Council Members Can Bring City Closer to Fiscal Sustainability
Almost every city in California faces significant long-term unfunded liabilities for medical benefits, "Other Post-Employment Benefits" (OPEB) and pensions in the California Public Employees Retirement System (CalPERS) of its retired workers. The liability is "unfunded" because the city hasn’t set aside enough money for it.
However, Alameda has been ahead of the pack in finding solutions. On Wednesday, April 29, the city could become one of the first Bay Area cities to have its public safety workers contribute to its OPEB liability. If the City Council agrees to the contract extensions, the city’s $91 million OPEB liability will be reduced by $47 million over the next 30 years due to this partnership — all at a small cost to the city. The alternative is for the OPEB liability to continue to increase and for the city to pay it alone.
This didn’t seem possible four years ago. In 2011, the prior Council was told that the city’s general fund would have a deficit of nearly $21.8 million by 2015. The city’s auditor and treasurer claimed that bankruptcy loomed and they would have to "turn off the lights" at City Hall.
But the prior City Council and public safety workers partnered to work on the problem, and today the general fund has a positive balance of nearly $31 million. That’s a $52.7 million positive swing over the predicted doom-and-gloom scenario. The city had an $11.4 million budget surplus last year with a projected $8.7 million budget surplus this year.
Recently, city financial officers praised the structural changes and policies that bought the city time to address OPEB and CalPERS. We needed that time to build a strong financial foundation, and if you’ve ever built or renovated a home you know that you must start with the foundation — not the finishing touches of paint, tiling and appliances.
The proposed contract with public safety workers represents another strong step forward in solving OPEB. If the contract extension is approved, our public safety workers will become among the first municipal employees in the Bay Area to help a city fund its OPEB liability.
In 2011, city leaders began addressing escalating medical costs for current and future employees. (The city cannot change benefits for already retired workers.) Safety employees hired after June 2011 no longer receive spousal medical benefits upon retirement, which helped cut costs. Vesting of health benefits was standardized, and health insurance increases will be shared equally beginning in 2017. In 2014, the city set up a trust fund to OPEB, which is funded with approximately $300,000.
It needs much more.
Now, the City Council has a plan to add more funding to the OPEB trust. Importantly, the OPEB solution must be collectively bargained — the city does not have the legal right to impose a solution onto our employees, no matter how strongly some of our constituents wish we could. Under the contract extensions, the city will make a deposit of $5 million into the OPEB trust in January 2016 (funds already set aside in past budgets), and $250,000 per year for 10 years.
Employees will contribute to the OPEB trust out of their paychecks, in amounts which increase up to four percent of their wages. For the first three years of the contract, they will contribute $3 million while receiving a minimum of $1.2 million in salary and benefit increases over the entire extension (no increases in 2019 and 2021 with any increase based on a salary survey). This is a fair price to pay for the flexibility to fund OPEB.
Critics argue that the salary increases will hurt us on the Cal-PERS side, but keep in mind three key points.
First, prior to the current contract, public safety employees went seven years with no raises.
Second, while state legislation capped mandatory employee contributions for pensions at 12 percent, Alameda negotiated 15 percent contributions from its employees — the highest in the Bay Area. Finally, the city has no control over CalPERS and depends on decisions made by the state.
An independent actuarial firm evaluated the impact of this deal on future OPEB liabilities. It projected a cumulative savings of $47.3 million to the city over 30 years. While this doesn’t fully fund future OPEB liabilities, it provides the framework to finish the job.
Next, we’ll be in a position to make the finishing touches. Once our employees contribute to the OPEB trust, future increases in contributions can be bargained for to help strengthen the trust.
Alameda has an opportunity to lead the Bay Area in dealing with OPEB liabilities. Many people had a hand in getting us to this point. Now, the City Council must approve these contracts to bring Alameda closer to fiscal and service sustainability.
Jim Oddie is a member of the
Alameda City Council.