City of Davis Employee Compensation – The 800 lb. Gorilla in the Budget Room

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Mayor Davis describes the budget at the State of the City address in January

Submitted anonymously to Yololeaks

In a recent article in the Vanguard, Mayor Robb Davis discussed the need for extensive cost-containment efforts by the City in attempts to free up more funds for critical infrastructure upgrades in the City (e.g. see Vanguard Guest Sunday Commentary: Containing City Costs – https://www.davisvanguard.org/2017/02/guest-sunday-commentary-containing-city-costs/).

In that article, Mayor Davis stated, “What we have not yet done is critically analyze the role of cost containment in meeting our fiscal challenges. I believe that in addition to seeking revenue growth, we must engage in a more strategic and comprehensive analysis of cost containment approaches if we are to move the city towards fiscal resilience.  This analysis must include restraining employee cost growth, but must look widely for all manner of cost control measures.”

According to Finance and Budget Commissioner Matt Williams’ comments to that article, the City’s Finance and Budget Commission (FBC) is already weighing in with a very specific set of proposed recommendations to implement studies designed to improve City efficiency and performance as follows:

  • Complete a full staffing analysis by July 1, 2017 to determine match between service delivery needs and staffing including comparison to nearby cities.
  • Concurrent with the full staffing analysis, hire a consultant to complete a thorough Business Process Re-engineering to improve inefficient, ineffective service delivery.
  • Based on the results of the full staffing analysis, during the July 1 – December 1, 2017 period, identify and implement best practices for providing services going forward with a strong focus on training workers to take on multiple tasks.
  • Examine all means to further reduce growth in compensation costs including analysis of OPEB and Pension options (as other CA cities are doing).

These recommendations are further discussed in the meeting packet for the upcoming February 13, 2017 FBC meeting packet online at http://documents.cityofdavis.org/Media/Default/Documents/PDF/CityCouncil/Finance-And-Budget-Commission/Agendas/20170213/Item-6B-2017-02-13-Updated-Council-Goals-Fiscal-Resilience.pdf.

City Employee Costs

All of these recommendations have to do with analyzing the enormous and growing employee payroll costs the City is incurring. According to the website TransparentCalifornia.com (http://transparentcalifornia.com/salaries/2015/davis/), in 2015 the City ‘s total payroll costs (including salary and all benefits) were $41,734,548 for 827 employees. Of these employees only 306 were full-time employees receiving benefits whose total compensation (including salary and all benefits) of $36,583,017. Note that 2016 salaries have not yet been posted on the website so 2015 data is the recent information available.

As shown in the following table, the median pay for full-time, year-round city employees in 2015 was $114,848 and the median compensation for payroll only was $83,821. This is in stark contrast to the substantially lower median earnings for full-time private workers in the 5 mile radius around the City estimated at $54,000 in 2015. The estimate is based on the reported median earnings for full-time private workers in 2014 of $53,922 as reported by the US Census Bureau.

When this huge disparity between private sector payroll and municipal civil servant payroll in Davis was presented to a number of Davis residents for their reactions, uniform disbelief was followed by shock.

This is understandable. Civil servants used to (as late as the early 2000s) be paid somewhat less, on average, than private sector workers performing similar work with similar backgrounds. The almost universal unwritten compact in the boom years of the US economy (from the 1960s though the 1990s) was that civil servants, on average, earned less annually than their private sector counterparts. But this lower pay scale was offset with much larger health care benefits provided to government workers and substantially greater defined benefit retirement program contributions by the government than what is typically available to private sector workers.

Based on current pay scales, however, civil servants have obviously gained an upper hand in comparable compensation as evidenced by the fact that their current salary earnings (not even including substantially higher medical and retirement benefits) now dwarf those of private sector workers. Not only are Davis City workers paid salaries that are demonstrably far greater than private sector workers in Davis, they also receive total benefit packages providing medical and retirement benefits that private sector workers can only dream about. Together, total compensation for municipal workers is far in excess of their peers in private industry with commensurate education or specialized training skills.

All of us have heard the stories of the very generous salary and benefit packages given to our police and fire department personnel (see Charts 2 & 3 below). However, review of salaries and benefits paid to other City workers (see Appendix A and Chart 1) shows this largesse extends to almost all City workers. Investigation of the salary and benefit packages show that well over half of our City employees earn well in excess of $100,000 per year in salary and benefits so these exorbitant salaries are not only being paid to our top management, fireman, and policeman in the City.

Chart 1

Chart 2

Chart 3

 

A Rational Proposed First Step toward Fixing to the Problem

If the City of Davis is ever to become sufficiently solvent to begin to substantially repair our buildings and keep our streets paved, it is imperative that our elected City officials immediately begin work to bring these spiraling employee compensation costs under control. So what are our leaders doing about this problem? While Mayor Davis has pledged to implement serious cost containment strategies and has been sounding the alarms for over a year, it remains to be seen whether any of the other four elected leaders have the backbone to address the root case of our City’s economic problems.

To be fair, this problem of excessive civil servant compensation and exorbitant, unsustainable retirement and medical benefits also plagues every other California city (except the City of Fresno as documented at http://www.fresnobee.com/news/local/article65349437.html) and were the root cause of the widely publicized bankruptcies of Stockton and San Bernadino in the depths of the last recession.

As far back as February of 2016, the Finance and Budget Commission (FBC) recommended the following steps to begin address this looming problem:

“Work to accelerate the completion of a full staffing analysis to determine match between service delivery needs and staffing, which will build on John Meyer’s April 2015 study completed last year, but largely unimplemented.  This should save $1 million per year in employee costs

Accelerate the completion of a thorough Business Process Re-engineering engagement to address poorly designed, inefficient, ineffective service delivery processes. At its second April meeting, the Finance and Budget Commission recommended immediate funding of $575,000 in the current fiscal year for this effort.  That funding will come from the current year Budget surplus, and will be an investment in the community… a gift that keeps on giving budget savings year after year after year.”

Thus far, however, these FBC recommendations to address the problem have gathered dust even though Mayor Davis has publicly recognized the importance of cost containment on numerous other occasions. For instance, over 1 year ago on February 2, 2016 during a City Council discussion of putting a parcel tax measure of a 2016 ballot, Mayor Davis argued clearly and strongly that (1) the infrastructure taxes being considered should be postponed until they contained the FBC-recommended accountability recommendations for monitoring expenditures of the tax proceeds, and (2) that containing costs will have just as much impact in improving the City’s bottom-line as increased tax revenues would.

For those who want to view Mayor Davis’ remarks that evening, they beginning at the 4:35 mark of the Council meeting video at http://davis.granicus.com/MediaPlayer.php?view_id=2&clip_id=428

Mayor Davis has also presented an 8-point plan for Achieving Fiscal Resilience through Cost Containment. This plan, developed with the help of FBC Chair Jeff Miller, is as follows:

  1. Undertake a full staffing analysis to determine match between service delivery needs and staffing.
  1. Based on 1, consider best ways to provide services going forward with focus on training workers to take on multiple tasks.
  1. Consider targeted and appropriate outsourcing of services.
  1. Examine all means to further reduce growth in compensation costs including analysis of OPEB options (as other CA cities are doing).
  1. Create more transparent and accessible accounting systems that enable a more precise estimation of costs of specific services—building on work done by the Fee Study consultants.
  1. Promote a more aggressive analysis with the County and other cities, via LAFCo, of shared bidding, service, and consulting options to reduce duplication and obtain scale efficiencies.
  1. Determine what current city programs might be candidates for reduction or elimination and which we want/must keep.
  1. Determine what current city infrastructure we could/should shed (buildings, properties) to reduce expenditures related to them.

Conclusions

Unfortunately, this plan has been completely languishing since. However, in all fairness to Mayor Davis, given our weak-mayor form of government in Davis, there is not a lot that he can do on this front without the express and vocal support by other members of Council. Unfortunately, this support has been functionally lacking to date other than rote lip service. Nor has our upper city management shown any desire to embrace this call for a rational, business -like approach to evaluating the cost-containment issue and options. Instead, City Manager Dirk Brazil and Assistant City Managers Mike Webb and Kelly Stachowicz have all since announced in public forums that the City of Davis is in good financial condition with a healthy reserve. Apparently they are walking around with their eyes skyward and not bothering to look at our deplorable road conditions and crumbling infrastructure when making such rosy prognostications.

All of our Councilmembers have weighed in on the urgent need for additional revenues to finance these infrastructure improvements. But none have had the backbone (except Mayor Davis albeit only in very couched terms of “cost containment”) to acknowledge that the root cause of the City’s dire financial condition and infrastructure blight is soaring and out of control employee costs and forcefully advocate for a top to bottom analysis of these escalating costs.

The citizens of Davis (including myself) are very progressive and have always stood up to approve taxing themselves to meet City needs. However, I would suggest that a tipping point has been reached. Unless this City Council unites and demands that upper City management (under whose authority such cost containment review work must be done) immediately tackle this problem head-on and with vigor, I believe that the citizens of Davis will soundly reject any new revenue measures especially as the scope of the City’s excessive employee compensation practices become more well known.

And if the City Council does finally issue a firm directive to upper management to address this problem and management fails to rapidly complete these studies and begin implementation of effective cost cutting strategies, then it is time for our Council to find new upper management that can get the job done. Anything less is a dereliction of our Councilmembers’ fiduciary responsibilities and akin to fiddling why Rome burns.

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76 thoughts on “City of Davis Employee Compensation – The 800 lb. Gorilla in the Budget Room”

  1. Tia Will

    While I completely support the Mayor’s efforts on the cost containment side of our current financial situation, and the importance of a thorough review of optimal staffing and compensation, I have one point of disagreement.

    “…that private sector workers can only dream about.”

    On the Vanguard, the discrepancy between the wages of city workers and comparable workers in the private sector has almost invariably been characterized as an overpayment to city workers. There never seems to be the consideration that it might be that private sector workers are being underpaid or have insufficient benefits. Surely what we should be supporting is salaries and benefits that allow workers, both public and private, to earn enough to support a family and live their lives in relative financial well being without having to worry that a catastrophic illness will cost them their home or leave them living in poverty.  I think that it is short sighted to assume that a large discrepancy means that it is the private sector that “has it right”.

  2. Howard P

    Technical comment:

    As shown in the following table, the median pay for full-time, year-round city employees in 2015 was $114,848 and the median compensation for payroll only was $83,821. 

    It appears that ‘pay’ is actually ‘total compensation’ (including benefits, inc. PERS contributions, med/dental, medicare, set-asides for retiree benefits, etc.

    ‘Compensation for payroll only’, appears to “conflate” (god, I hate that term!) the concepts of total comp and salary only…

    Suggestion… review the terms, and revise as appropriate to be clear what point is being made… right now, I see it as ‘murky’…

     

    1. Howard P

      PS:

      Total comp is probably the best way to avoid the ‘apples and oranges’ thing… on the private side, that needs to include private employers’ contributions to SS, 401, etc. plans.

      Transparent California, is an effort by http://npri.org/   See also http://www.npri.org/about/

      They are not particularly ‘transparent’ as to who they are, except they are based in Nevada.  They say they are a part of Transparent America.  When I tried that link, got nada… you have to disable your ad-blocker to access their (Transparent California) site.

      Not a criticism, but a disclosure.

      I wonder if TC would voluntarily post their organization, revenues, compensation, etc.  Would bet a lot of money they would not…

      At least the VG clearly identifies its owner, editorial board, but not revenues, expenses, etc. Government has to do that, the private sector does not…

  3. PhilColeman

    Adding a bit more “murk,” private sector wages are frequently compared to public sector “total comp.”  The natural suspicion raised in such instances is that there is an intention to show a disparity rather than a fair comparison. Whenever the happens the credibility of the total discussion is compromised.

    Whenever such comparisons are shown, be sure you’re looking at apples and apples.

  4. James R

    As someone pretty new to following local politics, I’m trying to get a better idea of what this means for the future of Davis. What would the long-term outcome be if the city maintains it’s unhealthy financial position? I remember (I think it was a few years back) that the city of San Jose had to declare bankruptcy. What would happen in an event like that?

    1. David Greenwald

      There are people who believe that the town is essential insolvent now in a fiscal manner.  That we lack the revenue to maintain basic infrastructure and have only been able to get away with not addressing the infrastructure because we have kept it “off budget.”

      What’s the consequence of bankruptcy?  That’s a good question.

      1. David Greenwald

        This is a good article on what happens when a city declares bankruptcy based on the experiences of San Bernardino: http://www.npr.org/2012/07/11/156621232/what-happens-when-a-city-declares-bankruptcy

      2. David Greenwald

        For example, when the city of Vallejo declared bankruptcy, they had to balance the budget. They were spending more each year than they were bringing in.
        The result, they closed three out of eight fire stations. And that increased the response time to respond to a medical emergency or a fire. They kept the fire department by 42 percent of the number of employees they had. The police department, they reduced the number of sworn officers from 155 down to 90. They cut the department by 47 percent. Now, they still have to provide police protection and fire protection and medical protection and garbage and everything else that a city is responsible for. But they have less assets to do it with.

      3. Ron

        David:  “What’s the consequence of bankruptcy?  That’s a good question.”

        It is a good question.  Business owners often use bankruptcy as a tool, and form of protection.  (I believe that another word for it is “bankruptcy protection”.)  I understand that our president has used bankruptcy protection, more than once.

        Perhaps this would allow the city to void existing labor agreements?  (Kind of drastic, but hey – so is the problem, apparently.)  Not crazy about the idea of (drastically) endangering/reducing pensions and benefits for those already retired (or near retirement).  But, maybe they need to make some limited sacrifices, as well?

        Wondering what the differences (if any) are between a city, vs. a business when declaring bankruptcy.

         

        1. David Greenwald

          It’s not simple or straight forward.  You can see in the article I site, there were serious repercussions for bankruptcy in Vallejo. Unlike a business, you still have to provide services and balance the budget.

  5. Ron

    David:

    I have no doubt that there are (or can be) repercussions.  However, there are also repercussions if this option is not fully explored or understood.  It does seem that bankruptcy protection may allow cities to void labor agreements (the “800 lb. gorilla”).

    If residents are asked to keep “feeding the gorilla”, they might not go along with it. (Especially if they believe that the gorilla’s demands are not reasonable, going forward.)

    The article you referenced is not a complete analysis or description regarding bankruptcy protection for cities.

  6. Ron

    I noticed this quote, from the commentary you wrote:

    “But Judge Klein’s ruling changed that – he was willing to declare that pension obligations are simply debts that could be trimmed.  He went further and declared that the city of Stockton has the right to reduce pension payments and even sever ties with the powerful pension fund.”

    Note that I’m not necessarily “advocating” for bankruptcy protection.  However, it does seem to be an option that should be well-understood and considered, if needed.  (And again, voters might not approve a “solution” that doesn’t deal with the underlying problem – regardless of how many times it’s presented on the Vanguard.)

    1. David Greenwald

      Yeah but you missed the fine print here: “That they decided not to go that way demonstrates the problem, going forward, that cities face.”

      Teague Paterson, a Sacramento attorney, is no dispassionate bystander as he filed a brief in the Stockton case on behalf of the Peace Officers Research Association of California (PORAC). He noted “the consequences for a municipality [declaring bankruptcy] are 10 times as dangerous [as a private citizen].”
      “Bankrupt cities,” he notes, “face soaring crime rates, shrinking property sales, and the reduction or elimination of basic public services. It’s is not a decision that an elected official or city manager would willingly make unless there were no other options, as the decision by a bankruptcy judge presiding over Stockton’s bankruptcy makes clear.”
      While we can imagine that Mr. Paterson is not unbiased on this matter, we believe he is largely correct that “Judge Christopher Klein’s ruling Thursday to approve Stockton’s bankruptcy plan confirms that the situation in Stockton will have little impact over the larger national debate on public pensions. Municipalities will not be filing for bankruptcy in waves in efforts to jettison pension debt. “

      1. Ron

        Davis is not Stockton, and would likely not face “soaring crime rates”, or even (drastically) reduced property values.  We might face some reductions in services, regardless of choices made. (In any case, these types of impacts might be temporary.)

        Cities recover from bankruptcy protection (as Stockton is now doing), perhaps in a better financial situation than if bankruptcy protection had not been pursued.  (That’s the purpose of it.)

        For those worried about “image”, this country just elected a president that’s used similar laws, several times. 

        Again, I’m not advocating for bankruptcy protection – just that it be understood and considered, if needed.

        1. Ron

          By the way, did all of those “horrible things” mentioned by the “peace officer’s attorney” actually occur as a result of bankruptcy protection, in Stockton? Was there a huge spike in such occurrences, which were accurately attributed to bankruptcy protection? (I guess I didn’t realize that he was an expert in property sales/values, and other non-police public services.)

  7. Howard P

    David… look forward to similar analysis for UCD and DJUSD.  All three have personnel costs as their main expenditures, all three have long term maintenance/repair needs… would be interesting and informative to see all three entities… a fourth would be the State, but not quite as ‘local’ as UCD and DJUSD…

    Particularly DJUSD… compared to teachers in the private and ‘parochial’ systems, you’d find that DJUSD personnel are much higher compensated (total comp) even given same experience, training, education, qualifications.

      1. Ron

        David:

        Well, I guess that the DJUSD will (at least) receive the largest percentage of proceeds (and a majority of property taxes) resulting from the “forced sale” of the old city hall (as discussed the other day).

        Sorry – I guess I’m in a mood to “challenge”, today.  🙂

        I’ll be signing off for awhile, soon.

        In the meantime, “follow the money”, as another commenter used to say. (Where is she?)

        1. Howard P

          So, you ignore the public/private difference for DJUSD… you point out public vs. public for DJUSD, and reject that approach for comparing Davis city #’s to other similar city agencies… got your logic… don’t agree, but I get it…

          Since Davis have no teachers, what do you mean by “city counterparts”? Very different job classifications, duties, etc., unless you are talking ‘clerical’, financial folk… as for landscaping/maintenance, look where Davis has shed positions…

        2. David Greenwald

          You seem to like to bring up teacher says a counterbalance to complaints about overcompensation of city employees.  If you want to make the comparison it’s fine but the reality is that teachers get paid less than city employees. And their healthcare is far worse.

        3. Howard P

          How many teachers does the City of Davis employ?  If you insist on comparing apples to oranges, fine…

          The logic used in the piece is comparing public to private, ostensibly for same experience, duties, etc.

          You insist on comparing DJUSD to the City, despite days worked, difference in duties, education required, etc.  Fine.

        4. Howard P

          Yes, David, healthcare is healthcare… but to date you conflate that with salary/total comp…

          I would support proceeds of the parcel tax used to ensure that DJUSD folk get the same healthcare contributions (less “cash-out”, which I think is wrong in all cases) as the City and UCD.  Same plans available…

          And yet you ignore, choose not to address, the other differences… fine.

           

        5. David Greenwald

          Look I don’t have a big problem with the differences between private teachers and public teachers salaries.  Private schools are cutting corners because they can’t afford to pay what public schools can (on average at least).  In general I don’t think that’s a good thing.

          I also btw, am not as hip on the issue city employee to private sector employee compensation except that I think public sector employment and compensation are leading to insolvency and for the most part that means cutting services and decaying infrastructure which is a problem.

  8. Matt Williams

    Let’s look closer at the realities of bankruptcy vis-a-vis Davis.

    Bankruptcy protects an organization (whether public or private) from its creditors and obligations.  In the case of a city, one of those creditors/obligations is the individual (and collective) employees in the form of their pensions and retiree healthcare.  Just like in the case of Enron, the employees who currently believe that they will get a $1.00 of actual benefit for each $1.00 of promised benefit.  In a bankruptcy situation the actual benefit is measured not in dollars, but in cents (in the case of Enron, zero cents).

    According to pages 169 and 170 of the 2015 CAFR (Consolidated Annual Financial Report), Davis has $41,617,129 of debt for “Business Type Activities” and an additional $43,875,000 of “Tax Allocation Bond” debt associated with the Redevelopment Agency.  The holders of those debt instruments currently that they will get a $1.00 of actual repayment for each $1.00 of promised repayment.  In a bankruptcy situation the actual repayment is measured not in dollars, but in cents.

    As serious as those fiscal realities are, the realities imposed by Mother Nature are a much more serious challenge.  A bankruptcy judge can not wave a judicial hand and eliminate the effects of Mother Nature on our streets and buildings and parks.  Unless we abandon those capital infrastructure assets, the cost of maintaining/repairing/replacing them is unaffected by bankruptcy.  Can you imagine how politically painful the public dialogue would be about which streets in Davis will be abandoned, or which buildings will be abandoned, or which parks will be abandoned.  It is also easy to imagine that one “logical” argument will be that the first portion of capital infrastructure to be eliminated should be the greenbelts.  I suspect that elimination of the greenbelts City wide would dwarf the uproar that the elimination of the Russell Fields greenbelt caused.

    Bankruptcy is a real spectre on the horizon, but we shouldn’t fool ourselves, it will not solve make our problems go away.  It will simply redefine them.

    JMHO

    1. Ron

      Matt:

      The article above discusses employee compensation.  I’m failing to see how the elimination/drastic reduction in these costs (that might be possible via bankruptcy) has anything to do with “abandoning” streets, parks, etc.  If anything, it appears that it will be easier to maintain infrastructure in the long term, since more funds might then be available to do so – as a result of reducing the costs of employee compensation.

      Did Stockton permanently abandon parks, streets, etc.? Are Stockton and Vallejo in “better shape” financially today, than if they did not pursue bankruptcy protection?

      As a side note (regarding maintenance of streets, etc.), is this always done by city employees? Or, are contractors sometimes involved?

    2. Mark West

      “Bankruptcy is a real spectre on the horizon, but we shouldn’t fool ourselves, it will not solve make our problems go away.  It will simply redefine them.”

      This is absolutely true, but the simple reality is that bankruptcy may be the only way that taxpayers can force the CC to finally address the problems. I see no indication that the current CC majority, or any previous one for that matter, has the ‘stomach’ to face up to our fiscal shortfalls. There is simply too much temptation to raise taxes, ignore obligations, and push the problem down the road until someone else has to deal with it. I have had a current CC member tell me that they think we should do nothing about addressing our unfunded pension obligations and instead should wait for the State to bail us out. If that is the prevailing wisdom of the majority, in my opinion, bankruptcy is the preferred option, no matter how messy the result.

      1. Howard P

        Mark…

        If it could be done legally, what is your opinion on how many cents on the dollar should retirees get for their pension?  Retiree medical coverage?  Current salaries?  Assuming the city declares ‘bankruptcy’…

        The US could declare bankruptcy… look at the hole the federal government is in… we could modify/eliminate SS, Medicare, and Federal pensions/benefits as well… an idea definitely worth pursuing…

        As could California… and end contributions toward pensions, etc., and freeze, any compensation for state, school district, UC employees, or demand ‘roll-backs’…

         

        1. Matt Williams

          Howard, there isn’t any easy answer to your question, but one possibility could be to treat all creditors exactly the same.  For example, if the bond holders and other creditors are receiving X cents on the dollar, then the pension holders would receive that same X cents on the dollar.

          The problem with that kind of “equal treatment” is that the people who can least afford the reduced percentage pay out, are the employees who were paid the least amount when they worked.

        2. Mark West

          “what is your opinion on how many cents on the dollar should retirees get”

          You are asking a political question, and from my perspective, the purpose of the City filing bankruptcy would be to vacate past political decisions in favor of smart fiscal ones approved by the Trustee.  I believe the City is functionally insolvent and the only way we are going to solve the problem is if we put everything on the table, including pensions and benefits, when we consider what should be cut.  When it comes down to it, though, there are rules set out to determine how the available pie is distributed, so asking me to lay out the numbers is beyond silly.

          The real attraction from my perspective when looking at the Stockton situation though was the ability to get out of Calpers, and not necessarily cutting pensions on current employees and retirees. We already have the power to cut pensions and benefits for all new hires and there really is no excuse not to do that today.

           

        3. Howard P

          No, Mark, I was asking a real question, that might have legal/political elements in order to be implemented… I asked your opinion of:

          how many cents on the dollar should retirees get for their pension?  Retiree medical coverage?  Current salaries?

          You have not addressed that question… I posed the scenario that it was possible…

          No need to respond, as I suspect you will not, in any event…

          25%?  50%?  Other?

        4. Mark West

          “I was asking a real question”

          It may well be ‘real’ but it is no more meaningful than ‘how many more people do you want living in Davis’ or ‘how many more houses is enough?’

          I am advocating a process by which we may bypass an inept CC that is unwilling to address our fiscal problems, not a specific answer for how we get there. I want us to fully recognize and pay for our unfunded obligations, and if necessary, work to reduce some of those obligations through the bankruptcy process. I would prefer other options, primarily a non-inept CC, but think bankruptcy is preferable to doing nothing beyond raising taxes yet again.

          My preference is that we don’t touch pension and OPEB obligations that we have already promised (and accrued), but instead, stop accruing more obligations. No change to retirees or current employees pensions, but change to defined contribution plans (and no Calpers) for all new hires. Not an easy lift, but one that we should make, bankruptcy or no. I also think we should outsource as many services currently handled by City employees as we possibly can as another method of reducing our long-term obligations.

          I will, however, leave the speculation on the number of pennies to you.

        5. Howard P

          Mark… your third paragraph in your 10:35 post was a ‘fair answer’ to my question… I thank you for that…

          I assume you feel the same about UCD, DJUSD, State, and private sector employment… no defined benefit pensions… only defined contribution… more outsourcing for all entities…

        6. Matt Williams

          Howard, there are very clear fiscal differences between defined contribution and defined benefit that guarantee a different fiscal outcome for the employer.  There are no such guarantees with outsourcing.  If the outsourcing agreement/contract/success measures are not well considered and mutually agreed to, the fiscal outcome from an outsourcing contract can end up with a worse fiscal outcome for the employer than direct employment.

          With that said, the differences between defined benefit and defined contribution can result in a substantially worse outcome.  Defined benefit produces a substantially worse outcome for an employee when the employee resists the temptation to “raid” the accumulated retirement funds.

        7. Matt Williams

          Mark West said . . . “My preference is that we don’t touch pension and OPEB obligations that we have already promised (and accrued), but instead, stop accruing more obligations. No change to retirees or current employees pensions, but change to defined contribution plans (and no CalPERS) for all new hires. Not an easy lift, but one that we should make, bankruptcy or no. I also think we should outsource as many services currently handled by City employees as we possibly can as another method of reducing our long-term obligations.”

          Definitely not an easy lift in a community where such an overwhelming proportion of the households contain members who are either actively employed by government/university or retired from government/university . . . and are covered by a  one (or more than one) defined benefit pension plan.

      2. Matt Williams

        Mark, I’m trying to stick to the straightforward fiscal realities, and stay away from speculation about political possibilities (or in the case of some of the imaginary posters here in the Vanguard, political fantasies.)

        With that said, the history of the recent municipal bankruptcies in California shows us that even bankruptcy doesn’t force anyone to address the problems.  Many of the liabilities of those municipalities that have gone the bankruptcy route were not substantially changed.

        In Stockton, nothing was done to address the city’s pension problems despite a golden opportunity to make significant reforms.  Judge Christopher Klein ruled that the city could reduce its payments to CalPERS and exit its contract with the pension administrator if the city wanted, but Stockton chose not to modify its pension benefits or leave CalPERS.  When the Stockton bankruptcy case was settled, Judge Klein approved Stockton’s bankruptcy plan, leaving existing pension benefits intact.  On the other hand, the bankruptcy plan called for the city to pay most of its bond creditors between 50 to 100 cents on the dollar. One of Stockton’s creditors, Franklin Templeton, received only 12 cents for each dollar … a $4.3 million payment discharging a $36 million loan.

    3. Richard C

      Can you imagine how politically painful the public dialogue would be about which streets in Davis will be abandoned, or which buildings will be abandoned, or which parks will be abandoned.  It is also easy to imagine that one “logical” argument will be that the first portion of capital infrastructure to be eliminated should be the greenbelts.

      Another “logical” argument that might come up would be to close one of the fire stations, or perhaps have it manned only part time.  Since this would involve a reduction in employment numbers it would help address the City’s payroll and benefits costs.

      1. Howard P

        Interesting concept, but given physical locations, response times, it would be more logical to replace FT staff with volunteers (NOT thinking that’s a great idea) rather than closing a station… look at a map or aerial of Davis.   Think where the stations are… Mace, Lake, and E/Fifth… even with boundary drop, I’m convinced we need three ‘deployment’ sites within the City…

        Staffing PT is a ‘roll of the dice’ thing… stuff happens randomly… calls for service is not limited to ‘bankers hours’… particularly calls for medical service…

        Compensation for FT staff could/should be looked at, for sure… particularly moving forward…

      2. Matt Williams

        Richard, as was noted during the 2016 Council election the amount of “currently off the budget” liabilities was $655 million over 20 years . . . on average, $32 million per year.

        The FY 2016-2017 proposed budget (see page 3-3 of PDF file LINK) was $53,446,816.  Reducing that $53 million by $32 million to cover the off the budget liabilities means a 61% reduction.  A 61% reduction is a whole lot more than closing one of the three fire stations.

  9. Ron

    Again, from above:

    “But Judge Klein’s ruling changed that – he was willing to declare that pension obligations are simply debts that could be trimmed.  He went further and declared that the city of Stockton has the right to reduce pension payments and even sever ties with the powerful pension fund.”

    This deals directly with the problem that you and others frequently mention, and seems to provide cities with an opportunity to permanently address it. (And has nothing to do with the amount of maintenance performed, or the number of employees. They just receive less compensation, overall.)

  10. Ron

    Mark:  “. . . but change to defined contribution plans (and no Calpers) for all new hires.  Not an easy lift, but one that we should make, bankruptcy or no.”

    To clarify, the city hasn’t even done this (or something similar), yet?  Really? (Seems like an incredibly “easy lift”, to me.)

      1. Mark West

        “Except that they can’t accomplish it without the agreement of employee bargaining groups.”

        Hence the need for an aggressive look at outsourcing, both as a bargaining chip and as a second option in the event of no agreement.

        1. Matt Williams

          Mark West said . . . “When the public begins to understand the true scope of the fiscal problem, instead of the rosy prognostications, then change will be demanded. I would not expect the employee groups to agree to the necessary changes, which is why I believe we ultimately will need to either outsource their jobs or vacate their contracts through the bankruptcy process.”

          The public beginning to understand is only part of the picture.  When/if the public employees begin understanding the true scope of the fiscal problem, that understanding will bring into clear focus the likelihood that pensions are not going to be paid dollar-for-dollar if we continue with the current model.  The choice for public employees when that realization dawns on them is to address the problem in an orderly proactive way, or a chaotic reactive way.

        2. Matt Williams

          David Greenwald said . . . “It appears that we are already outsourcing a huge amount of jobs it would be interesting to see how many more we could do without suffering serious loss of service.”

          That is an interesting statement David.  What jobs is the City of Davis outsourcing currently?

      2. Ron

        David:

        Based on your answer, I’m assuming that the contracts have already been negotiated, for now.

        Well, if the employee bargaining groups have any interest in long-term viability (for the city, and by extension – their own interests), maybe they better demonstrate some flexibility, here.

        And, if not, the city might need to explore the “nuclear option” (bankruptcy), at some point. (At least, that would provide the opportunity to void labor agreements.)

        I don’t know – maybe the council member (who apparently spoke with Mark) is right, in that the state might eventually help address the situation.  After all, Davis does not exist in a vacuum, regarding this issue.  (No doubt, there are many other cities in similar situations.  And, the state is generally sympathetic to labor groups.)

        If not, then I guess we’ll have more bankruptcies throughout California, into the future (besides Stockton, Vallejo, and Mammoth Lakes). Maybe that ultimately is the best course, to provide an opportunity to address the real problem.

        1. David Greenwald

          Contracts are always negotiated, however, the employees groups (most are not actually unions) have to agree to changing their retirement plan and have little incentive to do so even for future employees.

        2. Ron

          David:

          Again, their “incentive” might be the survivability of their own retirement system (one way, or another).

          An argument that the employee bargaining groups have “no incentive” to be flexible is not going to fly with voters, regardless of whether it’s a tax increase or some ill-advised proposed development.

          1. David Greenwald

            We’ve been having this discussion on here for a decade – I have yet to see anything that resembles that incentive in play. In fact, there are two bargaining units in the city that still have not agreed to any contract since 2009.

          2. David Greenwald

            “An argument that the employee bargaining groups have “no incentive” to be flexible is not going to fly with voters, regardless of whether it’s a tax increase or some ill-advised proposed development.”

            Interesting given that’s essentially been the status quo since 2009 (and really before) and the voters have seemingly ignored the problem at best.

        3. Mark West

          “the voters have seemingly ignored the problem at best.”

          I agree that the voters have mostly ignored the problem, but I’m not convinced that they will continue to ignore it if the CC attempts to pass tax increases on the order of what is actually needed (instead of only what they think polls well). When the public begins to understand the true scope of the fiscal problem, instead of the rosy prognostications, then change will be demanded.

          I would not expect the employee groups to agree to the necessary changes, which is why I believe we ultimately will need to either outsource their jobs or vacate their contracts through the bankruptcy process. Either way, we cannot afford to continue with the status quo.

        4. David Greenwald

          It appears that we are already outsourcing a huge amount of jobs it would be interesting to see how many more we could do without suffering serious loss of service.

  11. Don Shor

    Someone else can correct me if I’m wrong about any of this, but here’s the impression I get from articles here and by Rich Rifkin over the years.

    City staff negotiating with city staff about how much city staff should be paid is a fundamental conflict of interest that impedes any significant change in compensation and benefits.

    City managers like good morale. They generally won’t want to oversee a negotiating process that leads to bad morale. Cutting pay and benefits is bad for morale.

    Making significant cuts to pay and benefits would require re-negotiating contracts. It is almost certain that employee groups would not accept that. Then it has to go to impasse, through a process that is somewhat time-consuming, at which point the city can impose the “last best offer” and reap the consequences.

    Lawsuits are likely unless the whole process is handled very carefully. The city hasn’t done so well when sued.

    So no, it’s not an easy lift. And it’s politically very difficult for any council member to bring about a council majority willing to reap the consequences of the impasse, the bad morale, and the lawsuits.

    It’s always easier to work on the margins, strive to just balance the current budget by deferring expenses, and move on.

    1. Matt Williams

      Don Shor said . . . So no, it’s not an easy lift. And it’s politically very difficult for any council member to bring about a council majority willing to reap the consequences of the impasse, the bad morale, and the lawsuits.”

      Don, is anyone foolish enough to say that it is an easy lift?  Anyone who believes it is an easy lift is detached from reality.

      1. Matt Williams

        Howard asked . . . “What do you propose as an alternative method, Don? Matt?”

        I propose doing the difficult lift.  I don’t see an alternative.  Mark has done a good job of describing what that difficult lift is.

    2. Howard P

      To clarify… the CC has to approve MOU’s and give staff direction in negotiations… so maybe not as much of a COI as you seem to portray it…  still, there is more than a kernel of truth in your question…

      If desired, can explain more, ‘off-line’… have knowledge on this…

  12. Ron

    There are lots of articles on the Internet, regarding the positive and negative impacts of bankruptcy in Stockton, Vallejo, and Mammoth Lakes.

    I’m wondering if impacted cities throughout California can “band together” to take on CALPERS, if necessary.  (That seems to be the “stumbling block”, regarding voiding pension arrangements via bankruptcy.) Also, if this spreads, perhaps it will essentially force the state to become more involved, in a helpful manner.

    Again, Davis does not exist in a vacuum. There are some who seem to believe that this is a Davis-only problem.

     

    1. Roberta Millstein

      I’m wondering if impacted cities throughout California can “band together” to take on CALPERS, if necessary.  (That seems to be the “stumbling block”, regarding voiding pension arrangements via bankruptcy.) Also, if this spreads, perhaps it will essentially force the state to become more involved, in a helpful manner.

      Again, Davis does not exist in a vacuum. There are some who seem to believe that this is a Davis-only problem.

      Agreed.  It seems silly to me that every city be left to grapple with the exact same problem.

      1. Matt Williams

        Roberta, the League of California Cities just completed its annual City Managers meeting in Monterrey included a panel discussion with the specific topic of  reforming the sales tax to better align with today’s economy and demographics.

        This is a significant issue for the League on several fronts, and has been a topic of discussion in the League’s policy committee for awhile.  Those discussions have established some pretty clear policy direction on expanding base for the sales tax, digital products, and Internet sales (among others).

        According to my sources, there is also general agreement on the principle of destination vs source allocation of the Bradley-Burns Uniform Local Sales and Use Tax, but translating that agreement in principle into specific implementation is very challenging because there are “winners” and “losers” in any reallocation of sales taxes that are now going to one city (distribution centers) rather than another (delivery location).

        Bottom line, there appears to be general agreement on what needs to get done for sales tax to be more stable, grow with the direction of the economy, and align with municipal costs (and responsibilities).  The discussion is moving to what needs to happen for the local “politics” to support sound “policy.”

        1. Matt Williams

          Howard. I am afraid that I don’t understand your point.  The League’s approach to sales taxes won’t generate any additional revenue.  If implemented it will probably treat the local and county portions of sales tax in much the same way that sales tax on automobiles is currently handled.  Specifically, the zip code of the registration of the car determines what locality and county get the sales tax.  So, if a Davis resident goes to the Roseville Auto Mall and buys a new car, and then registers it with a Davis address, the City of Davis gets the local portion of the sales tax (rather than Roseville) and Yolo County gets the county portion (rather than Placer County).

    2. Howard P

      Ron… interesting you use the term “voiding”… another word of multiple meanings…

      So, do you propose ‘voiding’ all PERS pensions for Davis active and retired employees? If yes, should we not void all government/private pensions? Should we include Social Security? Meant as fair questions, based on your post(s)….

  13. Don Shor

    The 8-point plan proposed above is interesting and probably a good exercise. Unfortunately, any administration anywhere tasked with that will delay actually cutting expenses until the analysis and recommendations are completed, a process which invariably takes a long time and tends to outlast council members’ terms in office.

    So it should be a 9-point plan, with Point #1 being:

    Cap the growth of total compensation. Establish a benchmark of the ratio of compensation to revenues and set goals for how to reach and maintain that ratio. Establishing that cap and the ratio is fundamentally a political decision. Implementing it is a series of administrative decisions.

    It is up to the council to set the goals, and up to the city manager to implement those goals by directing the negotiations and overseeing the budget proposals. If that doesn’t happen to be the city manager’s strong point, he can certainly delegate it. Perhaps the council needs more frequent updates on progress toward fiscal goals. Perhaps the public also needs more frequent reports on the city’s fiscal issues and progress toward containing costs. More likely, the council needs to set those goals more clearly, in public, and reiterate them periodically — and it needs to be more than just one council member talking about them regularly.

    When I see a $20,000 increase in average compensation for full-time employees over a three year period in which total number of employees dropped by 25%, I conclude that there has been a shift in compensation toward the higher-paid managerial employees. If I’m misreading that, somebody please correct me. If that is happening, it is certainly the city manager’s prerogative to pay fewer managerial employees more money to do the work that a larger number of employees used to do. But it seems that cutting staff doesn’t yield the savings one would expect.

    Focusing on the cost containment  proposal details is an eye-glazing way of getting lost in the weeds of minor dollar savings. I am concerned that outsourcing becomes a method of shifting costs from payroll to other expense parts of the city budget, and that may have been used to free up funds for current payroll. So it will be important for someone to add together the costs of employee compensation and contracted services to see exactly what has happened to the total cost of providing city services.

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