HomeMy WebLinkAboutStaff Report 414-09City of P alo Alto
City Manager's Report
TO: HONORABLE CITY COUNCIL
FROM: CITY MANAGER DEPARTMENT: HUMAN RESOURCES
DATE: OCTOBER 26, 2009 CMR: 414:09
SUBJECT: Adoption of Resolution Imposing the City's Last, Best and Final Offer to
Service Employees' International Union (SEIU) Local 521 Pursuant to
Government Code Section 3505.4
RECOMMENDATION
Staff recommends Council approval of the attached resolution imposing the City's last, best
and [mal offer to Service Employees' IntemationalUnion (SEIU) Local 521 pursuant to
Government Code Section 3505.4. The Council is only permitted to approve or disapprove
this resolution and cannot make any changes to terms that were in the City's last, best and
final offer.
BACKGROUND
Government Code section 3505.4 authorizes the City to implement terms of Its last, best and
final offer. Section 3505.4 provides:
If after meeting and conferring in good faith, an inlpasse has been reached
between the public agency and the recognized employee organization, and
iInpasse procedures, where applicable, have been exhausted, a public agency
that is not required to proceed to interest arbitration may implement its last,
best, and [mal offer, but shall not iInplement a lXLemorandum of understanding.
The unilateral implementation of a public agency's last, best, and final offer
shall not deprive a recognized employee organization of the right each year to
meet and confer on -matters within the scope of representation, whether or not
those matters are included in the unilateral implementation, prior to the
adoption by the public agency of its annual budget, or as otherwise required by
law.
The City's agreement with SEIU Local 521 expired on June 30, 2009. The City commenced
negotiations with SEIU on May 4, 2009 regarding the terms and conditions of employment
for this represented unit, and the parties have spent five months and twenty six meetings
negotiating for a successor agreement in spite of the increasing financial strain on the City.
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Under State law, the City of Palo Alto is required to bargain in good faith and cannot
unilaterally make changes to working tenns and conditions for represented employee groups.
Thus, although the agreement with SEIU expired, the paliies must maintain the status quo
and continue to observe the tenns and conditions of the expired agreement until a new
agreement is negotiated. Although the City may not implement a memoranduln of
agreement, Section 3505.4 gives the City the ability to unilaterally implement terms that
change the status quo following good faith negotiations and impasse.
The prerequisites to unilateral implementation set forth in section 3505.4 have been met.
Over the course of negotiations, the City has reduced its proposals by nearly half, yet the
parties still remain at odds over significant economic issues, as discussed below. As a result
of extensive discussions on L.1.ose issues and the pa..rties' inability to reach agreement or even
make significant progress, the City gave its last, best and fmal offer to SEIU on October 16,
2009. The City and SEIU met on October 20,2009, when SEIU fonnallyrejected the City's
last, best and fmaloffer. Following the Union's rejection, the City declared that the parties
were at impasse. On October 20 and 9ctober 22, 2009, pursuant to section 1208 of the
City's Merit System Rul~s and Regulations, the parties discussed potential ways to resolve
the dispute in order to satisfy the impasse procedures, but did not agree. Beyond such
discussions, there are no required impasse resolution procedures.
Staff is recommending that the council adopt the attached resolution to implement the terms
of the City's last, best and final offer described below. This adoption will not and cannot
establish a new agreement, but rather, will change $ome of the tenns and conditions of
employment under which the parties are currently operating until a new agreement can be
reached. Because this resolution implelnents the tenus of the City's last, best, and final offer,
the Council cannot make any changes to those tenns if it adopts the resolution. The City vlill
be required to meet and confer with the Union prior to adoption of the FY 2011 budget.
DISCUSSION
Since the beginning of these negotiations, the City communicated its need for long-tenn
structural budget change in compensation costs, paliicularly pension and medical costs.
Actuarial evidence of the expected increases in PERS retirement contributions and in the
City's retiree medical liability was presented to SEIU during negotiations. In addition, the
City's budget deficits ($10 million for FY 2010) have been communicated to SEIU and
through numerous public meetings, reports, and budget documents.
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The City's and Union's positions are fundamentally different. They differ over whether the
City faces long-term fmancial problelus and over their magnitude. The City believes there
are long-term systelnic cost issues that a change in the economic cycle and an uptick in
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revenues will not address. It faces n1ajor liabilities such as the need to elilnll1ate a significant
infrastructure backlog and to meet its retiren1ent and retiree Inedical obligations. It also faces
considerable operational expenses as voter approved (General Obligation Bonds) new
facilities are brought on-line. In addition, the cun-ent recession (stalied in Decen1ber 2007)
has proven long and severe and the general econoinist consensus is that jobs and conSUlner
spending, the Plincipal econolnic drivers of City revenue, will take Iuany Inore years to
rebound. Moreover, there is increasing evidence that past consun1er spending pattelns Inay
never return to pre-recession levels.
The Union contends that'teluporary or interin1 lueasures such as furloughs and savings
n1eaSlu-es associated with new elnployees can close, what it views, as near-ten11 budget
deficits. The Union's perspective is that the City's revenue shortfalls will be of short
duration and that the econoluy will resuscitate soon elilnll1ating the need for deeper cost
savings. Each side has been consistent il1 their perspectives.
Notwithstanding those dif~erences in perspective, both the City and SEIU have n10ved on
their original proposals. Staliing with a proposal for approximately $4.5 nrillion in ongoing
savings, the City's last best and fmal offer now results in $2.55 lnillion in savings for FY
2010. In its first proposal, the Union requested an increase in cOlnpensation and benefits, but
has subsequently proposed a series of savings plans that are of a short-tenn and longer-tenn
nature, such as implementing furlough days, reducing the tuition and training benefit,
creating a new and less expensive step in the compensation plan, and having new eluployees
contribute more toward the eluployee portion of the PERS retiren1ent plan for a specified
nUluber·ofyears. However, the City believes the Union's longer-telm proposals do not result
in the luagnitude of savings required to solve structural issues. In addition, the data usedto
support the Union's savings estin1ates does not instill confidence in the consistency of those
savIngs.
The Union has been clear and persistent in rej ecting two key features incorporated il1 the
City's proposals as well :as the final offer: (1) contributions by employees to medical
prenuulu costs (currently employees contribute zero dollars) and (2) establishing a second
tier or less relnunerative retireluent plan (20/0 at age 60) for new einployees. In addition, the
Union opposes increasing current eluployee retirement contributions (currently lilnited to two
percent with the City paying the remainder). TIllS unwaveling position led to the City giving'
its last, best and final offer, and, after the Union rej ected that offer, declaration of in1passe.
Summary rof Last, Best and Final Offer
Both the City and the Uluon luodified their proposals by amount and configuration over the
course of the bargaining sessions. The main provisions of the City's last, best and fmal offer
were a result of continuous changes and the give and take in an effort to reach an agreement.
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Overall, the City has lowered the alnount of concessions it originally proposed and has
sought a balance between reductions to en1ployee paychecks (e.g., higher contributions to
PER_S) and to other non-paycheck benefits fevver floating holidays). Staffbelieves that
the last, best and final offer achieved a fair balance, and the lnaj or tenns it is reconllllending
for ilnplenlentation are as follows:
Public En1ployees Retirelnent Systeln (PERS) Elnployee Contribution
The PERS retirelnent enlployee contribution by enlployees is raised froln the CUlTent 2
percent to 8 percent, an increase of 6 percent to en1ployees (the City is cUlTently paying 6
percent of the required 8 percent contribution). This increase will be effective with the pay
period including Decenlber 1, 20m09. The 6 percent increase is a result of the need to close
the FY 2010 budget deficit over the seven ren1aining n10nths of the fiscal year. This is a
direct consequence of the duration of negotiations. Effective with the pay period including
June 30, 20Wl 0, enlployees would be responsible for paying 5.75 percent of the 8.0 percent
of the elnployee PERS contribution. The 5.75 percent (which is an addition of3.75% to the
CUITent 2% elnployee contribution) sufficient to lneet the City's savings goal and to
Inaintain the SaIne level of savings over twelve lnonths as is generated by the higher 6 percent
contribution over an approxilnate seven-nl0nth period in 2010.
Tuition and Training Reilnburselnent
The final offer reduced the current benefit of $1,000 in tuition and training reiInburseInent to
zero. The Union indicated during negotiations that it was amenable to reducing this benefit
although the parties were unable to reach final agreelnent on the alnount.
Furloughs
The last, best and final offer contained no pre-set, unpaid furlough days. This furlough
• '1 'r 1 l' 1 C 1 • 1 1 • • l' • prOVISIon ll1ay oe 11 an elnp oyee appilea lor ana reCeIVeG tne tuItIon anG traInIng
reilnburselnent prior to the ilnplelnentation of the tuition and training reimburselnent
reduction. The furlough would be nlade sufficient to cover the anlount that has been paid to
eUlployee. To date, has no knowledge an SEIU eluployee using the tuition
benefit, so it is likely that the furlough provision will not affect any eInployees.
Floating Holidays
This provision eliIninates two of five floating holidays SEIU elnployees currently receive per
year. It is believed that this will result in an increase in productivity and savings to the City
by a decrease in overtiIne. A value of $170,000 was ascribed to each floating holiday.
The City significantly Inodified its proposals on elnployee contributions to n1edical prenliulns
over the course of negotiations. Whereas in a prior proposal, tlle employee share would rise
over time to a larger share of prelniuln costs, the City's last, best and final offer was for
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en1ployees to share in the future health care cost increases equally until such time as the
employee pays a maximuln of 10 percent of the total prelniuln for the applicable plan. The
City would pay the remaining 90 percent level. This 9011 0 split of prelniums would continue
into the future. The City believes this is a reasonable way to offer SOlne assurance to
en1ployees on cost increases while also providing financial relief to the City.
2 Percent at Sixty Retirement Plan
To control future retirement costs, the City's last, best and final offer gave a different
retirement formula, 2% of final salary at age sixty, for future new employees. Current
Miscellaneous employees will maintain the 2.7 percent at 55 retirement benefit. The formula
change for new elnployees would have modest fmancial impact in the early years of
ilnplementation but would result in much lower costs over tilne.
The City believes the tenns of its last, best and final offer to SEIU are reasonable given
current economic conditions and the long-term and real financial challenges the City faces.
Staff regrets that a negotiated deal could not be reached at this time, but the press of events
and the need for fiscal responsibility nec.essitates implementation of these last, best and fmal
offer terms.
RESOURCE IMPACT
Based on the City's last, best and final offer described above, the City's estimated savings
during FY 2010 are as follows:
Incremental Six (6) Percent Contribution
to PERS for Relnainder of Fiscal Year:
Elimination of Tuition and Training Benefit
Elimination of Two (2) Floating Holidays
Total Savings for FY 2010
$1,599,500
607,500
340,000
$2.547,000
The "hard" savings in the above is closer to $2.2 million, a lnarked decrease from the City's
October 6, 2009 proposal, and less than half of what the City sought when negotiations began
in May. While the hard savings can be realized this year, the changes to a two-tier retirement
formula ~d contributions to healthcare insurance prelniums will have future benefits that
will assist 1n addressing the structural deficit the City is facing.
POLICY IMPLICATIONS
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POLICY IMPLICATIONS
This recommendation is consistent with existing City policies.
ENVIRONMENTAL REVIEW
Adoption of this resolution is not considered a proj ect under the California Environmental
Quality and does not require an enviromnental review.
ATTACHMENTS
A. RESOLUTION OF THE COUNCIL OF THE CITY OF PALO ALTO IMPOSING THE
CITY'S LAST, BEST, AND FINAL OFFER TO SEIU LOCAL 521 PURSUANT TO
GOVERNMENT CODE-SECTION 3505.4
PREPARED BY: SandraT.R. Blanch,.Assistant Director, Human Resources and, Joe
Saccio, Deputy Director of Administrative Services
DEPARTMENT HEAD: ------~~~~~-----------------------
Director of Human Resources
CITYMANAGERAPPROVAL:;:r;d~~ ~
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City Manager (
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