own less valuable properties? And without a doubt, the answer to that is yes.

            I am flummoxed and flabbergasted at this statement from you Rich… someone that generally always logical and rational to an extreme.

            How can you make such a statement of absolutism when you must absolutely know of many exceptions?

            I have neighbors in big houses that are empty nesters. I know of people living in bigger houses that ride their bike everywhere. I have a small house and until recently I had four cars parked outside and driving all around town.

            I think the larger-house / more street use argument is terribly flawed.

          6. Barack Palin

            So would an apartment owner who owns an 8000 sq. ft. apartment with eight 1000 sq. ft. rental units be responsible for 8000 x (the ad valorem tax) which would most likely result in an increase in every unit’s rent?

          7. Barack Palin

            This is all starting to sound like the Occupy movement or the 99% against the 1%.

          8. Rob Williams

            Rich R: Thanks, you’ve educated me a bit on prop 13 law.

            An ad valorem tax for road maintenance would be better than flat-rate parcel tax, IMHO. Better still is a wider tax that reaches all users and beneficiaries of public roads (vehicle, fuel, tire, head, income taxes, etc), but I realize there are practical and political limitations.

            Frankly: Yeah, my home is probably smaller than average.

          9. Rich RifkinWDE 73

            “Better still is a wider tax that reaches all users and beneficiaries of public roads (vehicle, fuel, tire, head, income taxes, etc), but I realize there are practical and political limitations.”

            I completely agree. The best tax would be a fuels tax, which is exactly how we pay for state and federal highways. However, state law presently prohibits local governments from passing fuels taxes. Further, unless all governments in our region passed a fuels tax–which is something I think should be done–the one city, like Davis, which alone does this, risks pricing itself out of the market, where gas and diesel buyers would avoid the tax by filling up when they are away from Davis.

            As I wrote in my Enterprise column, I would prefer that the state legislature would pass a small fuels tax which would be used only to fund local roads maintenance. In my plan, all the tax paid in Yolo County would stay in Yolo County, and it would be distributed to the cities or the county based on a share of total road miles.

            Sen. Wolk told me that after the 2014 general election, my plan could pass the legislature. She agreed it would have the support of local governments, road contractors, union labor and greens. However, I subsequently spoke with a lobbyist (who represents civil engineering and road construction interests) and I was told there is “zero chance” my idea would get past the California Teachers Assn. The lobbyist told me the CTA would strike down any new tax measure that does not give more money to K-12 schools or to teacher pensions (i.e., CalSTRS). And as you should know, what the CTA is against will never pass our corrupt legislature.

          10. Rich RifkinWDE 73

            JB: “I have neighbors in big houses that are empty nesters. … I think the larger-house / more street use argument is terribly flawed.”

            If fairness matters to you, please re-read my statement which you think you have contradicted. I did not say it was absolutely the case that owners of large properties do more damage to our streets. I said “insofar as they own more cars and have more people” they do. In other words, it is conditional.

            What is absolute–and may have confused you by conflation of two concepts–is that high value properties will gain more benefit from street improvements across all of Davis than low value properties will.

            It is dubious to think that each property will gain the same fixed amount of benefit from citywide street work. I don’t know what the relative improvement will be worth. But for argument’s sake, say it is worth 2.5% in added value, having Pavement Condition Index streets of 80 instead of PCI of 40.

            That means, a property worth $1 million at PCI 40 would be worth $25,000 more at PCI 80; and a property worth $400,000 at PCI 40 would be worth $10,000 more at PCI 80. (If you don’t understand the PCI scale, you ought to read the City’s Pavement Management Report, where it is well explained.)

            Now, if we have a parcel tax, what we would be doing is charging the property owner who is benefitting 2.5 times as much the same amount as we are charging the one benefitting 40% as much. If you think that is fair, you must own a very expensive home. No one in his right mind otherwise would call a parcel tax as fair.

            Frank Lee makes the argument that some old houses which may be worth, say $500,000 are assessed at much less, say $150,000, because of Prop 13; and neighboring properties, which sold recently for $500,000, are assessed now at full market value. Under an ad valorem tax, the former category would be under-taxed, and that is unfair to those whose properties are assessed at full value. Of course, I agree with Frank on that point. However, something like 90% of Davis properties turn over once every 7 years. (Source: City of Davis property tax report.) So those with assessed values far lower than market values are a small group, and therefore the degree of unfairness in this is relatively small.

            By contrast, a property tax is totally unfair across the board. Even in the case of Frank Lee’s new neighbor whose home is valued at $500,000, he would be paying the same parcel tax as the guy in Lake Alhambra Estates who just bought his mansion for $1.5 million and will be benefitting from the road improvements across Davis 3 times as much as Frank Lee’s unfortunate neighbor.

            What I sense from these arguments is this: Frank and others of his ideology strongly oppose any tax increase for roads and largely don’t have a realistic understanding of our roads problems and don’t understand the widespread costs of bad roads; and none of them really gives a whit about fairness.

          11. Frankly

            What is absolute–and may have confused you by conflation of two concepts–is that high value properties will gain more benefit from street improvements across all of Davis than low value properties will.

            That makes sense. Yes, I did not get that from your previous post.

            You are making the case that road improvements benefit higher dollar property value owners more than they do lower value property owners.

            But then the reverse is true… higher value property owners are more harmed by crappy roads than are lower dollar property owners.

            I guess one could derive a model that factors the ratio of monetary impacts of road maintenance to the monetary impacts of taxation and make a case for class-based taxation. But it seems to me that each property owner expects the same level of road maintenance in the purchase price of the property, and any tax increase is unfair by that measure.

          12. TrueBlueDevil

            Before Davis entered a financial hole and put off basic services, how did the city finance road repair? How was it financed in the 1950s, 60s, 70s, and 80s?

          13. David Greenwald Post author

            For the most part roads were financed through state and federal funding that has largely disappeared in the last decade.

          14. Rich RifkinWDE 73

            No, David, you have this wrong. Roads were not “for the most part” repaired using state and federal funding; and you are wrong that this funding has largely disappeared. I know this is the line you will hear from staff. But they are misinformed, too.

            Here are the facts* as I understand them: first, road repairs were largely funded through local property tax money, not from state or federal funds. What changed in the 1990s was ERAF. That takes away a huge share of the local property tax money from local governments. It takes, for example, $8 billion from them in 2013-14.

            Second, state and federal funding has not been reduced at all. However, it has changed. Twenty and more years ago, these “transportation” funds came without so many strings attached. That is no longer the case. Without specific strings, cities and counties could use some or all of them to help pay for road repairs. But, beginning in the early 1990s, these funds had to be used for public transit only. That money now goes for things like Unitrans, Yolo Bus and light rail services. It also pays for some city and county salaries and benefits (for employees who “manage” our transportation services). It also goes in small part to pay for free bus passes for public employees. And it goes to pay for things like bus stops and signage. What it cannot be used for is road repairs and so on, because that is not considered “public transportation.”
            ____________________
            * My source on this is principally my uncle, Fred Davis, who was for almost 40 years the City Manager of Chico and, after he retired, a city/county consultant and an interim city manager for many municipalities in our state. When he retired from Chico, almost no California cities or counties had a problem of funding road repairs. He then witnessed (in his post-retirment employment) the various changes in the 1990s which led to the crisis almost every city and county in our state now has fixing its roads. … And note that the state has no problems fixing its roads, because 1) none of the changes in tax allocation affected them and 2) they have a steady tax source with our fuels tax.

        1. Frankly

          Please correct me if I am wrong, but there are two types of bonds:

          Revenue bonds – those that are secured by a revenue source like a parcel tax.

          General obligation bonds – secured by the faith and the credit of a taxing entity.

          Revenue bonds are generally used for capital improvement projects. General obligation bonds are generally used to meet the general financial obligations of the issuer.

          General obligation bonds tend to be at higher interest rates because of they are secured by faith rather than tangible revenue sources.

          But we could finance our road maintenance backlog with a general obligation bond assuming we could demonstrate that we can handle the debt service.

          And if we cannot handle the debt service, then that tells us that our financial house is out of order.

          1. Davis Progressive

            but i think you answered the question about the better way to go – you just don’t want to go there.

          2. Frankly

            but i think you answered the question about the better way to go – you just don’t want to go there.

            No – that is the basis of the debate. You, like most liberal progressives – never met a tax increase that you did not think was a good idea.

            The better way to go is to declare a fiscal emergency and pull the plug on the obscene pay and benefits going to many city employees.

            Or get tough on the new MOUs and labor contracts… dialing back the benefits significantly, and eliminating COLA for the next five years, and then connecting every bit of total compensation to the cost of living index.

          3. Davis Progressive

            that’s not entirely true. however, in this case, a tax increase to fund roads makes a lot of sense. i would not support a tax increase to increase employee compensation.

          4. Frankly

            “i would not support a tax increase to increase employee compensation”

            That is in effect what you are doing… taxing for a previously funded obligation that was unmet because the funds were used instead to pay for employee compensation increases.

          5. Barack Palin

            Exactly, DP just doesn’t get it. That’s like saying a family bought 3 new cars and now the payments are so high that the husband had to get another job in order to pay the house payment.

          6. Davis Progressive

            that’s not really true frankly. the sales tax, you can make that argument. the parcel tax is more due to the fact that state and federal funding for roads disappeared.

            bp: i have no idea what you’re saying.

  2. Davis Progressive

    Seems like we got fairly decent milleage: $1000 per month cuts on a large segment of employees, second tier for all but two bargaining units; substantial cuts on both opeb and medical…

    1. Rich RifkinWDE 73

      BP, I challenge you to read (or at least skim through) the City’s pavement management report and not conclude that we don’t need to fix our streets in a very big, very expensive way. It’s not productive to bury your head in the sand, to have no idea what the problem is, and just be a blowhard and doubt the need for fixing our streets. If you would inform yourself, and you still have objections, then voice those.

      http://public-works.cityofdavis.org/Media/PublicWorks/Documents/PDF/PW/Engineering/Pavement-Management-Report%20.pdf

          1. TrueBlueDevil

            Another option would be to augment fire services with a volunteer staff.

            A third option is to look at further reductions in the pay for certain highly paid civil service jobs, and benefits. The high rolling days are over. I see no need to have someone retire at 50 with a six figure salary and amazing benefits, that rarely makes sense.

      1. Frankly

        Oh… and use the revenue that we would gained from making Mace 391 into a business park to back the bond.

        Oh wait, can’t do that. The CC pissed away all that revenue to work on our farmland moat.

  3. Rich RifkinWDE 73

    One thing to understand about our budget and road repairs: It is true that our overspending on hourly labor over the last 20 years has made it more difficult to keep up with road maintenance and maintenance of all public infrastructure. However, the Davis City Councils’ irresponsibility with its budgets does not in fact explain all or even most of the crisis. There are several factors (due to state and federal policies) which have stripped Davis, other California cities and all California counties of the power to keep up with this expense. But no one factor is as great as ERAF.

    ERAF takes $8 billion a year from local government and hands it over to teachers and school admins. ERAF, which started in 1993, is money that local governments voted to tax themselves decades ago to pay for things like road repairs. The state never asked cities or counties if it could have the money. It just grabbed it without any recompense. And so it is the case that ever since, all California cities and counties have not been able to keep up with road repairs without raising new, very large taxes. ERAF takes $8 billion a year; and it is no coincidence that cities and counties need $8 billion a year more to fix their roads.

    1. Frankly

      City public union labor and the Democrat Party. State public union labor and the Democrat Party.

      They are two sides of the same coin.

      The source of the problem is the same.

      The solution should be the same.

      And that solution is not continued tax increases.

      Because tax increases will continue to be needed unless we tackle the root cause of the problem.

      And if we keep increasing taxes, we keep providing delays and cover for the root cause fix.

        1. Frankly

          I am well aware of the road problem. I have a 4wd truck and my wife drives an AWD SUV. And the entire family rides mountain bikes.

          My head is not in the sand.

          I am just looking at the bigger picture of fiscal sustainability and understanding how we got to this point and why.

          Tax increases are just another form of bailout for continued mistakes in fiscal management.

          I want us to focus on prudent fiscal management and suffer the consequences until it is done.

          1. Davis Progressive

            ironically that solution will hasten the problem of roads and increase costs even more.

  4. Sam

    The best course of action for the City is to lay out the true cost of each employee. It does nothing for me to say that a City employee “lost” $12,000 per year in a medical cash out when you have nothing to reference it against. Was this a City gardener that cost the City a total of $30,000 per year or $130,000 per year. May reaction is different depending on what the employee costs the City.

    1. Davis Progressive

      it shouldn’t be. the point is that employees were asked to take between a 10 percent and 30 percent take home pay reduction as the result of the cafeteria cash out changes. i’m not arguing against those changes, only that it was a steep cost for them to absorb. no need to minimize it.

      1. Frankly

        Tell that to their union or labor association that did not accept any incremental concessions earlier.

        And guess what… more of this is coming. Big hits to their pocket books because they fail to accept the financial realities and keep demanding their paid-for Democrat politicians to secure yet another bailout tax increase to keep their gravy train rolling…. of course at the expense of everyone else… especially our children.

        1. Davis Progressive

          “Tell that to their union or labor association that did not accept any incremental concessions earlier.”

          as opposed to the city council who didn’t demand it?

          1. Frankly

            as opposed to the city council who didn’t demand it?

            I find this so interesting… the incongruity for this basis of argument that our politicians are the ones to blame when it is the unions, but then it is the corporations to blame and not the politicians when business pays to influence politics.

            Certainly the CC is to blame. But ask any honest firefighter and cop about their pension benefits and they absolutely know they are riding an unsustainable gravy train.

          2. Davis Progressive

            there’s no incongruity. the officeholders are the ones who have to negotiate a contract that the public can afford. we can’t ask the unions to guess what can be afforded and we can’t expect employees to turn down a better offer.

          3. Frankly

            there’s no incongruity. the officeholders are the ones who have to negotiate a contract that the public can afford. we can’t ask the unions to guess what can be afforded and we can’t expect employees to turn down a better offer

            So, then apparently you would not hold any defense contractor corporation responsible for paying for the campaign of a politician that later served on a committee to award them rich contracts?

          4. Davis Progressive

            krovoza refused to take the money, swanson refused to take the money. they still won.

          1. Sam

            My point is that you need to know what the City is actually paying for their employees before you can determine if cuts are reasonable.

          2. Davis Progressive

            i’m not in agreement there. if employees were robots, then you’d have a point. given that they’re real humans relying on money to pay their bills, even if they were grossly overpaid previously, you still have to weigh the impact of the pay cuts.

  5. Frankly

    If you are an employee, this is a major hit. For many, it meant nearly a $1000 cash reduction in pay or nearly $12,000 for the year. That represented a take home pay cut up of up to 30% for many employees

    First, I understand that financial pain is relative. I’m not sure most people on the social justice left understand this as well even as they make points like the above. Financial pain is relative to what a person is used to. If you are making a good wage and have to take a pay cut, you would have to cut things you were previously used to being able to afford. And let’s be honest… there are few legal residents of this country that don’t have access to their base needs of housing, food, clothing and health care. We have a safety net. And it is a very robust one. Those on the social justice left will always locate the hard cases to validate their continued crusade to save people, but those that really need saving are those that just make bad choice after bad choice… not because they lack access. And don’t get me started on the illegal immigrant hard cases. Those should not be part of the debate.

    So, considering the existence of this safety net for all legal residents, it is the extra stuff that we lament losing when our pay is cut. And we constantly up our expectations and drive to reach higher levels of capability to acquire greater and greater extra stuff.

    That is right… it is all about the extra stuff. We crave the extra stuff and don’t want to lose our ability to afford it… what every it might be for us.

    But then what happens when your employer says “we have to cut your benefits because we can no longer afford them at the levels we previously supported.”? What can you do?

    1. You can accept it and reset your lifestyle expectations accordingly… basically set a new normal of having less.

    2. You can go do something else that pays a better wage so you continue to meet your current expectations for the stuff you can afford.

    Here is where we are screwed up on public sector labor: pensions. Pensions are a job-lock. After so many years on the job employees lose incentive to leave if unhappy or unsatisfied because they will lose their pension.

    So, they have no choice but to scream loudly when something is taken away… because they don’t have the same perceived ability to select option #2 above.

    And related to this is the “eight year itch”… the point at which most people burn out in enthusiasm for doing the same work. And when people burn out of enthusiasm, they look for other stimulates to keep them satisfied… and one of those is to get greater pay. To an enthusiasm-burned employee, they feel like they are working harder every year… and they feel entitled to greater pay to compensate them for that burden.

    Again, they complain more loudly when they are forced to go in reverse. It is that much more painful to them.

    All this is understood.

    But then what is the solution?

    It is simple… convert all defined benefit pension plans to defined contribution plans. That way employees can leave if they are unhappy. And then we can hire new employees that will be enthused and happy to take their job at the reduced pay and benefits. And as long as we keep the pay and benefits at market rates, we will be able to attract plenty of qualified candidates.

    And if that employee cannot leave because he/she cannot find a job that pays as well even after the pay and/or benefits are cut, then that employee must also start considering non-monetary value of life criteria. Because if you cannot find better paying work in your field of expertise, and you are still unhappy about what your are being paid, then you are likely in the wrong job. And the “extra stuff” you might need is the non-monetary benefit of working in a job that is a better fit… even if it pays less.

    1. Jim Frame

      It is simple… convert all defined benefit pension plans to defined contribution plans.

      I agree. Although I think that conservative actuarial management of a large fund like PERS could adequately cover a defined-benefit plan for the same cost as a defined-contribution plan, the size of the fund inevitably renders it susceptible to political influence. When actuaries bend to political pressure, the taxpayers lose.

  6. South of Davis

    Frankly wrote:

    > It is simple… convert all defined benefit pension plans to defined contribution plans.

    The “defined contribution” plans will not pay 50 year old retired cops and firefighters anything close to the $100K+ per year most of them get with the current “ponzi scheme”/”defined benefit” plans so it will not be “simple” to convert the pensions any time soon…

    1. Frankly

      Well if they are converted to defined contribution (401k) plans, they can retire when they have enough in their account to fund their retirement… just like the rest of us. I’m ok with giving the FF and Police a bit of a premium in their accounts since their jobs are so much more physical than everyone else’s.

      How much money do you think it would take for a person to retire at age 50 with $100k per year?

      We have to assume a life expectancy of 90.

      The answer assuming 2.5% inflation and 6% Rate of Return is $2.75 million. Just find an immediate annuity calculator and try it yourself. Figure out what it would cost to purchase an immediate annuity that would pay you $100,000 per year for 40 years assuming 2.5% inflation and a 6% ROR.

      And that does not include healthcare.

      Public sector union employees… the new one percenters. The new millionaire class. And they did it not having to put any of their own capital at risk. They did it though the Democrat-union political cronyism connection.

  7. Tia Will

    Frankly

    “there are few legal residents of this country that don’t have access to their base needs of housing, food, clothing and health care”

    Please define “few” in your above statement.

    1. TrueBlueDevil

      Some argue that if a person wants to play the social benefits game, one can gain $30-45,000 a year in free services and goods … housing, food stamps, health care, child care, free utilities in some areas (as part of public housing), etc.

      1. South of Davis

        TBD wrote:

        > Some argue that if a person wants to play the social benefits
        > game, one can gain $30-45,000 a year in free services and goods

        And don’t forget that the “welfare cliff” sets things up where most people will not want to work harder to lose the “$30-45,000 a year in free services and goods”

        http://www.zerohedge.com/news/2012-11-27/when-work-punished-tragedy-americas-welfare-state

        P.S. My wife got an e-mail from the Davis School district yesterday telling us the locations where our kids can get free “school” lunches all summer…

        1. Barack Palin

          “Hawaii, which offers $60,590 in annual welfare benefits, once you account for the fact that welfare benefits are tax-free to the recipient, compared to work-related wages. That’s the equivalent of $29.13 an hour. Rounding out the top five were D.C. ($50,820 per year and $24.43 an hour), Massachusetts ($50,540 and $24.30), Connecticut ($44,370 and $21.33), and New York ($43,700 and $21.01).”

          http://www.forbes.com/sites/theapothecary/2013/09/02/on-labor-day-2013-welfare-pays-more-than-minimum-wage-work-in-35-states/

          And does this include Obamacare, free cell phones, free daycare, free school lunches, etc…………………………….?

        2. South of Davis

          DP wrote:

          > $30 to $45K seems like a high number.

          What do you pay per year for food (including paying someone else to make breakfast and lunch for your kids every day) , housing and health insurance?

          If you do the math for Food Stamps, School Lunches, WIC benefits, Welfare, Section 8 Housing, and Medical (keeping in mind that this is all tax free) you would be a fool to “work” for $15/hour (~$30K/year pre-tax).

          P.S. Don’t forget the $6,000+ Earned Income Credit we give every poor person with a few kids…

          1. South of Davis

            BP wrote:

            > And does this include Obamacare, free cell phones

            I forgot the free “Obamaphones”…

            I have been tempted to get Obamaphones for my kids since I know people that have done it (listing their kids income of $0)…

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