[Noozhawk’s note: This is one in a series of articles on Noozhawk’s Santa Barbara Challenge, our public-engagement project on the city of Santa Barbara’s budget. Related links are below.]
Even with labor group concessions, officials say, employee compensation costs will continue to increase through higher PERS rates and postponed employee raises. Estimates show the city’s costs will rise to $21 million in 2014 from $14 million.
Employees of Santa Barbara’s police and fire departments get “3 percent at 50.” For each year they’ve worked for the city, they receive 3 percent of their highest annual salary as a pension. A firefighter who has been with the city for 30 years will receive 90 percent of that last paycheck every year for the rest of his or her life.
Nonsafety department employees get “2.7 percent at 55,” which is calculated the same way. While earlier retirement is allowed, it comes with a lower benefit, of 2 percent at 50, for example.
Both the city and employees pay into each person’s retirement, which is completely paid off during the term of employment so PERS distributes the pension funds upon retirement.
As retiree medical benefits go, city-paid health care covers employees until the age of 65, when Medicare takes over. However, the monthly checks don’t go directly to medical care, and there are no systems in place to check how they’re spent, according to city finance director Bob Samario.
When it comes to contributing to CalPERS, rates can’t be controlled locally but the employee contribution payments can be. Specified amounts are paid each year by both the employee and the employer, and Santa Barbara decided several years ago that it would pay the 9 percent safety employee contribution so police and fire employees don’t pay at all into their own retirement. With the labor concessions negotiated for 2010, however, both sworn police and fire employees were required to pay into their own pension funds.
By 2014, the amount of money the city pays into PERS will increase by 49.3 percent for police employees, 48.5 percent for fire employees and 20.5 percent for all others, Samario said at a February budget workshop.
The increased rates are to make up for big investment losses in 2009, which PERS will try to make up for over a three-year period, officials said.
Benefits are always volatile, with rates increasing in bad times, Samario said. In the 1990s and early 2000s, rates were zero so the city actually made money.
Now, increasing rates will cost the city millions of dollars more in salary and benefit costs, even with cuts to positions and concessions. In 2014, PERS rates will be the highest they’ve ever been and all labor group concessions — including the three-year contracts negotiated with public safety unions — will expire, he said.
Other municpalities have looked into two-tier retirement — giving separate benefit packages to new employees — and having employees contribute more into their health care or retirement benefits.
In Ventura, the City Council voted to implement two-tier retirement in April 2010, as well as having employees pay their share of CalPERS contributions.
So far, these changes haven’t been considered in Santa Barbara because they’re controversial and there hasn’t been the political will to pursue them, City Administrator Jim Armstrong said. However, he said he wouldn’t be surprised if the city starts looking at those options more seriously a year or two from now.
Samario said going to two-tier retirement is “inevitable” but likely a few years out, since being the first city to do it could lead to a competitive disadvantage.
The general public’s understanding of PERS is better now, which can contribute to those larger discussions, he said.
City Council members held a workshop last year outlining all employee benefits after Councilman Bendy White asked for more information about the topic, which he described as a “black box that’s mysterious.” It appeared that some of the information was new to at least some council members, although they had already participated in labor negotiations with every city union.
In February, city staff held a budget workshop for the City Council and outlined the PERS problem, along with revenue and expenditure trends. The discussion focused on finding additional revenues and cutting costs, but a few ideas for structural changes emerged as well.
Councilwoman Michael Self asked about a two-tier benefit system and many members asked about privatizing certain services or using hourly workers instead of salaried staff to keep costs down.
A 2011-2012 budget is due by June 30, so the City Council and staff will spend the next several months prioritizing services and discussing options for dealing with the increased salary and benefit costs.