Deja Vu All Over Again

The City of Salinas has a General Fund budget very similar to ours -- i.e. very low revenue per capita. I thought I'd share the following article from their local newspaper. It looks like they are taking many of the same measures that we did (including an identically sized budget committe) -- except they are doing at a painful year later than us!

Here's the story (click here for link):

Comparing the city to a patient who is "flatlining" in an intensive care unit, Mayor Dennis Donohue on Monday outlined the causes of Salinas' financial crisis and the coming steps to revive it.

In his State of the Budget address at the City Hall Rotunda, the mayor said the city is identifying $9.6 million in cuts to services, staff and salaries to balance its next budget.

For the past decade, Donohue said, Salinas has been "resuscitated under Code Blue time and again," beginning with the financial crisis that led to the City Council's decision, before Measure V came along, to close libraries.

"[T]he city as patient is flatlining in the budget, and it is unlikely even the EMT's can get there in time to save the patient for yet another life," Donohue said.

But even as he predicted another shortfall next year and decried the city's repeated returns to crisis-management mode, Donohue said the patient would not die and promised to help transform government "so that we don't have to call Code Blue every year."

The first step, he said, comes Feb. 2 with the appointment of a blue ribbon budget review committee to recommend cuts and revenue enhancements to the council. The committee will be comprised of up to 15 members from various sources, including city staff; the independent budget review committee; the planning and permit task force; the Measure V oversight committee; neighborhood groups; and members of the public, including participants in the Saving Salinas forum at TheCalifornian.com.

The committee will give a final report May 6.

On March 2, the city's first layoff notices will go out after a council review of its budget-balancing plan. The notices will be tentative until closer to the July 1 start of the fiscal year. The current plan calls for about 68 layoffs across departments. The city plans to approach its unions for new concessions on top of the $12 million negotiated in the past two years.

Donohue defended the 2007 pay raises to police, fire and other employees that were identified as a "possible cause" of the city's structural deficit in a report last week from the nine-member independent budget-review committee.

"We couldn't get enough officers, or those we got left town really fast, and we were constantly chasing our tail and raising our overtime and training costs," he said. "We attract locally, but we lose to the Bay Area. The council made a decision ... that we will be competitive to the tri-county area. That's reasonable.

"You can't squeeze blood out of a turnip. The low end of the salary spectrum really is not going to get you to a significant place .... Even if you got some additional concessions, we do not break the groundhog cycle with salary concessions," he said, referring to the movie "Groundhog Day," in which a man relives an unpleasant day over and over.

In 2007, the council approved raises of 12 percent for Salinas firefighters and 25 percent for police officers and management, spread out over two to two-and-a-half years; and 18 percent for 350 other employees.

What would end the city's cyclical financial crises? Donohue identified the "root cause" as insufficient revenue, comparing the $485 in per capita revenue for Salinas to $552 in Seaside; $581 in Watsonville; $634 in Gilroy; and $1,832 in Monterey.

"Our tax base continues to shrink, but the demand for services continues to grow," he said. "If you want a different outcome on the gang issue, we're going to have to make a major investment."

He declined to say whether that investment should take the shape of a tax increase.
"We will need to engage in a full-scale community engagement process [on the investment], even the equivalent of our own Salinas constitutional convention," Donohue said

Tracy Police Avoids Layoffs

From the Tracy Press:

Officers give up scheduled raise to save jobs
by TP staff
Jan 18, 2010

The Tracy police officers’ union voted to forego a raise this summer to save several jobs and to change their retirement plan for new employees to save the city money.

The change to the police officers contract comes after a couple of months of talks between union heads and city administrators, who had announced their intention to lay off six officers, two sergeants, and one captain.Those cuts are no longer necessary though.

Officers were scheduled to get a 5-percent pay hike in July on top of the 5-percent raise they received last summer, a wage increase that appeared to cause ripples of discontent as other city workers were laid off and forced to take unpaid days off.

A majority of the 85-member union also voted to cut retirement benefits for new officers that are hired. Instead of being able to retire with up to 90-percent of their salary at age 50, new officers will be able to retire with up to 90 percent of their salary at age 55, the same retirement package that Tracy firefighters have.

The union also agreed to extend their contract through fiscal year 2011-12 with no extra benefits.

City managers are trying to save money in the face of a projected $9 million budget deficit. Tracy pays 100 percent of the retirement costs for all its workers, which costs the city about $9 million a year. It also pays $1,200 per month per employee for health insurance, an annual $6.2 million cost, and gives each full-time employee a minimum of 37 paid days off a year, including sick leave.

The changes to the police officers’ contract “balances the recognized public safety concerns while being sensitive to the City’s fiscal situation and the community’s economic hardships,” said Sgt. Alex Neicu in a press release on behalf of the union.City administrators seemed pleased as well.“I think it’s a win-win for everyone,” said Finance Director Zane Johnston. “The raise was huge, because that’s a lot of money.”

The Bureaucracy Strikes Again

There has been a lot of debate as to whether or not the federal stimulus package passed last year has actually contributed to job creation. After reading dozens of article, there is no doubt that the funds that went back to states for education did help reduce the number of teacher layoffs--or at least put them off for a year.

On the other hand, there has been a dearth of "bricks and mortar" type projects due to the feds insisting on adding their own layer of red tape to every construction project that they have touched across the country. Locally, the Atherton Gap closure project will be delayed by at least 6 months due to the additional red tape and the state's inability to handle all of the addtional red tape imposed by our friends in Washington D.C. All of the additional paperwork is completely duplicative to processes already required by our state government. Thus, while the government is insisting that these projects be fast-tracked in order to help the economy--the same legislation that insisted on speed also imposed an additional layer of duplicative review.

One of the many ridiculous requirements that come with "federalizing" a project is historic review. The feds require projects as insignificant as replacing an air conditioner to go through the state's Office of Historic Preservation to make sure that historic resources are not at risk in the subject project. Those of us that have dealt with federal programs over the years have seen this requirement stall and often kill great projects. The Office of Historic Preservation is not only slow, but incredibly subjective when it comes to determining what is historic.

A recent in the Sacramento Bee (click here) has exposed the Office's role in helping to gum up the process of getting projects approved and getting people back to work. The article notes:

As Gov. Arnold Schwarzenegger prepares to emphasize job creation as his top priority in his State of the State address, his watchdog for federal stimulus dollars says a tiny state office is delaying hundreds of projects that could employ out-of-work Californians.

Laura Chick, state inspector general for American Recovery and Reinvestment Act funds, said Monday that the California Office of Historic Preservation has a two-month backlog in approving federal stimulus projects, some as small as installing a heating and air conditioning unit.
Chick said state-mandated furloughs have contributed to the backlog, and she suggested that the state should allow historians to delay taking furloughs.

She also said the Schwarzenegger administration could shift other state workers as needed to the Office of Historic Preservation to reduce the backlog.

"There are human beings standing on the street, waiting for an employer to say, 'OK, I need you to work, I'm ready to pay you,' " Chick said. "If there's a bunch of paper sitting on somebody's desk, and the review could be 15 days instead of 60 days, that's 45 days of holding up jobs from being created."

Under federal law, the office must review federally funded construction projects to ensure they do not adversely affect historic sites.

Chick estimated that hundreds of projects are awaiting review by the Office of Historic Preservation, many of which she suggested would have no significant consequences on historic properties.

Those of us who work at the local level are finding that the furloughs are becoming the excuse for state agencies not getting back to us in a timely manner. Frankly, most the agencies using this excuse were just as slow prior to the furloughs. After this article appeared in the Bee, a follow up blog was post about a week ago:

The Office of Historic Preservation is quickly clearing an application backlog that delayed billions of dollars in federally-funded stimulus projects, according to California Recovery Task Force Director Cynthia Bryant .

Capitol Bureau colleague Kevin Yamamura last week reported on the backlog of hundreds of applications made worse by furloughs at the OHP. The office has to sign off on federally funded construction projects to ensure the projects don't mess up historic sites. Delayed reviews had stalled billions of federal stimulus dollars. Click here for that story.

Gov. Arnold Schwarzenegger gave the office 30 days to clean things up and sent over extra employees to help. Bryant said in this press release that six projects were left to review that will be finished this week.

Budget Woes

Now that we are at the midpoint of the fiscal year, many cities are beginning to revisit the revenue projections made last spring. Many cities grossly underestimated the impact the great recession would have on sales tax revenues--they naively believed that we'd already seen the worst of the recession's impact in 09-10.

Here in Manteca, we knew better and waited until late summer to make our budget projections--and knew that huge cuts in employee compensation were needed to make the budget work. The following articles chronicle the tale of two cities (both very sales tax dependent) that decided to avoid the hard choices in the budget and hope for the best.

In Escondido, they now are looking at cutting ten percent out of the remainder of this year's budget--not an easy task. As many as 100 layoffs could be required. Click here for the entire article.

In Santa Rosa, they did cut about 20 percent of their budget going into this year, but now need to cut another $10 million (10 percent) to make it through the year. They've got a list of 98 items that they are looking to cut. Click here for the entire article and a link to the staff report outlining the 98 cuts.

While most of the articles focus on a city's General Fund, in Tracy the solid waste account is now in the red. As most of you know, Manteca reduced compensation for non-General Fund accounts as well since the recession impacts enterprise revenues as well. The article notes:

Kevin Tobeck, the public works director, said the problem his department faces is threefold. Few houses have been built in the past few years, so there has been no construction debris to discard. Tracy is also home to a swarm of empty, foreclosed houses, where no garbage is collected so no bills are sent out, he said.“We went from lots of building to virtually none,” he said.

Click here for the enitre article.

Labor Impasse in Lompoc

Here in Manteca, we have the good fortune of not having any expiring labor contracts during these uncertain economic times. Most of the cities currently renewing contracts are in contentious negotiations, as it is difficult to put together new agreements when the economy is still struggling and the state continues to consider more takeaways of local government revenues.

Here's the latest from Lompoc, which is wrapping labor contracts with all of their bargaining groups:

More than a year of negotiations has ended in an impasse between the city of Lompoc and its police officers.

As a result, during the City Council meeting tonight, city staff will recommend imposing several changes upon employees of the police department, including a 5 percent pay cut and reductions in health-care benefits.

“All those terms and conditions are exactly the same as agreed to by the Teamsters, the firefighters, and every other employee of the city,” Human Resources Director William Yanonis said.

The fruitless negotiations between the city and the police association had included 12 formal meetings, eight contract rejections, and a round of mediation with state officials, said Yanonis. He said the specifics about the negotiation impasse would first be reported to the City Council during a closed session meeting today, before his public report during the public meeting. The meeting begins at 7 p.m.

Click here for the entire article.

As I've noted many times, Manteca's issues are everybody's issues these days. While it is easier to blame our budget problems on local decisions and local conditions, this is a worldwide recession which has been particularly brutal to just about every government agency in this country and beyond. We have to make decisions at the local level as to how we adjust, but we can do very little at the local level to change our economic circumstances--we just have to change how we do business to deal with our economic realities.

There continues to be a number of cities that believe they can tax themselves out of this budget crisis. Santa Rosa is the latest city to float revenue enhancements as a way to fix their budget (click here for article). I've yet to find a city that has been able to convince their City Council to even ask the electorate for more money right now. I'm sure they will find out that their local businesses and residents are already stretched too thin, and a tax increase would not be welcome--we are just going to be expected to tighten our belt, just like everybody else.

Latest on Retiree Health

While pension reform is getting most of the press these days, retiree health care is the other huge financial obligation that could saddle local government in the future. Capitol Weekly's Ed Mendel (click here) recently reported on efforts by the City of San Diego to reduce their retiree health obligations:

San Diego officials think a federal court ruling will allow a cut in one of the biggest debts owed by California state and local governments — $118 billion or more promised public employees for retiree health care.

The federal court ruled that San Diego’s retiree health obligation is not a “vested right” like public employee pensions, which are widely believed to be protected by court rulings that allow cuts only if replaced by something of equal value.

San Diego officials think retiree health obligations can be reduced in negotiations with labor unions and, if there is no agreement, that a cut can be imposed through standard “impasse” procedures.

City Offices Closed

Just a reminder:

City offices will be closed as a result of upcoming holidays and unpaid furloughs that will be taken by City employees. Offices will be closed from December 24 through January 3. There will be no "starts" or "stops" for water, sewer or garbage service during this time. Solid waste collection will remain on its regular schedule. Remember, routes scheduled for Christmas Day or New Year’s Day will be picked up on the following day.

This is the second round of furloughs this year. City offices were also closed the week of Thanksgiving. The furloughs saved the city nearly $1 million in labor costs in the current budget year as each employee's compensation has been reduced by 3.9 percent. Furloughs will likely continue for the next two budget years as we continue to find ways to cut costs in these tough economic times.

More Salary Cuts and Salary Freezes

Merced is one of the cities that mirrors Manteca when it comes to population, services and revenue per capita. Not surprisingly, they are suffering very similar budget woes to us. They have already eliminated 74 staff positions in the recession and expect another tough budget year ahead. While we've been forced to modify existing labor agreements to help bridge our budget gap, Merced's labor agreements are expiring.

Here's more about the agreements from today's Merced Sun-Star:

Due to the uncertainty in the current labor climate, they decided to put together new contracts which expire in a year.

While all sides voiced their general satisfaction with the contracts' outcome, the austerity agreements, which froze wage increases among other things, came at a time when the troubled economy has forced the city to tighten its belt.

"We came to a very good agreement," said Merced City Manager John Bramble, about the contracts. "They understand our financial situation, and we understood their issues."

While the two agreements saw each union give concessions in the form of wage freezes, they were limited in duration and will be renegotiated within a short period.

The Merced Police Officers Association, which represents roughly 100 officers, agreed to a two-year contract with a wage freeze, but received a slight improvement in their medical coverage. The last contract the association signed was in 2006.

"I'm pleased with the outcome because there are a lot of cities faced with layoffs and work furloughs and reductions, and we were able to come to an agreement with the city where we're not losing anything," said Keith Pelowski, president of MPOA.

The Merced Fire Fighters Local 1479 of the International Fire Fighters Association, which represents 62 firefighters in Merced, signed a one-year contract, which also includes a wage freeze. The contract also includes an increase in out-of-pocket medical costs, said Jeremy Franklin, the secretary of the firefighters union.

Aside from minor concessions, the union was happy with the contract, said Franklin, especially with the economic situation as bad as it is. Most of all, they wanted to avoid layoffs, and they did, he said.

The two unions had been in negotiations with the city since late summer.

Here in San Joaquin County, the District Attorney's office was not able to come up with a agreement to save the jobs of seven prosecutors. Here's more from the Stockton Record:

In the deal, the San Joaquin County Board of Supervisors had asked the association to reduce a scheduled raise from 5 percent to 1 percent, covering $380,000 needed to keep the positions for the remainder of the fiscal year.

Spokesman Michael Bullard said in a written statement for the association of attorneys who work in both the prosecutor and public defender's offices that they had no choice but to reject the deal.

"The county's offer to us was dead on arrival with such one-sided demands," Bullard said.

The association voted Tuesday with 70 percent of its members saying they wouldn't agree to the concessions.

The San Joaquin County District Attorney's Office now has to figure out what to do with seven fewer prosecutors. The layoffs wipe out the misdemeanor team, and the office will likely have to close its Tracy branch, among other measures.

Message from the Police Chief

For those of you who don't read the Police Chief's blog, I wanted to share his very eloquent and heartfelt entry from Saturday:

By now I am sure you have all heard that the MPOA has rejected the latest offer from the City Manager. To say the least, I am disappointed, and a bit confused. It was no small task for me to convince the City Manager to agree to this offer. It was based on everything the Association's elected officers said was important; no old money, no additional payment toward your PERS, protections for the future contract, and a end to the all-or-nothing position. Members of your board said in a open Council meeting that if the City could show that paying additional PERS would cost the members about $100 a month they would present it to the members for a vote. The City provided a payroll actuarial for every member of the Association but they were not provided to the members. Members of the board and of the Association said to the newspaper and in the blogs that it was not about the COLAs and that they would willingly give those up to get back their partners. I brought this offer to members of your board over three weeks ago so that your Association lawyer could draft the language that best protected your members, but that was never done so, at my request, the Personnel Director drafted language as a starting point so you would have something to discuss. Instead, the action of the Association was to decide not to discuss it, let alone take a vote on it. I respect that this is your right. It was just disheartening to discover that apparently I was the only one still working to get our partners back to work.

Having said that, the decision has been made and from here we move on. I am confident that all of our brothers who have been laid off will find other jobs. I have been working with the Sheriff's Department, Lodi, and San Mateo Police Department's to find them positions. I am sure they will all land on their feet.

The financial problems that are impacting Manteca are not restricted to just us. At the County Chief's meeting this week we discussed the impacts on the other agencies in the county. Here are some of those reports:San Joaquin County DA's office will be laying off 8 prosecutors. Four will be rehired and assigned exclusively to environmental crimes. This will eliminate almost all misdemeanor prosecution other than DUI and domestic violence in the Stockton office. Outlying courts like Manteca will have more ability to address lower level crimes.

Stockton Police Department has reduced its total staff from 799 employees to 558 including the elimination of 80 vacant sworn positions. They will be eliminating most bicycle and park patrol, community policing teams, and reducing the size of the narcotics and street crimes units. Probation Department will be closing down the Crossroads Center and all prevention and intervention programs.

Tracy PD, despite the fact the City has over $20 million in reserves, will be eliminating 20 positions from the Police Department. This includes the elimination of the Deputy Chief and Captain ranks and the demotion of two Sergeants. Ripon's general fund budget is $1.5 million underfunded. Their City Manger has proposed the layoff of 5 sworn officers and 5 from parks and rec. We are in uncharted territory when it comes to providing and paying for government services for the public.

Manteca has taken steps to try to minimize future impacts to our ability to do so. At this point we all need to pull together to provide the best service we can for the people we have all worn to protect and serve.

Layoffs back in the News

I'm sure that most of you are aware that the State of California is beginning to come clean with their budget situation (click here for story). I don't think there was a state budget watcher anywhere who believed that the budget they passed was even close to balanced. As Dan Walters noted:

Anyone with half a brain and a hand calculator could figure out that many assumptions on which the budget was based, both spending and revenues, were unrealistic, some of them conjured out of thin air to "balance" an inherently unbalanced budget for political reasons.

The question now is whether or not the state's labor unions will attempt to come up with a revenue enhancement that continues to put off the inevitable--massive layoffs at the state level. It isn't unrealistic to think that the state will have a repeat performance of last May, when they attempted to extract more dollars out of the voters--who will likely overwhelmingly turn it down.

In the past few days, two of our neighboring cities (Lathrop and Tracy) floated the idea of tax measure for public safety. Both proposals were shot down. Here in Manteca, our Budget Advisory Committee emphatically shut down the idea of revenue enhancements eight months ago.

For some reason, our state government always seems to be the last to get the message.

We've also got a number of cities still coming to grips with our woeful revenue situation. The City of Vallejo, as part of their mid-year budget is looking at laying off seven more police officers (click here for story).

In Fresno, it looks like over 100 layoffs and furloughs are in the works.

Addressing the City Council and a packed council chamber, Swearengin said she understands the pain of those who would lose jobs and the frustration of Fresnans who could see reduced services.

But, she added, "before anything else, our No. 1 responsibility is to be good fiscal stewards."

Swearengin and City Manager Andy Souza outlined a plan to fix a $27.8 million general fund deficit expected to unfold over the next 18 months. The problem is a sharp and unexpected drop in various tax revenues and a jump nearly as sharp in expenditures, particularly retirement costs.

Swearengin's plan comes only about six months after city officials made cuts and layoffs to close a $27 million budget shortfall.
Looking ahead, city officials said an additional $4 million to $9 million in cuts may be necessary to balance the 2012 budget.

"We are an organization that must contract," Swearengin said Thursday afternoon during a meeting with The Bee's editorial board.

Among other things, Swearengin is calling for 125 layoffs, a mandatory 40-hour furlough for many employees, plus the closing of four of the Parks Department's neighborhood centers and two fire stations. The fire stations are Station 10 in east-central Fresno and Station 18 west of Highway 99.

Click here for full story

I don't expect the revenue picture to get any better anytime soon. The real estate market problems are not just a subprime issue anymore as noted in this story:

A rising proportion of fixed-rate home loans made to people with good credit are sinking into foreclosure, adding to concerns about the strength of the economic recovery.

Driven by rising unemployment, such loans accounted for nearly 33 percent of new foreclosures last quarter. That compares with just 21 percent a year ago, when high-risk subprime loans made during the housing boom were the main reason for default.

At the same time, the proportion of homeowners with a mortgage who were either behind on their payments or in foreclosure hit a record high for the ninth straight quarter.

The Mortgage Bankers Association's report Thursday suggests the housing market and broader recovery could be thwarted by the continuing surge in home loan defaults, especially as the unemployment rate keeps rising. Lost jobs, rather than the shady loans made during the housing boom, are now the main reason homeowners fall behind on their mortgages.

After three years of plunging prices, the housing market started to rebound this summer. While optimists hope the worst is over, pessimists say there are simply too many foreclosed properties that have yet to be dumped on the market and expect further price declines.

Click here for full story

It's Official, Signature Gathering Begins for Pension Reform

From Today's Sacramento Bee:

As we reported last night, the California Foundation for Fiscal Responsibility on Thursday re-filed proposed ballot measures that would create a mandatory second-tier pension system for new public employees hired by the state, counties, cities and other non-federal government agencies in California.
The group put forward a similar measure in 2007, but it didn't have the financial support to gather enough signatures to qualify for a statewide vote. Foundation President Marcia Fritz figures it will take $2 million to gather the 1 million signatures needed to get the initiative before voters in the November 2010 election. She said no well-financed backer has stepped forward with a big check.
In a telephone interview this morning, Fritz outlined a strategy that includes an aggressive Web-based signature-gathering campaign and a push to get 2010 gubernatorial candidates such as Meg Whitman to take up the cause.
"We hope that the candidates will step up and help us raise money," Fritz said. "It would give us exposure and give them an issue to talk about."
Fritz, who runs an accounting firm in Citrus Heights, estimates the savings from the foundation's benefit rollback for new hires would save California $1 billion in pension costs one year after taking effect on June 30, 2011.
Some features of the plan:
* -- Changes the retirement formula for new peace officers and firefighters from the current 3 percent times years of service at age 50 to 2.3 percent at age 58.
* -- Cuts the formula for other newly-hired public safety employees, such as park rangers and game wardens, from the current 2.5 percent at age 55 to 1.8 percent at age 60.
* -- Ties the full retirement age for all other employees to the federal standard. Those workers paying into Social Security would get a defined pension based on no more than 1.25 percent of pay. Those who don't contribute to Social Security would get no more than 1.65 percent.
* -- Caps annual pension benefits at 75 percent of an employees annual base wage.
* -- Requires retirement benefits be based on a three-year average of base pay, excluding things like overtime, uniform pay, bonuses, longevity pay, accrued but unused vacation pay.
* -- Requires that any public employee retirement enhancements go to a public vote. The foundation has filed two versions with the Attorney General, one requiring a simple majority vote of the people to enact enhancements and the other a two-thirds vote. Fritz said her group is seeking feedback before deciding which one to push for a public vote.
Click here to read one version and click here to read the other.

City of Tracy Layoffs/Pension Reform

Approximately 58 layoff notices were handed out in Tracy this week. Tracy is looking at huge revenue drops just like Manteca and every other city in the valley, state and country.

It looks like the cuts will impact every department including Police--but a disproportionate share of the cuts may occur in maintenance and operations.

To read more about the cuts, click here.

Another item in the news today involves pension reform. Two more City Managers groups have endorsed the concept of a two-tiered pension system for employees. The plan would put impact both the retirement formula and the date when retirement benefits max out for new hires.

According to the article:
The cities plan on abiding by the guidelines when elected and appointed officials enter future negotiations with their union groups. Because the policy would apply only to workers hired after the ratification of new union contracts, the changes will do little, if anything, to help cities clean up their current budget messes, said Brisbane City Manager Clay Holstine, who helped write the policy.

One of the mid-sized cities endorsing the plan notes that the plan would save the city $44 million over the next 20 years. To read the entire article, click here.

The San Joaquin County City Managers have also come up with policy document and I'll be blogging about it soon.

Underemployment versus Unemployment

The chart above is in an article in today's San Francisco Chronicle (click here).

The article talks about the rise in the "underemployment rate." This measurement reflects the fact that the unemployment rate doesn't take into account the many workers whose hours and benefits are reduced during a recession. It gives all of us a better picture of how severe the current recession has become. This staggering number demonstrates the huge percentage of our population suffering right now. It also explains why retail sales have dropped so sharply, as underemployed workers are less likely to spend.

On the other hand, this data also can come in handy in the future at refuting the concerns that we may end up having a jobless recovery. As the economy recovers, the underemployment often drops far more quickly than the unemployment. This is due to the fact that employers often increase hours and benefits for their underemployed workers before they add positions. Thus, while it may seem like no jobs are being created, in fact, millions of underemployed workers are going back to full time status.

Let's hope that the underemployment number has peaked!

Deja Vu All Over Again

Today's article talks about a ninth straight unbalanced budget, skyrocketing labor costs and the need to either reduce compensation or the workforce. Sounds like many recent Bulletin articles? Actually it is an article in today's Mercury News discussing the City of San Jose's precarious budget situation.

Here are some excerpts from the story:
...City Manager Figone said she is not seeking to "blame our labor unions" but simply aims "to confront the realities." Those realities, she said, are that in a city facing its ninth straight budget deficit, where personnel costs account for two-thirds of costs to the $880 million general operating fund, the only way to close the shortfall is by shrinking either the number of employees or their individual costs.

Figone said the city would have to cut 763 jobs to cover the projected $90 million deficit without a boost in revenues or concessions from the workforce.

She noted that the city's deficits have soared this decade along with costs for its employees' pay and benefits. While the city's full-time workforce has shrunk from 7,000 to 6,600 since 2000, the average cost for each worker has shot up 64 percent to $120,418. Had pay and benefits merely increased at the rate of inflation as measured by the Consumer Price Index, the average cost would have risen 18 percent to $86,997 today.

The increases have been particularly steep for the city's police officers and firefighters, whose average cost in pay and benefits rose 78 percent this decade. The cost for just their retirement benefits rose 174 percent — more than twice the rate for other city workers — as their maximum pension grew to 90 percent of their final salary with automatic 3-percent annual increases.

But the employees' rights to negotiate any changes in pay, benefits and working conditions narrow the city's ability to shrink costs. And city voters in 1980 granted police and firefighters the right to have outside arbitrators settle contract disputes, which critics say is the reason for their steeper pay and benefit increases.

Among concessions Figone is seeking:
Reduced retirement benefits for new employees. More than half of the projected deficit is due to investment losses in the city's pension funds, which taxpayers are on the hook to offset with added payments. Because retirement benefits can't easily be changed for current employees, Figone wants to negotiate a lower and less costly benefit for new hires.

Reduced health benefits. Figone wants to explore several recommendations from a recent city audit, including having employees pay more for premium costs and co-payments, offering a cheaper plan with a deductible and reducing incentive payments for those who decline coverage.

Reducing automatic "step" raises. Employees typically get five, 5-percent annual raises during their first four years in a new position. Figone has suggested more performance-based raises that would have to be earned over a longer period.

Reducing sick leave cashouts. San Jose's current policy cost taxpayers $7.8 million last year and is more generous than other governments; some police officers and firefighters have collected six-figure sums for unused sick leave upon retiring.

Eliminating "redundant compensation" for injured officers and firefighters who can receive both workers' compensation and disability retirement benefits.
Chavez said city workers earlier this year "tried to give money back" by suggesting unpaid furloughs and other ideas, "and the city made it difficult to do that."

City officials, however, said the workers' proposals did not actually save money or were otherwise unworkable.

Click here for entire article.

As I've noted before, we aren't alone. This isn't just a Manteca issue or a valley issue, or even a California issue. The problem is worldwide and it isn't going to go away until we make fundamental changes in the way we do business.

Jobless Recovery?

Apparently, all economic indicators point upward and the "great recession" may be abating. Unfortunately, it doesn't look like the unemployment rate is going to go down anytime soon. An article in today's USA Today eloquently describes this predicament.

The article (click here) notes that:

Even with an economic revival, many U.S. jobs lost during the recession may be gone forever and a weak employment market could linger for years.

That could add up to a "new normal" of higher joblessness and lower standards of living for many Americans, some economists are suggesting.

The words "it's different this time" are always suspect. But economists and policymakers say the job-creating dynamics of previous recoveries can't be counted on now.

Here's why:
• The auto and construction industries helped lead the nation out of past recessions. But the carnage among Detroit's automakers and the surplus of new and foreclosed homes and empty commercial properties make it unlikely these two industries will be engines of growth anytime soon.
• The job market is caught in a vicious circle: Without more jobs, U.S. consumers will have a hard time increasing their spending; but without that spending, businesses might see little reason to start hiring.
• Many small and midsize businesses are still struggling to obtain bank loans, impeding their expansion plans and constraining overall economic growth.
• Higher-income households are spending less because of big losses on their homes, retirement plans and other investments. Lower-income households are cutting back because they can't borrow like they once did.

In any case, this "new" normal could have a devastating impact on our city budget. Fewer jobs means fewer retail sales. Fewer jobs means fewer new homes and lower priced homes. These factors translate into less funds to operate our city services at a time when our services are in higher demand than ever.

I'm going to assume that even if this isn't the new normal, we are still looking at less funds in the future to run our community. I'll be blogging soon about how we plan to address the budget challenges we'll be facing in the future. Our staff is developing a new model that will address the need to focus our services where they are needed the most.

Economic Woes are Everywhere

Here's an excerpt from a news story I was listenting to on the radio early this morning:

SOCOLOVSKY: I'm feeling pretty bad, says Aranchas Sanchez del Canya, who works as a government researcher. My life plan was clear: a government job that let me spend time with my two kids. I thought I was set for life. Now it looks as though it won't be that way.
Her boss recently told her that her contract would not be renewed. Her husband, a computer specialist, is just barely hanging on after the small IT firm he works for let go of most of its staff over the summer.

SOCOLOVSKY: You just can't plan for the future, Sanchez says. With unemployment now at 18 percent and forecast to rise even further next year, many people who still have jobs feel them slipping away. Unemployment for those under 25 is already nearly 40 percent. With her geology degree, good grades, and the ability to speak several languages, Penelope Torre Alba says her opportunities seemed limitless.

SOCOLOVSKY: It looked like the world was mine for the taking and that I could have any job I wanted, she says. But Torre Alba's employer just gave her a choice between layoff and temp status, which means she can be let go at will.

(Click here for link to full story)

Sounds like a conversation you might overhear today at any restaurant in the Central Valley--not to mention the Bay Area, the west or the balance of the United States.

Actually, the conversation isn't even in the U.S.--it is taking place in Madrid, Spain.

I realize that we can only focus on Manteca's issues, but sometimes it is important to realize that what we are experiencing is a world-wide problem. When this city and just about every other city in the country planned out its budget in 2002, 2003 or 2006, none of us anticipated an economic downturn of this magnitude. Even if we had, there is no way we could have saved enough money to offset the huge drop in revenues that we've experienced the past few years. Ask the City of Tracy, who is quickly going through a $38 million reserve.

It may feel better to claim hindsight, but you can only base your budget on your best knowledge of the current information and past history. This city budgeted according to realistic assumptions for revenues and expenditures. This city used one time revenues for one time expenditures to make sure that the budget didn't grow at an unsustainable rate. Finally, this city put together a compensation package that could withstand what every city thought would be a worse case scenario.

Unfortunately, we are now experiencing an unprecedented drop in revenues that is of a magnitude that no one could have predicted. As noted above, this economic tsunami is worldwide and public and private sector employers in every country are going through these same struggles. It is a lot easier to throw your local leaders under the bus and blame your woes on them, but it isn't realistic and it isn't going to solve our budget deficit.

Police Layoffs

Much has been written at this point about the budget and the need to reduce labor costs. I had truly hoped that all of our bargaining units would agree to reduce costs via compensation instead of layoffs. I'm very thankful that the vast majority of our employees agreed that saving jobs was more important than receiving raises in tough economic times.

Unfortunately, the MPOA doesn't agree with this philosophy. We had attempted to put together a package of cuts that would minimize the impact on each officer. The average officer's take home pay would drop around 3 percent with the proposal that we made. I realize that many of the officers were skeptical that the cut could be so small.

To prove our point, we provided the union with printouts from the payroll system showing the current pay and the proposed pay of each member. It showed that the actual impact per paycheck wasn't much more than $100. I'm hopeful that the MPOA will share this information with their membership. When this information was presented to every other labor group, I believe it ended up being the deciding factor in going along with the cuts.

My door remains open for the moment. I hope the union will reconsider their stance. While I realize that the Cost of Living Adjustments are a big deal to older members looking to maximize their pay prior to retirement, I also think that the community would be better served if we could keep our 12 officers employed. I also know it would better serve the MPOA members now unemployed. While there are some agencies hiring to fill the economic stimulus positions, there are hundreds of officer layoffs underway at nearby agencies. In talking to other City Managers and County Administrators, they've noted it isn't a good time to find work--particularly for those with less than 5 years experience.

The Myth of the Underpaid Public Employee

The backlash against public sector pay continues to spread across the country. The title above is the headline of a recent article from the op-ed page of the Boston Globe (click here for full story). Here are some excerpts from the story:

THOUGH it hasn’t been true for years, many people believe that government employees receive lavish employment and retirement benefits in order to compensate for their meager paychecks. The reality is that their paychecks aren’t meager at all: Government jobs often pay more than those in the private sector, and the difference between the two is growing.

Consider the lucrative lot of the men and women who work for Uncle Sam. In 2008, according to data from the Commerce Department’s Bureau of Economic Analysis, the 1.9 million civilian employees of the federal government earned an average salary of $79,197. The average private employee, by contrast, earned just $49,935. The difference between them came to more than $29,000 - a differential that has more than doubled since 2000.

Take account of total compensation - wages plus benefits - and the disparity is even more striking. In 2008, total federal civilian compensation averaged $119,982 - more than twice the $59,908 in wages and benefits earned by the average private-sector employee. Chris Edwards, a scholar at the Cato Institute, has documented the steady widening of the gap: In 1960, federal workers averaged $1.24 for every $1 earned by a private employee. By 1980, the federal advantage was up to $1.51; in 2000 it was $1.66. Now it is $2 - and climbing. When ranked alongside 72 industries that span the US economy, federal employees take home the seventh-highest average compensation. Among the workers they outearn, Edwards shows, are those in such fields as computer systems design, chemical products, and legal services.

Stories and other like it are spreading like wildfire into our papers and through cyberspace. It further reinforces why it is critical that public employees begin to ratchet down compensation plans to reflect the current economic realities.

More Company for our Misery

I was mentioning the other day how our budget woes are a nationwide trend. Here is just a partial listing of articles from just the last week describing California cities that are going through the same experience as us:

By the way, on some computers, it will ask you for a password to link to these stories. Cancel out the password request, go up to the web address box and you'll see the following:
http://www.ci.manteca.ca.us/exchweb/bin/redir.asp?URL=http://www.redding.com/news/2009/oct/06/redding-mayor-suggests-ballot-measure-could-cut/%2520

Just delete out everything up to and including the "=" (equals sign) and leave the rest and you should be able to get to the story. Of course, some of the stories will already be gone, but for most this should work.


Redding mayor suggests ballot measure could cut more city benefits... Posted October 6 by the Record Searchlight
State employees take pay cuts, save 1,100 jobs... Posted October 6 by CBS 13
Alameda moves to cut health benefit costs for new hires... Posted October 5 by the IslandofAlameda.com
Recession making it tough for San Joaquin agencies to maintain workplace diversity efforts... Posted October 5 by the Stockton Record
California blunts budget cuts... Posted October 5 by the Wall Street Journal
L.A. city SEIU local: "our members get loud and angry"...Posted October 4 by OurLA.org
Is Columbus Day a holiday? State workers get conflicting advice...Posted October 4 by the Sacramento Bee
Loma Linda forced to cut staff...Posted October 3 by the Press-Enterprise
Sonoma cuts “to the bone” to balance budget... Posted October 2 by the Sonoma Valley Sun Prison educators get layoff notices... October 2 by the Press-Enterprise
Tuolumne County employees benefit from PERS windfall...Posted October 2 by the Union Democrat
Brea to temporarily cut on-duty fire staffing...Posted October 2 by the OC Register
Union concessions may ease Sacramento County budget crisis... Posted October 2 by the Sacramento Bee
Riverside County declares impasse with prosecutors...Posted October 2 by the Valley News
Union workers cut in Guadalupe... Posted October 1 by the Santa Maria Times
San Jacinto approves cuts in office hours, workers' pay... Posted October 1 by the Press-Enterprise
UC Riverside employees to get "temporary layoff" notices... Posted October 1 by the Press-Enterprise
Alameda County, SEIU come to new pact...Posted October 1 by the Oakland Tribune
546 S.F. workers get layoff notices, but many will be rehired, paid less...Posted October 1 by the SF Public Press
Vallejo IBEW president: time for resolution, redirection... Posted October 1 by the Times-Herald See also Retiree group wants to see Vallejo's Chapter 9 exit strategy... Posted October 2 by the Times-Herald
UCSF offers furloughed employees little help via "hardship loans"... Posted September 30 by the SF Public Press
Opinion: Myth of the underpaid public employee...Posted September 30 by the Boston Globe
Anaheim teachers face up to 11.75% pay cut... Posted September 30 by the OC Register
Furloughs equal more work less pay in S.F.... Posted September 30 by MissionLocal.org

NEGOTIATIONS/LABOR RELATIONS
Deputies' union says non-sworn jail guards compromise safety... Posted October 5 by the OC Register
Vallejo Con Dios: New report on unions' impact... Posted October 5 by the Times-Herald
And... Posted September 28 by the CATO Institute
Don Perata still making bank from prison guards' union... Posted September 30 by the Contra Costa Times
Glendale USD, teachers union start far apart... Posted October 4 by the Glendale News-Press
PERB ruling favors Modesto CEA leader... Posted October 2 by the Modesto Bee
Palo Alto to resume negotiations with IBEW... Posted October 2 by PaloAltoOnline.com
See also Palo Alto police managers forming own group... Posted October 1 by PaloAltonline.com See also Palo Alto managers talk of joining Teamsters... Posted September 30 by PaloAltoOnline.com
Anger is mutual for SEIU, SF mayor... Posted September 30 by the San Francisco Chronicle
Santa Maria’s City Attorney rejects ballot measure on police pay... Posted September 30 by the Santa Maria Times

PENSIONS/RETIREE HEALTH
Pensions’ post-crash reforms: Slipping away?... Posted October 5 by Calpensions.com
Pensions for new hires targeted as Marin County, area cities seek changes... Posted October 4 by the Marin Independent Journal
Daniel Borenstein: Taxpayers are stuck with public pension increases... Posted October 4 by the Contra Costa Times
San Diego County retirement board rejects CEO's advice on counsel... Posted October 2 by the San Diego Union-Tribune
LA coalition of unions: Vote yes on early retirement deal... Posted October 2 by OurLA.org
LAPD officers continue to bargain... Posted October 2 by the Los Angeles Wave
Publicizing $100,000 pensions is a way to reform the pension system — or kill it... Posted October 2009 by Governing.com
Initiative to shrink California’s employee pensions gains steam from public outrage... Posted September 30 by the OC Register
See also Legal trouble may loom if MWD board rejects new contracts... Posted September 29 by the OC Register
See also MWD retiree health plan: Too big to last?... Posted September 30 by Calpensions.com
See also MWD pension idea in line with other agencies... Posted October 5 by the San Diego Union-Tribune
California public employees have better pensions than feds... Posted September 28 by the OC Register

CALPELRA thanks Mark Flannery for his assistance in offering this service to its members.

City Council Post Mortem

Tuesday night's City Council meeting was not something that I or the City Council ever wanted to experience. It is painful to watch employees denigrate their fellow employees and painful to see spouses feeling the need to defend the city worker they live with.

All of our employees provide important services to the public. Whether it is the worker who makes sure that your toilet flushes, or the worker who keeps your park maintained or officers who respond to emergencies--they all play an important role. While public safety is critical, is it really more critical than making sure that your toilet works or your water flows or that your roads are passable? Certainly, when someone calls 9-1-1, there is no one more important than that officer. On the other hand, there wouldn't be any residents in this city if we couldn't provide them with basic services. I can also assure you that there would be more criminals migrating to town if our parks weren't maintained or if our codes weren't enforced.

The bottom line is that we wouldn't be having this debate if the economy weren't at its lowest point in the past 75 years and we are in the part of the country most severely impacted by this recession. The bloggers on the Manteca Bulletin site and many of the speakers Tuesday night seemed to be focused on finding the villan in this mess. The villan is the economy--everything else is a biproduct of a revenue downturn that none of us could have ever predicted.

My goal is to try and keep our municipal corporation intact during this difficult time. The City Council and I realize that every aspect of city government must suffer and that NO part of our operation is completely immune from this downturn. Frankly, the cutting has been going on since the day I got here and the cutting has not been equal. There are plenty of areas in this operation that have suffered greater cuts than Police, because public safety is a high priority. The fact that our officers are among the highest paid employees in the city reinforces the city's focus on public safety. However, being a high priority doesn't make one completely immune from the cuts.

The proposed agreement for Police is NOT an all or nothing proposition. It is the absolute minimum we can take from the operation without creating irretrievable losses in the rest of the city's operation. In addition, while most city employees are taking furloughs with nothing in return--the Police officers are getting the time back in return--and while the rest of the employees received a 4 percent adjustment last January, the officers received six percent. Thus, the officers have not been treated the same, public safety has received special consideration.

In addition, I'm tired of hearing about the lack of trust. I have been upfront with the MPOA from day one. I never, ever claimed last fall that the furloughs (which aren't even costing the officers anything in the long run) would be the final solution for our budget woes. Not only did I make it clear that we would need to come back if our budget situation continued to deteriorate, I also held a meeting for all of the membership of the union on May 4, 2009. That meeting was to make it clear that more concessions would be needed to bridge the budget gap--we just didn't have final numbers yet. As most of you recall, we wanted to wait until all of our revenue numbers were in before coming up with a cost reduction proposal.

This is not a game where we ask for 50 dollars, hoping we can get $25. We purposely waited until every number was available before we determined what the labor cuts needed to be. We also dug up every dollar we could find to go towards reducing the number. The City is going to be accessing every dollar we have available in reserve (and then some) to keep these cuts to a minimum. If we had to balance the budget this year without these reserves, we'd have to ask for these salary cuts AND have massive layoffs.

We are doing everything we can to preserve jobs and keep service levels up in the community. I can't believe that people don't understand that. Times are extremely tough and other than our immediate family members, I don't think there are many people in the community who feel that anyone in government is immune from salary cuts. Just do a google search of city budgets, and count the thousands of cities experiencing exactly what we are going through now.

This need to cut compensation isn't to try and punish one group, or to break a union or cobble away money from some special project. This is an attempt to survive a problem that is nationwide--except that it is even worse here in the Valley. No City Council, no City Manager, no palm reader could have predicted this. This isn't a conspiracy, it is reality and I would prefer we find a way to survive this by banding together instead of breaking apart.

More Folks Unhappy about Government

I've been attempting to point out about once a week the burgeoning public anger towards public sector compensation. As the economy continues to tumble and private sector jobs continue to dminish, the drumbeat towards curbing our compensation increases. I believe that places such as San Joaquin County need to be particularly careful about inciting the anger of our private sector brethern.

I was meeting with some economic development officials today about several companies seriously looking to relocate to Manteca. While this is great news, we were also discussing the impact of the NUMMI plant closure and its impact on Stockton and the rest of the county. By next spring, the unemployment rate in Stockton could exceed 25 percent and the county rate could hit 18 percent. It could be worse, but some of the plant suppliers will stay open for a short period of time to supply plants in Mexico. By the way, the reason that companies are looking at Manteca is due to the many amenities and shopping opportunities that we've added over the past decade. Thus, while some of our employees have been critical of the City Council's spending habits--it is these spending habits that will bring jobs and future revenues to the City.

In any case, I found it interesting that the Cato Institute, a renown conservative think tank has weighed in on the issue of public sector compensation. Obviously, this is a group pre-disposed to oppose us, but I believe it is very important to be aware of who is talking about us and what they are saying. This is not a fringe organization, but one whose influence is quite extensive.

Here is the introduction to their policy paper:

Rates of unionization in the United States today are at historic lows and are unlikely to rebound. However, there is one sector in which organized labor is growing in strength: government. This has severe implications for the future of public finances for state and local governments across the nation, and for the nature of organized labor itself.

High rates of unionization in the public sector have led to very high labor costs in the form of generous collective bargaining contracts. Now state and local governments are under increasing financial pressure, as a worsening national economy has led to decreased revenues for states and municipalities—many of which remain locked into the generous contracts negotiated in more flush times. Thus, as businesses retrench, governments find themselves in a financial straitjacket. In addition, as government unions grow stronger relative to private-sector unions, their prevalence erodes the moderating influence of the market on the demands that unions make of employers.

Now, as an economic downturn threatens state and local government revenues, officials who want to keep their fiscal situations under control would do well to look skeptically at public-sector bargaining—especially since the existing political checks on it have proven ineffective. Public officials should eschew public-sector bargaining when possible, or at the very least, seek to limit its scope.

As keepers of the public purse, legislators and local council members have an obligation to protect taxpayers' interests. By granting monopoly power to labor unions over the supply of government labor, elected officials undermine their duty to taxpayers, because this puts unions in a privileged position to extract political goods in the form of high pay and benefits that are much higher than anything comparable in the private sector.

This paper shows how the unionization of government employees creates a powerful, permanent constituency for bigger government— one that is motivated, well-funded, and organized. It also makes some recommendations as to how to check this constituency's growing power—an effort that promises to be an uphill struggle.

To read the entire study, click here.

Labor Update and a preview of "What's Next?"

The City's General Services unit approved the salary reduction plan in a vote yesterday. They are the sixth of the City's seven labor units to approve the plan. I realize it is never easy for someone to cut their salary, but the vote demonstrates that our employees understand the difficult economic situation we are facing. I think it also demonstrates a loyalty to the co-workers who would lose their jobs if the plan were not approved.

I realize that this sort of process isn't a morale booster. However, going through this process is far better than the alternative--which would have been a slow, painful and permanent deterioration of the city's workforce and its ability to deliver service to the public. My main goal in this process was threefold. First, it was to keep up service levels to the public--this could only be done by lowering our cost of doing business. Second, it was to keep the city's most important resource intact--and that was our workers. Third and equally important--was to ensure that we maintained a work environment in which our employees could thrive both personally and professionally--which couldn't be done without an adequate workforce in place and a competitive salary.

I believe that by proposing a pay cut that was primarily focused on non-taxable income and future income, it hopefully minimized the pain to each worker. In addition, the pay cut only solves about 25 percent of this year's deficit. By tapping reserves and one-time funds, 75 percent of the deficit burden was not borne by our workers. By offering an early retirement incentive package, and by forgoing the next two COLAs, we are hoping we can make it through the next couple years of this recession without losing any more of our valuable workforce.

With this behind us, the good news is that our workforce can now find ways to work towards a better future for our employees and our residents. At last week's Management Workshop, I made a presentation on what I'd like to call "Community Based Government." In order to deal with our future budget realities of ever-increasing demands and ever-diminishing resources, I'm a firm believer that we have to give our residents a greater voice in which services government should provide through our limited resources.

I'm not saying that services should be cut, I'm saying that we need to figure out which services need to be provided by a professional workforce and which services could be provided by the citizens themselves. The only way to do this is to focus more of our energies on working with the public to find out what they need us to do and what they can do themselves.

Frankly, this is the only model that can work in the future. Our citizens don't want to be taxed to the level it would take in order for us to provide every single service that they demand. We need to help them figure out which services that they really want from us.

You'll be hearing a lot more about this in the coming weeks. All of the city's management staff will be participating in sessions to better define what "Community Based Government" will be. We are also going to be putting together a team of line staff to figure out how we would actually implement our new way of doing business.

This will not be just another task for each of us, it will be a paradigm shift in the way we work. I look forward to talking to each employee about the role that they will play in our new way of doing business. If you are interested in serving on the implementation team, please give me a call or stop by my office.

We are not alone...

"Misery loves company" is how the old saying goes and it looks like our neighboring city to the west is now following in our budget footsteps.

Yesterday's Tracy Press had an article detailing (click here) the financial woes facing Tracy's city government. As many of you know, the voters in Tracy put the brakes on residential development several years ago. Like most valley cities, Tracy was very dependent upon the revenues generated by new development. The voter intiative basically put a stop to new development for up to five years. In order to survive during the no growth years, Tracy saved up funds during the boom times. By 2007-2008, they had about $38 million in the bank. They had hoped that this would keep them afloat during the tough times.

When the recession hit, Tracy was in a better short-term situation than the rest of us--who hadn't anticipated a sudden drop in development revenues. Unfortunately, their rainy day account has only delayed the inevitable. While their reserve started out much larger than the rest of us, they also started cutting later than the rest of us as well. They were hoping that the recession would be quick and that their reserves would allow them to survive without deep cuts.

Tracy realizes, just like the rest of us, that revenues are going to stay significantly below the peak of the real estate bubble. Thus, they must make major structural changes in their budget in spite of their still healthy reserve--as a $14 million structural deficit can eat up reserves very quickly. While they've apparently made $5 to $7 million in cuts to the deficit, it now appears that up to 67 positions will need to be eliminated to reduce the budget deficit.

I continue to see similar stories crop up in cities across the state. The deteriorating financial status of the economy is forcing additional layoffs in local government. Click here for an article about the City of Oceanside, which is looking at losing up to 50 positions due to the recession and thefts from the state.

One (semi) positive note. The State of California has dropped its appeal to the judge's ruling that forbid the state from stealing redevelopment funds in last year's budget. Unfortunately, as most of you know, the state ended up taking six times as much from redevelopment agencies over the next two budget years as punishment for winning the lawsuit. Click here to read more about the status of the lawsuit we'll be filing this year to once again block their illegal theft of $8 million of Manteca's redevelopment funds.

Five Labor Agreements Approved

I am pleased to announce that five of the city's bargaining units have now approved the modification to employee compensation. Each and every group voted overwhelmingly to approve the modifications. The groups that have approved our proposal include:

Manteca Professional Firefighters, IAAF Local 1874
Manteca Police Employees Association (non-sworn employees)
Technical and Support Services Bargaining Unit, Carpenters Local #25
Mid-Managers, Sworn and Non-Sworn
Executive Management and City Manager

Each group has agreed to forgo their Cost of Living Adjustments for the next two years (2010 and 2011) and to begin paying a portion of their pension. Each group has additional forms of compensation that they are giving up as well. I'll be posting the details of each agreement shortly.

These agreements mean that these groups (and the City Manager) are going to be earning approximately 20 percent less in 2011 than was originally included in their contract. I can't tell you how much I appreciate the sacrifice that each employee is making to ensure that they we are able to preserve service levels to the community and preserve our co-workers jobs.

I'm hopeful that the Operating Engineers and Police Officers Association will come on board as well. The rest of our employee groups and our local citizens all have been battered by the recession and realize that compensation levels have to change in today's environment. I'm hoping that our last two bargaining units will realize this as well.

Items in the News

I realize that these are trying times for all of city staff. No one likes to lose income, but I guess I feel like I need to keep harping on what we have, and not what we don't have. A number of folks have asked me to try and put more positive news in the blog. I think the positive story is that even with the proposed reductions in salary, we are still in far better shape than the typical San Joaquin County resident.

For example, here is a link to a story in today's Stockton Record (click here) about the county's poverty rate, which has gone up markedly in the past year. Nearly one in four children in our county lives in a household with an income below the poverty line (22,000 per year). In another article (click here), UOP's Business Forecasting Center notes that domestic output in San Joaquin actually dropped last year. The article notes:

The Stockton metro area, essentially San Joaquin County, saw its constant dollar GDP fall 0.3 percent in 2008 to just under $16 billion, ranking it 264th in total economic growth.

And the area's long economic slide deepened this year, said Jeff Michael, director of the Business Forecasting Center at University of the Pacific.

"When you look at this number next year, in '08 to '09, Stockton ... will be more negative," he said Monday.

"What makes it a little bit painful for this area is we're coming off a couple of years of subpar growth in '06 and '07."

The article further reinforces why we shouldn't even considering borrowing funds to plug our budget deficit for this year. We are in the middle of a very deep recession further exacerbated by the fact that we are in the center of the mortgage meltdown. We rode the top of the crest during the housing bubble and we are now drowning in debt with the rest of the Central Valley.

The economic trends are certainly not pointing upward, and our hope that property tax and sales tax remain flat is best case and not near the worse case scenario. An article from yesterday discusses the current state of property tax collections in Calaveras County (click here). It describes the world of "negative supplementals" that we've been warning our employees about.

...Calaveras County since August has been sending out more in refunds than it is receiving in additional taxes for properties that get supplemental assessments midyear due to sales or new construction.

Supplemental assessments are in addition to regular property tax bills and are a way to either bill for the additional taxes or send a refund for the part of a year that a property is under new ownership or has newly completed construction. The supplemental is no longer necessary in subsequent years once a new base value is set for a property.

Acting Calaveras County Assessor Leslie Davis says that the negative revenue from supplemental assessments is an ominous sign that a significant drop in the county's property assessment roll and property tax revenue may be ahead.

While we've got a decent amount of new construction occurring in Manteca, we also have a lot of homes selling at less than their assessed value. This is why we've projected no increase in net property tax collections during the 2009-2010 budget year.

The Bulletin has a good article today (click here) as well about the need to be prudent. How can we possibly expect to borrow to plug our structural budget deficit. There is no way we can take on additional debt when all the economic forecasts clearly demonstrate that we won't have the money to pay back the funds in the future. I have no interest in behaving like the State of California and putting off the inevitable--and then paying a greater price for delaying the pain.

Public Perception

Our proposed salary reductions focus on two areas: COLAs (cost of living adjustments) and pension payments. When meeting with the Budget Advisory Committee early this year, these were the hot spots for the community. In a recessionary economy, most of the committee members found it unconscionable that we were raising our salaries at a time when revenues were taking double digits drops (percentage-wise) and our very generous pension plans were being paid for by the employer.

I've also been posting plenty of articles about the backlash that is spreading across the state regarding our pension benefits. While the hotbed for pension reform has been Orange and San Diego counties, these aren't the only locales seeing heated debate over our employee pensions. Here is an excerpt from an article (click here) out of Redding:

The rising costs and alleged abuses of California's public pension system sparked a lively debate Thursday at a Redding forum — with Redding City Manager Kurt Starman suggesting that major reforms may be achieved only through a statewide ballot initiative.

"If something needs to be done, it needs to be done on at a statewide level so we (cities and counties) can remain competitive" and attract qualified police, firefighters and other professionals, he said.

Such an initiative is in the offing, said Marcia Fritz, a certified public accountant and vice president of the California Foundation for Fiscal Responsibility. Her group advocates pushing back the age of full retirement to 57 for public safety workers and 65 for other employees covered by Calpers, the public employee retirement system. In Redding, police and firefighters can retire as early as age 50.

Pushing back retirement by five years would cut pension costs in half, she said. "People are living longer and should be working longer," she said.

Her group also recommends suspending cost-of-living increases for current retirees and making workers contribute more to their retirement fund. The city of Redding, for example, currently picks up employees' shares of pension costs.

The group mentioned above is just one of several groups gathering signatures for an anti-pension iniative for the 2010 election cycle. The momentum is building to go after our salaries and pension. All you need to do is check out the blogosphere.

While anonymous reader comments always need to be taken with a grain of salt, I think it is instructive when you see anti-labor comments in stories in the San Francisco Chronicle, which has one of the most pro-labor readerships of any paper in the state. For example, check out the comments in the following story regarding the Vallejo bankruptcy (click here). A couple of years ago, it would have been highly unlikely to see such a hostile tone towards public employees, but it is now the norm.

There is also a lot of research going into ways to get salaries back in alignment with city revenues. On June 10, I posted a San Mateo County grand jury report about employee salaries (click here). The report was in response to escalating employee compensation costs--which has put every city budget under stress. The report's recommendations were as follows:

-The escalating employee costs can and should be reversed so civic services and infrastructure improvements are not neglected.
-In addition to stop-gap measures, such as temporary wage freezes and furloughs, long- term solutions should be implemented.
-Labor union contracts for newly hired municipal employees should be introduced to reduce the cost to cities of both pension and post-retirement health care plans.\
-For current, as well as newly hired employees, salary increases, total days off, the ability to convert sick leave to cash, and vacation pay must be contained.
-The practice of narrowly basing salaries and compensation packages entirely on those of nearby cities should be reconsidered. Hiring practices should be expanded to include competition with the private sector.
-Where cost-efficiencies can be achieved, services should be contracted out to other cities or private sector firms.
-Cooperation between cities to reduce overlapping functions should be pursued.
-Political barriers to change exist because all those negotiating employee contracts--staff, unions and city council members--benefit when wage and compensation packages increase.
-Barriers to change should be neutralized by providing for increased public involvement and, possibly through ballot measures.

To read the entire report, click here.

The drums are beating on employee compensation. Most citizens are seeing their salaries cut, their pension contributions eliminated and their retirement funds shrinking. They aren't happy about public employee salaries and benefits heading in the opposite direction of economic reality.
The package proposed to staff is merely an attempt to stay ahead of the curve, and to continue to have a well-paid workforce that can provide the necessary services to the public. If we insist on increasing salaries which in turn reduces services to the public--we will be faced with ballot measures that will force dranconian cuts to our compensation.

Enterprise Funds also impacted by Recession

Employees have been asking me why all city funding sources are subject to budget cuts, when most of the discussion has centered around the status of the city's General Fund. This is an excellent question. In fact, I am just as worried (if not more so) about our enterprise and redevelopment funds.


As most of you know, our Solid Waste, Wastewater and Water budgets are wholly dependent on user fees and receive no support from the General Fund. The rates charged for these functions must cover all materials, supplies, labor, debt service, maintenance and capital upgrades. All of the revenue to pay for the operation comes from those who benefit from the operation. These revenues come in the form of user fees. As user fees, we don't put these charges on the tax rolls, these are paid by the owners or tenants of the properties that use the service.

Thus, just like any private sector company, we depend on the users to actually pay their bills each month--and the vast majority do. However, as our rates have increased and our economy has tanked, the number of unpaid bills has increased exponentially. While we work very hard to collect on our debts, the bankruptcy code allows many of our debtors to walk from their bill. As the economy continues to falter and bankruptcies increase, we expect our revenue collections to drop even further.

In addition, the downturn in the economy has created a reduction in the demand for many of our services. Developers are no longer demanding large trash bins and many other commercial users have cut back their consumption. Also, with the many foreclosures, fewer homes are actually needing water and trash service.

The bottom line is that our business enterprises are likely at more risk than the General Fund. In these tough times, we need to make sure that our operation is lean enough to endure major cuts in revenue while still having funds available to make capital improvements. Just like with our other revenue sources, it is very difficult to absorb increasing labor costs at a time when revenue is dropping.

In fact, with private sector compensation dropping, we have to make sure that our enterprise employees aren't costing more than the market can bear. Many of our citizens are already demanding that we look at the cost of contracting out services. If the gap between private and public sector pay continues to grow, it will be very difficult for us to justify rate increases if they are due to rising labor costs.

Salary Reductions

There seems to be a bit of confusion as to what sort of salary reductions are being made by each bargaining group. There also seems to continue to be confusion about my compensation as well. Whenever there is a reduction in employee pay, I will be the first to take a cut and I will take a cut in excess of our line employees.

Once all of the agreements are finalized, I will put the specific details of each bargaining groups salary cuts on the blog. However, in the interim, I will attempt to summarize the proposed overall impact in pay to each group.

2009:
Employees recevied 4 percent salary increase (COLA) given in labor agreements.
Employees salaries reduced by 3.8 percent via 80 hours of furloughs.
Police Officers received 2 percent salary increase in excess of COLA per their labor agreement.

2010 (proposed):
Employees give up 4 percent salary adjustments (COLA) granted in labor agreements.
Employees give up 6 percent of current salary. Some groups will be paying more PERS and/or giving up some other forms of compensation such as deferred compensation paid by City.

2011 (proposed):
Employees give up 4 percent salary adjustments (COLA) granted in labor agreements.

Thus, by 2011, most groups are earning approximately 18 percent less than they had anticipated earning in 2011. In contrast, the City's General Fund is generating about 40 percent less in revenue than we had anticipated in 2011. The City is also continuing to pay increased costs toward each employee's medical insurance and the City continues to pay ever increasing pension payments to CalPERS.

The Executive Management Group and the City Manager agreed to give up an additional one percent of compensation, thus reducing our pay by about 20 percent.

If there is any confusion on this matter, any employee is welcome at any time to stop by my office and discuss this or any issue with me in person. You can email me or post questions on the blog as well.

Comparison Cities

I've been spending a lot of my nights and weekends reviewing the budgets of other area cities. What I found most interesting was the huge disparities in general fund income among cities, but the uniformity of salaries among cities. I also added in the 2005 Uniform Crime Rates to give you an idea of this variance among the cities as well.

In the chart below, the eight cities listed directly below Manteca are those which have been used in the past for salary surveys. I also listed some additional cities which are similar to Manteca in size and budget--which should probably be considered in future salary surveys as well.



Thus, you can see that ability to pay and other factors such as crime rates have had little or no impact on public safety salaries--or many other city salaries as well. In fact, the two lowest cities on the chart (Turlock and Manteca) offer some of the best pay packages for miscellaneous employees. You also have to question why cities with so little in common with Manteca were used for salary surveys? Tight labor markets--particularly for public safety workers have a lot to do with it.

It was the perfect storm for public safety workers over the past decade. Increased retirement packages created a wave of retirements in public safety at a time when there was a dearth of workers entering the job market. In addition, psychological exams and other pre-requisites were further shrinking the pool of potential applicants. Finally, there was a growing public sentiment to increase the ratio of officers in each community--cities such as Manteca and Stockton were not able to raise funds for parks maintenance but were able to pass tax measures for public safety--mostly due to the political skills of our fire fighters. On top of all this was a boom in jobs which led to an overall increase in wages in all job types.

The result was that cities with paltry revenues were required to pay on an equal par to much wealthier cities--and these cities were then included in the salary study of every poorer city. This put a tremendous strain on the budgets of have-not cities such as Manteca, but the real estate bubble created a short term windfall in revenue.

Unfortunately, the economic bubble has burst and cities such as Manteca and Turlock have to find a way to keep up service levels without going deeper into debt. In the short run, both staffing reductions and salary concessions are necessary to balance the budget. In the long run, we'll likely get bailed out by both economics and demographics. Economically, both high and low revenue cities are seeing major drops in their income. Even the wealthiest cities are reducing their workforces. This will reduce the overall demand for public safety workers. Demographically, there are now far more people entering the workforce than a decade ago as all the kids of the baby boomers are reaching adulthood.

We are now looking at a complete reversal in the supply-demand balance in the job market. Not only do we have an ever increasing unemployment rate, but we have a huge wave of folks entering the job market. Under these conditions, wages always drop in real terms and labor agreements become better connected to the economic conditions of the employer.

Obviously, these trends take time to ripple through the workforce--particularly through government. However, given the tenuous budget situation of every city in the state, it is likely that economic adjustments will happen a lot faster than in past recessions.

Layoff Notices

Today, 248 city of Manteca employees will be receiving a notice that they may be laid off from their job in 30 days. While only 40-50 employees could potentially lose their jobs, our employment rules require me to send a notice to every employee who could possibly lose their job. This was an incredibly difficult decision, by far the toughest thing I've had to do in my 30 years in local government. However, the current economic malaise left me no other options.

The good news is that each employee bargaining unit has the opportunity to retain their employees. The actual decision is not up to me, it is up to each bargaining unit to decide if losing a small percentage of their take home pay is more important than their co-workers job. As I was quoted as saying in the Sun Post, we don't have a staffing problem, we have a salary problem. I'm proud of the fact that our employees efficiently operate this city with far fewer employees than many similar cities. I don't want to lose any of our employees because it is going to create a real burden on those who are left. Our constituents expect the same level of service whether we have 375 employees or 325 employees.--and I'm going to demand that our managers continue to provide equivalent service with less staff.

We have a salary problem partly because we have a challenging revenue problem--and partly because our salaries have begun to closely mirror bay area wages instead of valley wages. Trying to pay bay area wages with valley revenues is not an economic model that can be sustained--we generate about one-third as much revenue per capita when compared to our east bay brethren. Even when comparing us to valley cities, we don't have a very diverse revenue base.

Many cities have utilities taxes and/or electric utilities, parks maintained by landscape maintenance districts and a diverse economic base with lots of commercial offices, retail and industrial space. While we are beginning to diversify our economic base, we've got a long way to go. Our city is heavily dependent on property tax and sales tax. I've chronicled in this blog many times the troubling trends for these two revenue sources--and these trends aren't going to change any time soon!

Let's not kid ourselves, the economic fortunes of the northern San Joaquin Valley are not going to change in the near future. We are still seeing massive numbers of foreclosures--San Joaquin County is back to being the number one foreclosure market in the country (click here for latest data). Our unemployment rate is heading towards an unthinkable 20 percent with the closing of the NUUMI plant in Fremont. With jobs continuing to disappear, the economy can only continue to decline. As the economy continues to decline, property values will continue to drop and retail sales will continue to suffer. The only reason it hasn't been worse is due to the federal stimulus package. Without a second stimulus package, many government and private sector jobs will go away.

In the face of the worst economic calamity since the great depression, I'm mystified that many of our employees can't accept the fact that compensation has to be reduced. I would challenge any of our employees to find any private company in San Joaquin County that hasn't reduced total compensation to their employees. And if you can find one, I'm sure there are 999 others that have reduced compensation--and I'm sure they've reduced it far more than what I'm requesting of our employees.

As I noted in Tuesday's blog, our workers have been well compensated over the past 15 years--receiving wage increases at nearly twice the rate of the average resident--and have received an enhanced retirement to boot. During better economic times, our employees were able to share in our increased economic strength. In tough times, our employees need to share in the pain and suffering as well. Frankly, we don't have any choice. Unlike the federal government, we can't print our own money. At the end of the day, we have to balance the budget.

Labor

Over the past 15 years, median family income in San Joaquin County has increased a total of 58%, which averages out to about a 3% increase each year. As you can see from the chart at the bottom of the blog, there were very few years where income jumped more than 4%.

Conversely, most Manteca city government salaries have increased over 100 percent during the same time period. To perform the salary analysis, staff reviewed the salary history of employees who have been in the exact same job title since 12/01/1994. It then narrowed the list down to employees who were at the top of the salary range, and therefore only received increases via cost of living adjustments or salary surveys.

In addition, while salaries jumped over 100 percent on average, post-retirement income has increased by nearly 180 percent for miscellaneous employees and well over 200 percent for public safety employees. That is due to the enhanced retirement plans approved earlier this decade. While employees gave up a small cost of living adjustment to receive the enhanced retirement, the City's cost to fund enhanced retirement plans has increased 300 to 400 percent since that time. In the past, the city paid from 0% to 10% on top of each employees salary into a retirement fund. The city now pays around 16% for non-safety and 26% for safety employees.

Thus, public employee salaries have increased far more quickly than the community as a whole, and post-retirement benefits (which are often non-existent outside of government) have grown exponentially as has the cost to maintain these enhanced retirement plans.

In our current environment of declining revenues, this is simply unsustainable. The salary concessions we are asking for are nominal compared to the generous labor agreements that our employees have received over the past 15 years.

Here are some examples from each labor bargaining unit which demonstrate how public sector benefits have grown since 1994:

White Collar Miscellaneous Employees:
Income growth over past 15 years: 100.91%
Increase in post-retirement income: 171.23%

Blue Collar Employees:
Income growth over past 15 years: 78.5%
Increase in post-retirement income: 140.98%

Middle Management:
Income growth over past 15 years: 109.21%
Increase in post-retirement income: 182.44%

Civilian Police Staff:
Income growth over past 15 years: 93.78%
Increase in post-retirement income: 161.61%

Police Officer:
Income growth over past 15 years: 106.01%
Increase in post-retirement income: 209.01%

Fire Fighter:
Income growth over past 15 years: 114.71%
Increase in post-retirement income: 222.06%


HUD Median Family Income
San Joaquin County

Median % Increase
1994 $40,200
1995 $40,200 0.0%
1996 $41,500 3.2%
1997 $42,600 2.7%
1998 $43,700 2.6%
1999 $44,300 1.4%
2000 $45,400 2.5%
2001 $46,900 3.3%
2002 $47,500 1.3%
2003 $50,600 6.5%
2004 $55,100 8.9%
2005 $55,300 0.4%
2006 $57,100 3.3%
2007 $60,300 5.6%
2008 $61,300 1.7%
2009 $63,600 3.8%

Increase 1994-present: 58%
Annual Increase: 3.1%
Increase 2001-present: 36%
Annual Increase: 3.85%
Increase 2005-present: 15%
Annual Increase: 2.93%

Tough Budget Times mean Tough Decisions (Part 2)

Since not all of you follow the Police Chief's blog, I thought it would be appropriate to pass on the his latest post regarding our current labor situation:

Wednesday, September 2, 2009

At last night's City Council Meeting there was a closed personnel session regarding the labor issues including the possible layoffs. While I cannot share the discussions that took place during the meeting I can say that the closed session has been continued to this Friday afternoon for further discussion. No decisions regarding layoff notices will be made until after that meeting. Prior to the closed session, Sgt. Chris Mraz spoke very eloquently to the Council as a private citizen regarding the importance of public safety in the community. That took a lot of courage and I appreciate Sgt. Mraz for having the courage of his convictions.

There was some concern yesterday regarding the timing of my speaking to the members of the MPEA who might receive layoff notices. When I first got the job as your Chief I promised myself that I would not be one of those people who gives someone bad news by dropping a memo in their box at 4:55 on a Friday as I was heading for the parking lot. I feel that every person here deserves the respect of looking them in the eye and giving them to opportunity to ask questions about how the situation affects them. The first time a person hears about the possibility of getting something as serious as a layoff notice should not be when they see it in their mail box. The decision was made on Monday to issue layoff notices to MPEA as well as MPOA members on Wednesday morning after the Council meeting. That afternoon I began to speak to the different work groups in the MPEA to tell them that it was likely that many of them would receive the notices. This did not mean that layoffs were inevitable or that their positions would be the ones that were cut if that it came to that. I answered their questions if they had any. The timing was unfortunate that it was prior to your association meeting but I had less than two days to speak to everyone. This was not done to try to influence anyone but to show some respect to those who would be affected. There is no question that I would rather see both the associations reach an agreement with the City because I loathe the thought of losing any of our people. However, I believe that all you are intelligent and honorable people and will vote as your conscience and circumstances guide you.

These are trying times. We have never experienced anything like this as a Department. I know that everyone feels strongly about the issues we now face and not everyone agrees on what course to take. Now is not the time to be angry with each other. You may have to agree to disagree on what should be done. Another person's circumstances may not be the same as yours and will drive their decisions. We need to respect each other. We will get through this.

Tough Budget Times mean tough decisions

Staff will be meeting with the City Council in closed session tonight to discuss the impact of labor costs on our current financial situation. I'll try to give you a good overview in the next couple of posts where we stand financially:

2008-2009 Budget
Furloughs, early retirements and vacancies reduced expenditures by approximately $3.7 million.
Revenues were $700,000 below original estimates
Overall, about $3 million savings over original budget
Previous year budget savings of about $2 million

2009-2010 Budget
Year to Year Revenue decrease of about $2.5 million
Some operations have already been shifted out of General Fund
Beginning Budget Gap of $7 million
Proposing to carry over previous year savings ($3 million) to close portion of gap
Leaves about $4 million gap to reduce (15 percent of General Fund)

The good news is that what was a $14 million gap is now down to $4 million. The bad news is that we've already done just about everything we possibly can to close that gap. The only remaining alternatives are to reduce our service levels by reducing our staffing level, or seeing if our employees are willing to give back some of the cash gained from labor contracts that were negotiated in a very different economic climate.

I realize that it is hard to accept the fact that reductions in pay are needed to keep our jobs intact. However, for any of you that have family working in the private sector, this shouldn't be surprising at all. Huge cuts in pay and benefits are the norm right now in the private sector. We've been very fortunate in the public sector.

Manteca Budget - Next Steps

The state budget is done--at least for a couple of months. Since many of the cuts imposed by the state will actually cost more than they save, and since some of the takings (such as the RDA funds) may be overruled by a judge, there is little doubt the legislature will be back working on the budget again by the first of the year. Even if they make it into 2010 without a problem, they'll be back by April when personal income taxes fall far short of the state's projections--partially because of all the job losses created by the state budget!

In the meantime, we have to finalize the budget for the City of Manteca. As most of you know, we put off adopting a budget until after the state was finished picking our pocket. In addition, we needed to find out how much the assessor would be reducing property values and we wanted to see another quarter of sales tax revenues for Costco, Bass Pro and auto dealers before finalizing revenue projections.

The good news is that our crystal ball was pretty accurate. Other than the major hit on our redevelopment capital fund, our revenues are pretty much what we expected. The bad news is that our revenue is pretty much what we expected. We as a city now face the challenge of providing services in 2009-2010 with revenues similar to 2002-2003. Not only have our labor costs gone up significantly during that time, but we've also added about 13,000 citizens to serve as well. Thus our general fund revenue per citizen is similar to sometime back in the 1990s.

In addition, while I expect revenues to go up someday, the economy doesn't look like it is going to rebound in a big way any time soon. This means property taxes and sales taxes are going to be stagnant--although hopefully they won't continue to drop. But it is likely that our revenues will grow more slowly than our rate of population growth.

So how do we take on this challenge?

With limited resources we have to be sure that we've got our funds focused in the areas most important to the community. Second, we have to ensure that we are continuing to invest in programs and services that promote economic growth, and finally we have to combine our staff resources wherever possible. There can be no duplication or contradiction of efforts. These are not only tasks for today, but tasks we must focus on long term.

In addition, staff has to acknowledge the fact that our compensation has to be in line with our resources. City management and the City Council have spent the last decade ensuring that our salaries were competitive in the marketplace. This allowed us to retain and recruit top flight employees for every position. I can assure you that will continue to provide compensation levels better or equivalent than our peer group cities.

If you've been reading this blog over the past couple months, you'll note that just about every city in the state has asked their employees to help bridge the budget shortfall that nearly EVERY city in the state is facing. To date, our employees have done everything we've asked to help balance the city's budget. However, due to continuing declining revenue, the sacrifices made to date will not be enough to get us through the next fiscal year or two.

We'll be sitting down with all of our employee groups over the next month to see what each group can do to help balance our budget for the next year. The Executive Management team has already committed to come up with a labor cost saving plan from its membership in the next two weeks. Hopefully, we can reach an equitable resolution with the rest of our employees in the next 30 days so that we can present a balanced budget to the City Council by mid-September.

Labor Contracts in the Spotlight

As the state begins the new fiscal year with no budget resolution in sight, many critics of state government are now focusing on labor costs. With the highest public employee salaries in the country, many outside of the legislature are beginning the question the premise that it is programming that should take the brunt of the budget cuts. Many are beginning to argue that public sector salaries and benefits are the main deficit culprit and that our budget problems can be solved if public sector workers begin to take the same compensation hits as their private sector brethren.

While this is certainly an oversimplification at the state level where salaries are a small percentage of the overall budget, it particularly holds true for local government where most budgets are 70-80 percent labor related. It is critical that we at the local government level begin to ensure that our compensation plans begin to mirror the labor market as a whole where both salaries and benefits are taking a major hit.

Here are a couple of articles that demonstrate the groundswell of frustration over public employee compensation. The first is from one of the usual critics of government, the Howard Jarvis Taxpayers Association. While his opinion is not surprising, the fact that this article is being referenced in many mainstream publications demonstrates the sea change in attitude towards public employee compensation. Click here to read.

The second article chronicles the many hidden perks in many public safety labor contracts. This has become a recurring theme in main stream media articles. While there is still a lot of public support for retaining public safety workers, there is beginning to be little or no support for the salaries that police and firefighters are receiving. It notes how a patrol officer was able to get a 47 percent salary increase without any promotion or change in duties via the provisions of her city's labor contract. The article can be accessed by clicking here.

Grand Jury Report

There is a link at the bottom of the post for a Grand Jury report from San Mateo County titled: "Summary of Reversing the Upward Trajectory of Employee Costs in the Cities of San Mateo County".

This report is probably the most comprehensive and detailed report ever compiled on the current status of public employee compensation. In this report, the 2008-2009 San Mateo County Civil Grand Jury analyzes examples of wages, post-retirement health care and pension benefits, as well as current benefits and city hiring practices that increase public employee costs.
The report also recommends to cities and voters actions they can implement to reverse this upward trajectory.

The 2008-2009 San Mateo County Civil Grand Jury concludes and recommends that:

-The escalating employee costs can and should be reversed so civic services and infrastructure improvements are not neglected.
-In addition to stop-gap measures, such as temporary wage freezes and furloughs, long- term solutions should be implemented.
-Labor union contracts for newly hired municipal employees should be introduced to reduce the cost to cities of both pension and post-retirement health care plans.
-For current, as well as newly hired employees, salary increases, total days off, the ability to convert sick leave to cash, and vacation pay must be contained.
-The practice of narrowly basing salaries and compensation packages entirely on those of nearby cities should be reconsidered. Hiring practices should be expanded to include competition with the private sector.
-Where cost-efficiencies can be achieved, services should be contracted out to other cities or private sector firms.
-Cooperation between cities to reduce overlapping functions should be pursued.
-Political barriers to change exist because all those negotiating employee contracts--staff, unions and city council members--benefit when wage and compensation packages increase.
-Barriers to change should be neutralized by providing for increased public involvement and, possibly through ballot measures.

To read the entire report, click here.

Labor Issues in City of Sacramento, and a bit of State Budget News

At tonight's Sacramento City Council meeting, a huge utility rate increase is on the agenda. There is some Council opposition to this rate hike. Coincidentally, newshounds have revealed an internal memorandum noting that 430 utility workers may face layoffs. Click here for more information on the layoffs and click here to read more about the proposed utility hike.

In addition, City of Sacramento firefighters have now proposed to forgo raises until 2012 in exchange for an assurance from city negotiators that no firefighters will be laid off and staffing on fire engines will not be reduced in the next 30 months. 68 positions in the fire department are at risk if a labor agreement can't be reached. Read more about the situation here. Click here for the Bee's editorial today on the issue and click here to read one Bee columnists take on the situation.

There is some good news from Sacramento today--from the state government of all places. Senate President Pro Tem Darrell Steinberg has unveiled a counter to the Governor's budget proposal that eliminates the $2 billion loan from local government. It also proposes softer cuts to many social services and proposes less reserve funds to offset the reduction in cuts. While this is only the first of many counter proposals, it is nice to see that the majority party is not endorsing the short term loan from us locals. Read more here.

Crunch Time for Budget Adoptions

As I've noted before, June is typically the month most cities adopt budgets for the coming fiscal year. Typically, these are fairly proforma actions for most cities--but not this year. Not with nearly every city seeing 20 percent plus drops in revenue. Drops of this size mean that cuts have to go far beyond discretionary items--and that labor costs must be addressed. Most of us have revenue numbers that are so low that public safety labor costs are in excess of total general fund revenue. In other words, even if every non-safety position was eliminated, there still wouldn't be enough money to sustain police and fire staffing.

With these drastic drops in revenues, police and even fire are facing cuts that many agencies haven't experienced in the past 30 years, if not longer. Here's a quick trip around the state (and Nevada) to see what is happening this week...

Petaluma has cut their deficit from $4.5 million to $1.1 million but they need at least five percent out of each labor group to close the rest of their budget gap. Read about it here.

Menlo Park, which has some of the highest safety salaries in the State, have agreed to alter their contracts. Read about it here.

Reno officials have made it clear that even if the fire fighters make concessions, it won't guarantee their jobs. Click here for more.

Down south in Norco, the City and their fire fighters continue to battle over the impacts that a reduction in service would create. Here's the story.

In San Francisco, the city's largest labor union has blinked after the reality of 1776 layoffs were imminent. The SEIU made $16 million in labor concessions and were guaranteed no layoffs until November 15. The Mayor has agreed to put a tax measure on the ballot in November--and its passage is necessary to stave off further cuts. Read the Chronicle story here. For a less objective view of the situation, click here for the story written by the Tenderloin Housing Clinic, whose entire city contribution is slated for elimination in this year's budget.

Just Compensation

Public employee salary, benefits and pensions are becoming a contentious issue in just about every City in the U.S. and particularly in California. Here is an excerpt from an editorial in Tuesday's Los Angeles Daily News:

"...And for the city employee unions, it's time to face the reality of California in 2009 and send this message:
We cannot afford to support the lifestyle you have become accustomed to. We can't afford the generous health benefits package. We can't afford the automatic 3 percent raise you'll get this year - or the additional 2.75 percent "step" increase due some employees. And we certainly cannot afford to pay the entire, looming half-billion dollar bill to secure your pension.
Public service is honorable and important work. But public employees can't live in a bubble, unaffected by the world and the economy around them..."

Click here to read the entire editorial.

The sentiment expressed is very similar to that given by the members of the Council's Budget Advisory Committee. It is imperative that we in the public sector ensure that our employees ARE aware of the world and the economy around us. I'll be meeting with all of our employee bargaining groups over the next week. I hope that we can have a fruitful discussion that acknowledges the financial challenges we face in local government and the financial challenges that our citizens are facing as well.