HomeMy WebLinkAboutStaff Report 340-10TO: HONORABLE CITY COUNCIL
FROM: CITY MANAGER
DATE: August 2, 2010
REPORT TYPE: Action
DEP ARTMENT:ADMINISTRA TIVE
SERVICES
CMR: 340:10
SUBJECT: Approval of Response to the 2009-2010 Santa Clara County Civil Grand
Jury Report "Cities Must Rein In Unsustainable Employee Costs"
RECOMMENDATION
Staff recommends that Council approve the final response to the 2009-10 Santa Clara County
Grand Jury Report "Cities Must Rein In Unsustainable Employee Costs" and authorize the City
Manager to sign and send the response to the Grand Jury.
BACKGROUND
On May 20, 20 I 0, the Civil Grand Jury of Santa Clara County sent the Honorable Patrick Burt,
Mayor of the City of Palo Alto a report expressing serious concems about rising and
unsustainable employee costs. The report addressed all areas of compensation including wages,
pensions, health care, and vacation, holiday and sick leave. The Grand Jury's chief finding was
that" ... controlling employee costs is imperative for the ongoing financial health of our cities."
On July 19,2010, the Council preliminarily reviewed the Grand Jury findings (CMR:315:10)
and provided general input and guidance to staff on responding.
DISCUSSION
Based on Council input and a careful review of actions taken by the City to date to restrain rising
employee costs, responses to the Grand Jury's findings and recommendations have been drafted
by staff. The response (Attachment A) agrees with the thrust of the Grand Jury findings and
recommendations. There are areas, however, where the City respectfully disagrees with the
findings and/or recommendations. The City agrees that employee costs must be brought into
alignment with available resources, particularly on a long-term basis. In its negotiations with its
unions the City has made it clear that it faces a long-term structural deficit that can only be
solved through structural wage and benefit changes, particularly in the areas of health and
pension costs. The City faces considerable financial liabilities in these benefit areas and is taking
concrete steps to address them. The Grand Jury's recommendations are a valuable source for
discussions and solutions.
CMR: 340:10 Page 1 of3
'In its responses, staffhas noted that in order to aehieve savings in wages and benefits it must, by
law and contracts, negotiate in good faith with its labor unions. Although the City can strive to
achieve many of the Grand Jury's recommendation, it must comply with State and local rules
governing employer/employee relations, which can limit its ability to implement wage and
benefit changes. In addition, there are a variety of ways to achieve savings necessary to meet
budget goals and maintain services. Jurisdictions need some flexibility to address their unique
labor forces and services.
Staff will also include corrections, provide additional information or clarifications on the Palo
Alto data included in the Civil Grand Jury's report. For example, the monthly health care
premiums comparing 200 I to 20 I 0 will be provided (table 3, page 6).
Most Expensive Plan
2001 PERS CARE
20 I 0 Blue Shield Access
Employee Only
$343.00
$577.33
Employee +1
$686.00
$1,154.66
Employee + Family
$892.00
$1,501.06
For the retirement formula table 5, page 9 it should state highest year instead of final year.
In table 7, page 13, the days off per year by City needs corrections the floating or personal days
should state 2 to 5 days for Management and SEIU and total days off should be from 49 to 64.
In addition, here are the revised figures for the grand jury report for estimated median total
compensation for public safety:
Police, FY2000: $102,771
Police, FY 2010: $171,970
Fire, FY 2000: $107,634
Fire, FY 2010: $169,709
In conclusion, staff requests Council input and final approval of the response to the Grand Jury
report. A copy of Penal Code Section 933.05, which provides the guidelines for responses to
Grand Jury reports, is attached (Attachment B). A final response from the City of Palo Alto
regarding the reforms and changes recommended by the Grand Jury must be delivered by August
30,2010.
RESOURCE IMPACT
There is no immediate fiscal impact resulting from this report.
POLICY IMPLICATIONS
This report is consistent with Council policy to maintain a balanced budget and to pursue
structural changes in employee wages and benefits.
ENVIRONMENTAL REVIEW
There is no environmental review required for this report.
CMR:340:10 PageZ of3
ATTACHMENTS
Attachment A: City of Palo Alto Responses to 2009-2010 Santa Clara County Civil Grand Jury
Report "Cities Must Rein In Unsustainable Employee Costs"
Attachment B: Penal Code Sootion 933.05
PREPARED BY:
APPROVED BY:
CITY MANAGER APPROVAL:
CMR: 340:10
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Deputy
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Director, Administrative Services
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t::n-JAMESKEENE V City Manager
Page 3 of 3
ATTACHMENT A
Response to the 2009-2010 Civil Grand Jury of Santa Clara County
Final Report "Cities Must Rein in Unsustainable Employee Costs"
SUMMARY
The City of Palo Alto agrees with the primary thrust of the Grand Jury's Report that
unsustainable employee costs must be aligned with available resources. Moreover, those costs
must be considered in light of significant infrastructure needs and the public's expectation of
services. As demonstrated by its balanced budgets, minimal use of reserves, Triple A credit
rating, and stellar annual outside audits, the City prides itself on responsible financial
stewardship and management. It fully intends to maintain these best practices and adjust eosts
and revenues as needed.
The City agrees with many of the Grand Jury's findings and recommendations and has taken
clear concrete steps to address them. In addition, the City intends to pursue medical and pension
changes, already achieved with miscellaneous employee groups, in current and future
negotiations with its public safety unions.
The City does, however, want to state that progress on some recommendations must be viewed
within the context of processes that are to a large extent beyond the City's control. For example,
the City must abide by contractual obligations of its labor contracts as well as legal requirements
to meet and confer and bargain in good faith over matters within the scope of representation.
This places real and practical constraints on the City's ability to move forward with changes it
may believe necessary, but whieh are subject to negotiation. The City genuinely strives to work
in a eollaborative manner with its employee groups to reach agreements that ensure a sustainable
financial future and exeellent services to the community.
The Grand Jury's findings are valuable and provide confirmation of the direction that the City of
Palo Alto and other cities are moving forward to deal with the severe impacts of the recession
and the wage and benefit liabilities that have emerged. As evidenced below a good faith effort to
address the Grand Jury's issues has been initiated and Vlill continue to be followed in the future.
It is important to note many of the Grand Jury recommendations removing benefits were benefits
negotiated and granted over an extended period of time. It would be challenging at best to expect
negotiations to address all of them in a short period of time.
FINDINGS AND RECOMMENDATIONS
Finding 1
The costs of total compensation for employees have grown substantially in the past decade and
now threaten the cities' fiscal stability.
RESPONSE: The City agrees with this finding. The City of Palo Alto's compensation costs,
particularly in the area of pension and medical expense, have grown substantially in the past
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decade. Through its annual Long Range Financial Forecast (LRFF), the City identifies the
"drivers" of future surpluses and deficits. In the most recent 10 year forecast, deficits were
projected from FY 2011 through FY 2020. They were driven primarily by falling revenues due
to the recession; significantly rising medical premium and retiree medical liability expenses; and
pension costs resulting from expensive plans and weak portfolio performance by CaIPERS.
Using the Forecast, the City is proactive in developing budget strategies and seeking structural
expense changes to erase those deficits
Recommendation 1
All of the cities in the County need to implement measures that will control employee costs. As a
starting point, each city should determine the percentage of savings required from the total
compensation package to reach budget stability for the unions to choose to achieve that
percentage goal.
RESPONSE: , The recommendation has been implemented. During each budget process for the
following fiscal year, the City determines the savings needed to balance its budget and to
position itself for future budget stability. Those savings have incorporated reductions to
employee compensation. In the 2009-10 Budget, for example, the City:
• froze pay for management and SElU for fiscal ycars 2010 and 2011. Police
employees voluntarily deferred a contractual pay increase for FY 2010 until FY 2011
• eliminated management's Variable Management Compensation plan (a bonus based
on work quality and achievement of stated goals)
• eliminated tuition or professional training reimbursement for SEIU members
• inereased PERS employee eontribution rates for SETIJ members from 2% to 5.75%
• eliminated 2 float days off for SEIU members
In addition to the above, the City implemented a two tier retirement plan (2% at 60) for new
miscellaneous employees as well as a medical premium cost sharing plan for miscellaneous
employees. The City is currently in negotiations with its fire personnel for similar struetural
changes in benefits and will pursue this with its police personnel when contract negotiations
begin for FY 2011-12.
Finding 2
Salary and wage increases do not reflect changes in economic conditions; e.g. even with minimal
inflation, yearly COLAs are granted with little bearing on tile actual increase in COb'! of living or
market eonditions.
RESPONSE: The City respectfully partially agrees and disagrees with the finding
Recommendation 2
The City agrees that it should not inerease salaries and wages that are not supported by planned
revenue increases. Cities should tie COLA increases to clear indicators and retain the ability to
adjust or withhold based on current economic data.
This recommendation has been implemented as explained below
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RESPONSE: As stated in response to finding I, the City did not automatically grant cost of
living increases during poor economic conditions. Staff has received direction from Council to
tie salary increases to revenue performance and each Fiscal Year, the City determines what it can
and cannot afford in its forthcoming budget. This financial view (derived from the LRFF) is
incorporated in all labor negotiations. Recent minimal inflation impacts were a factor in freezing
miscellaneous employee pay along with the need to balance the budget. The City has
implemented salary increase controls when financial conditions warrant and those increases are
not automatically driven by any index. In addition, the City does attempt to negotiate salary
increases by including language that caps increases based on the most current Bay area CPI
percentage.
It is important to note that in multi-year labor contracts (which bond rating agencies look upon
favorably thereby reducing debt expense), the City cannot adjust pay increases based on inflation
or market conditions. In addition, there can be job classifications or skills where demand
exceeds supply and cities need discretion to provide competitive wages e.g., electric linepersons,
which may not correlate with inflation changes. Flexibility in the area of wages is important to
maintain operations. To the extent implementing this finding would limit its flexibility to
consider such operational factors, the City disagrees.
Finding 3
Step increases are arbitrary and do not adequately represent an employee's added value to a city.
Combined with COLAs, new employees' wages increase quickly and are not necessarily
reflective of improved knowledge and skills.
Recommendation 3
Cities should negotiate step progressions fi'om the current three and a half years to seven years.
Employees should not receive COLA increases while in step progression.
RESPONSE: The City agrees with the tenor of the recommendation in that excessive pay
increases should be eliminated but disagrees with a seven year step progression. The concept of
steps is that an employee's skill level and value in the job increases as they are in the position.
But that learning and rising value reaches a plateau after a number of years. Palo Alto has a five
step progression for rank and file, fire and police personnel. The step system allows the City to
maintain equitable pay scales among its employees for comparable work and performance. The
current 4.5 year progression from step I to step 5 appears reasonable in that it offers incentives to
progress over an extended period of time. The City will, however, monitor overall pay increases
carefully to make sure they can be supported by available resources.
The City takes its fiduciary responsibility most seriously and has demonstrated this by balancing
its budget each year, minimizing use of its General Fund reserve, and its Triple A credit rating.
At the same time, to provide the best services to its citizens it seeks highly qualified and capable
public servants. Attracting and maintaining such staff requires a careful balance between
prudent financial practices and maintaining a capable and dedicated work force. Having step
increases allows the City to hire people at pay rates based on their level of experience, to provide
incentives for development and to recognize if employee performance meets work standards.
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Finding 4
Medical insurance costs for active employees are growing year after year ai rates that exceed
most cities' revenue growth, while the employee contribution to medical care is minimal.
RESPONSE: The City agrees with this finding. The City views Findings 4 and 5 as the most
serious issues it must address in order to achieve long-term financial stability. By calculating the
present value of current retirement and retiree medical commitments the City can gauge the
magnitude of its liabilities and the struetural changes necessary to align costs with available
resources.
Medical premium costs have accelerated at a pace that significantly exceeded revenue growth
and inflation. In addition, the implementation of GASB 45 has made public agencies acutely
aware of the post retirement medical liabilities. As background to the City's effort to control
medical expenses, several years ago it eliminated the availability of PERS highest cost plan,
PERS Care, to employees. In addition, it increased the vesting period required to earn full
medical coverage for retirement. These were the first steps taken to decrease this benefit cost.
Recommendation 4
Cities should negotiate with employees to assume some of these increased costs for their medical
benefits. To contain medical costs cities should consider the following:
A. Split monthly premiums between the city and the employee and increase the
employee's share, if already cost splitting, and remove any employee eaps.
RESPONSE: The City agrces with employees sharing medical premium costs and has
implemented with some labor groups. In FY 20 I 0, the City created and included in management
and general classified employee agreements a plan for sharing medical premium costs. The City
could not reach agreement and had to impose the medical cost-share program with the general
classified employee unit. This plan is to take effect in January 2011 unless a different cost
sharing plan can be negotiated with City bargaining groups prior to that date. The plan is for
employees to share 50% of cost premium increases up to a maximum of 5% in any single year.
The cost sharing will continue until such time as the employee share represents 10% of total
premium costs. The City is committed to pursuing a similar plan with its public safety unions as
well.
Although the City is still discussing medical cost sharing options, removal of the cap must be
negotiated. Making changes in a unionized environment is subject to the meet and confer process
based on bargaining in good faith. This means that incremental change is a reality. Should
pressures on the City budget increase or increase dramatically, the City can and will revisit
additional cost sharing arrangements. The City of Palo Alto has removed the most expensive
health care provider for current and future retirees (2007). By increasing the vesting period from
5 to 20 years for retiree medical benefits (2004), future retirees must contribute towards the
health premium cost unless they meet the 20 year requirement.
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B. Establish reasonable co-pays for doctors' visits, prescription drugs, and in-patient and
out-patient hospital care.
RESPONSE: Not implemented or applicable. Palo Alto is part of the CALPERS Public
Employees Medical and Health Care Act (PEHMCA) medical insurance program. It cannot
unilaterally determine co-pay, deductibles or other plan benefits as those are established by the
CALPERS Board.
C. Prohibit an employee from being covered by both city-provided medical benefits and as a
dependent of another city employee.
RESPONSE: The City has a financial incentive program in place to promote this goal and it
has been successful in curbing medical costs. The City would have to negotiate changes to this
program and cannot unilaterally prohibit an employee from dual coverage.
D. Reduce cash-in-lieu payments.
RESPONSE: The City has not implemented to date. Assuming the cash-in-lieu payments
are for incenting staff to not have dual coverage, the City has found the incentive program
successful in reducing costs. While the City considered and evaluated a change to this program
in FY 20 I 0 SEIU negotiations, the current program produces effective cost savings. Because the
incentive is part of labor agreements, the City is not in a position, at this time, to change the
current program. If long-term financial pressures continue, however, this is an area where cost
reductions could be considered after additional analysis.
E. Introduce a new lower premium, high-deductible medical plan.
RESPONSE: The City has partially implemented this recommendation over time, but is
limited as a PERS plan member in the plan changes it can make. Palo Alto moved in 1992 from
being self-insured to PEHMCA to lower its medical costs. As part of PERS, the City cannot
unilaterally determine co-pay, deductibles or other plan benefits. At this time, the City is not
researching other medical plans since it is concentrating its efforts on having employees share in
medical costs. The City is concemed by the recent, overall 11 % cost increase in a preliminary
PERs rate sheet for 2011 and will make its views known to PERS. Over time, the City may
pursue other health options.
Finding 5
Pension formula changes instituted in the past decade, stock market losses, the aging "baby
boomer" work force, and the growing unfunded pension and OPEB liability a\1 contribute to
making retiree pension and health care costs the most problematic and unsustainable expense the
cities are facing. The city contribution to pension plans and OPEBs far exceeds the employee
contribution.
RESPONSE: Agree.
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Recommendation Sa
Cities should:
1. Renegotiate and make provisions for increasing the employees' contribution for current
pension plans.
RESPONSE: As stated under Recommendation 1, the City has implemented and negotiated a
higher contribution from SEIU members to the employee's share of pension plan costs. The
share of the 8% employee contribution has risen from 2% to 5.75%. This increase began in FY
2010. Managers currently pay 2%; Fire employees pay 9% (firefighters were recently given a
9% salary increase, however, which they use to pay the 9% employee contribution. In effect, the
City is paying the full employee share); and Police employees do not pay any contribution
toward their 9% employee share. Again, to achieve this goal, the City must engage in the
process of good faith negotiations with its labor unions. During upcoming negotiations with
public safety, contributions to pension plans will be negotiated.
2. Renegotiate to stop paying the employees' contribution amount to pension plans.
RESPONSE: The City has taken steps to increase employee's contributions (recent
negotiation with SEIU raised contribution as cited above) and will continue to take such
steps as financial conditions warrant. Progress toward this goal must be viewed in the
context ofthe good faith negotiations process required by law.
3. Renegotiate to implement a contribution amount for employees to OPEB; this
contribution should provide for a reasonable split of costs between a city and the
employee for retiree medical and dental benefits.
RESPONSE: Please see response to Finding 4, Recommendation 4A. In implementing a
medical cost sharing plan for management and SEIU, the City included current employees and
those employees retiring after January 1,2011 (This plan would not affect current retirees). As a
part of the cost share program, the City will be contributing an amount equal to the employee
pOition of cost-share to the retiree medical trust. Through informal discussions, Public Safety
employees are aware of the City's desire to negotiate a similar plan for their union agreements.
We are currently negotiating with the fire units and will begin negotiations with the police union
and swom police management prior to the beginning of FY 2012. The City does not provide
dental or vision benefits to retirees.
Recommendation 5b
Cities should thoroughly investigate reverting to prior pension formulas that were less costly.
Recommendation 5c
RESPONSE: Partially agree and disagree
To provide a meaningful, long-term solution, the cities should negotiate agreements to:
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I. Institute a two-tier system for pension and retiree health care for new hires.
RESPONSE: The City has instituted a two-tier retirement system for new management and
SElU hires. The current retirement plan for these groups is 2.7% at 55. For new miscellaneous
employees hired after July 17,20 I 0, the retirement plan is 2% at 60. The City will negotiate for
a two-tier plan for public safely persolmel in current and upcoming negotiations. The current
plan is 3% at 50.
2. Increase the retirement age for 50 to 55 to 60 or 65.
RESPONSE: For new miscellaneous employees the retirement age has moved from 55 to 60
and the City will negotiate for higher retirement ages for new public safety employees.
3. Calculate pensions on the last three to five years of salary.
RESPONSE: The City's eurrent retirement plans are based on the single highest year of pay
during the last three years. This practice was maintained in the new two-tier retirement plan for
miscellaneous employees. The City has proposed a three year formula to calculate pensions to
the fire union during current negotiations, but this is subject to further discussion. While the City
agrees with methodologies to curb retirement costs, there are a variety of ways to achieve this
goal and it is carefully weighing each option.
4. Replace current post-employment health care plans with health savings plans.
RESPONSE: Not considering implementation at this time. The City has moved in 20 I 0 to
have employees share in the cost of OPEB costs and does not believe further change is necessary
at this time. Current efforts ares an important first step that could lead to further savings and
sharing of cost in the future. With few details on the current health care legislation, it is believed
premature to consider health savings plans. Once the new federal legislation is understood, the
City can investigate health savings plan within its broader effort to contain post-employment
health costs. Parenthetically, the City of Palo Alto is one of the few cites nationwide to have
partially funded its retiree health care liability. It deposited approximately $32 million in a
PERS trust to fund the liability.
Finding 6
Public sector employees are granted a generous number of holidays, personal days, vacation days
and sick leave annually. Rules and limits on accrual vary by city and union, but vacation days
and sick leave can be accumulated and converted to eash or calculated into the pension benefit
within those limits.
RESPONSE: The City agrees with this finding.
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Recommendation 6a
Cities should renegotiate with the bargaining units to I) reduee vaeation time; 2) reduce the
number of holidays and/or personal days; 3) cap sick leave and eliminate the practice of
converting accumulated sick leave to cash or adding into their years of serviee for inclusion in
their retirement benefit.
RESPONSE: The City has implemented steps to contain fiscal impaets from non-productive
days. In terms imposed on SEIU in FY 20 10, 2 floating holidays were eliminated. SEIU has
agreed to extend this !'eduetion into FY 20 II.
Since 1983, Palo Alto has implemented caps on sick and vacation leavc accruals. Also, it does
not allow for sick leave to be cashed out or to be part of the years of service in pension
calculations. Further limitations on the total number of days off will need to be part of the good
faith negotiation process going forward.
Recommendation 6b
Cities should negotiate to substitute paid days off for unpaid days instead of imposing furloughs.
For example, reduee paid holidays to major holidays only, consistent with private industry; and
convert minor holidays to unpaid. Therefore, the public is not impacted by fewer services caused
by furloughs, and the city saves the employee cost.
RESPONSE: Palo Alto has not used furloughs as part of its budget balancing solutions in the
past five years. Instead, the City has changed the way delivers services by contracting out and
reducing administrative support. Since 2009 the City has reduced 60.5 full-time equivalent fully
benefited positions rather than using furloughs as a solution to reduce employee costs. If the
City considers furloughs, it will negotiate for converting paid holidays to unpaid.
Finding 7
Cities traditionally determine their eompensation packages by surveying the wages and benefits
of other publie sector employees in the same geographic area. There is major resistanee to
eomparing themselves or mirroring trends with the private sector. This has allowed wages and
benefits to become artificially high and out of sync with market trends.
RESPONSE: The City respectfully partially agrees and disagrees with the finding Within the
City's labor agreements there are specific jurisdictions within the region to which both parties
(City and union) have agreed to compare wages. These benchmarks are important in that they
compare like positions in terms of skills and compensation. There are some City positions such
as those in public safety that are not comparable to thc private sector. Comparison with other
employers, public 01' private, is used in unique circumstances or where specific job classification
comparisons are not available such as in the case of the City's Utilities Department positions in
which we attempt to use P.O.&E. benchmark data. These comparisons are reviewed from time
to time in negotiations and could be changed as part of the negotiation process. For example, in
the Fire Memorandum of Agreement, the City is obligated to benchmark specific cities
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determined through arbitration to be appropriate matches to the City of Palo Alto Fire
Department.
Recommendation 7a
Cities should research competitive hiring praetices and alter the approach to determine fair
wages and benefits for each city by using public and private sector data.
RESPONSE: The City partially agrees. Palo Alto does a salary survey of specific jurisdiction
before each labor negotiation to determine fair compensation and potential "market"
adjustments. It has not utilized private sector wage data to date and may consider doing so in the
future. Using such data would be helpful and would need to be discussed within the context of
the bargaining process.
Although recent surveys indicate that private sector benefits are below those in the public sector
and the City agrees that publie employee costs must be curbed, it should be noted that private
sector wages, bonuses and stock options far exceeded those in the public arena at one point in
time.
Recommendation 7b
Cities should renegotiate salaries and wages using valid market comparisons and not only the
current wage index. Cities should utilize more market-oriented compensation practices so that
salaries can adjust as competition for labor changes. Cities should reduce entry-level
compensation for positions for which there are many qualified applicants.
RESPONSE: For each negotiation the City makes market comparisons with the cities that are
delineated in the labor contracts. Palo Alto does not use any specific wage index to determine
salary increases nor is one specified in labor contracts. It is assumed that the supply and demand
for labor in the market does affect each cities compensation results. The recent scarcity of
applicants for policc officer positions, for example, ll11fortunately drove wages higher, but this
was in response to the market. The recommendation, however, is ll11derstood and the City will
study and consider it prior to bargaining processes.
Finding 8
All cities perform certain core functions to mn smoothly and provide services to their residents.
To reduce employee costs and streamline operations, the cities are in various stages of
contracting services to private industry or partnering with other cities, special districts or the
COll11ty to deliver services.
RESPONSE: The City agrees with this finding
Recommendation Sa
Cities should explore outsourcing some fll11ctions and services to private industry. Cities should
discuss the prospect with cities that are successfully doing this to determine best practices and
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areas for success. Cities should develop contracts with measUfable objectives, performance
goals, and timelines.
RESPONSE: The City implemented contracting out services in many areas. The following
functions have been contra('ied out to the private sector to save costs: These include, for
example: landscaping of parks and City facilities; tree trimming and litie clearing; and street and
sidewalk repair. In July 2010 the Utility billing process and janitorial services have been
contracted out. In the Fall of2010, the City will likely contract out the maintenance of its golf
course. The City does, however, want to maintain a high level of service to its customers so it
considers each contracting out opportunity carefully in terms of the balance between cost savings
and service.
Recommendation 8b
Cities should create partnerships with other cities, special districts and/or the County for
services, such as payroll, human resources, animal control, police and fire. Cities should
investigate sharing the cost of new information technology systems.
RESPONSE: Implemented in many areas, the City has established partnerships with other cities
for the provision of wastewater treatment and animal services. Palo Alto provides dispatching
and fire services to Stanford University. It has a collaborative and cost sharing relationship with
the Palo Alto Unified School District for the maintenance of school athletic playing fields that
both the schools and general community use for sporting activities.
The City operates a Regional Water Quality Control Plant whose members include Mountain
View, Los Altos, East Palo Alto, and Stanford University. It operates an animal shelter that
serves Mountain View, Los Altos, and Los Altos Hills. The City has a joint partnership with the
cities of Sunnyvale and Mountain View for the provision of solid waste and recycling. Finally,
the City provides fire and dispatching services to Stanford University. In all of these instances
cost savings are realized by participating entities as fixed costs are shared and reduced and
resources are optimized for the benefit of all.
The City Managers from Palo Alto, Mountain View, and Los Altos have agreed to meet to
discuss further opportunities for sharing public safety equipment and services, such as
consolidated dispatch. This discussion is in the early stages, but there is growing awareness of
the need to reduee costs through regional cooperation.
Opportunities for partnerships that can reduce the number of employees and eosts are
approached on a case by case basis and are subject to the meet and confer process with affected
employee groups.
Finding 9
Cities can gain operational efficiencies and effeetiveness with lower employee costs by making
sure they are staffed with the conect numbers of people in the appropriate job classification in all
departments and work groups.
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RESPONSE: Agree. For the past several years and always during eeonomie downturns, the
City has evaluated eaeh vaeant position to determine whether it is absolutely neeessary and
whether its funetions ean be redistributed to other employees or eontracted out. Cross training is
a top priority of City departments so that key functions are backed up during illness or vacation.
, Recommendation 9
Cities should analyze the functions performed by all job classifications and make adjustments in
the work force. Consolidate functions within the same group or a similar group. Reassign
appropriate work to lower paid job classifications. Eliminate unnecessary functions.
RESPONSE: Agree. The City has been conducting a management classification study with the
objective of reducing the large number of job classifications. By collapsing these classifications,
additional flexibility for covering employee work functions will be realized. The City is close to
completion of the study and then will perform an economic analysis and presentation to council
in 2011. Implementation may take 3 years or longer depending on the results of the analysis.
In addition, during the last fIscal year, the City "froze" positions as they became vacant and
executive staff used this opportunity to evaluate which positions could be proposed for
elimination during the FY 2011 budget process. Between the management study and
restructuring around vacancies, the City is eliminating uuneeessary functions and finding
OPPOliunities to cover essential functions.
Reassigning work to lower paid job classifications is a valuable idea, but it is subject to union
agreements and the "meet and confer" process. Since the City of Palo Alto owns seven different
types of Utilities, it will continue to have unique classifications that usually don't exist in other
agencies. This will require further analysis.
Finding 10
The San Jose City Auditor identifIed 88 positions currently being performed by public safety
employees that can be performed by civilian employees at lower costs. The safety employees
could be moved to positions that require their expertise and training. The auditor estimated this
could be accomplished in less than 90 days and save approximately $5 million armually.
RESPONSE: This finding is not applicable to the City of Palo Alto.
Recommendation 10
San Jose should negotiate this suggested transfer with the San Jose Police Officers' Association
and set realistic timeframes to move these safety positions to civilian positions.
RESPONSE: This recommendation is not applicable to the City of Palo Alto. The City,
however, continually explores opportunities in this area.
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Finding 11
In many cities, the contract negotiation process is completed by placing the negotiated collective
bargaining agreements on the consent calendar for approval, which is acted on quickly at the
start of council meetings by a single motion and vote of the council.
The City of Palo Alto agrees with this finding.
Recommendation 11
Cities should consider holding well-publicized public hearings about the cities' goals of
negotiations before negotiations begin, and again at the end of negotiations to report to citizens
clearly what changes have been made in contracts.
RESPONSE: The City has held nuroerous information meetings with the public, Couneil and
employees about the financial stresses it faces and the upcoming budget process. Solutions to
solving budget deficits are proposed and discussed at these meetings. Embedded in the
proposals are targets for labor cost reductions which are shared publicly. As an example, in FY
2010, a target of around $3 million in labor cost reductions was proposed to Council and the
public to balance the budget. It is the City Manager's responsibility to then propose a strategy
for obtaining those reductions in closed sessions with Council. Naturally, that strategy changes
with Council input and as negotiations evolve. Council is kept informed on cvery major point or
change in negotiations.
During the City's negotiations with SEIU in FY 2010, the City established a publie Web site that
explained the City's proposals.
The results of negotiations are sent to Council 'in a City Managcr Report and in public session,
the Council must approve of a final contract. For example, on August 2, 2010, a Memorandum
of Agreement with SEIU will be presented at a publie hearing. Cmmci! Members, as well as the
public, have the opportunity to make comments on the negotiated terms.
Finding 12
Current contracts were negotiated in good faith by representatives of the cities and the bargaining
units; they were approved by the city councils. Promises made to employees were made by
elected officials, past and present. Responsibility for formulating and approving solutions to
restore the cities' financial stability resides squarely with our elected officials. The economic
downtum has placed additional pressure on the situation.
RESPONSE: Agree
Recommendation 1211
City council members and mayors should become better informed about the fiscal realities in
their cities, long-term costs and commitments, and be eognizant of potential issues in labor
agreements,
12
RESPONSE: City has implemented. Palo Alto's Council Members are especially well
informed about the City's financial condition and important issues in labor agreements. Palo Alto
has a Finance Committee comprised of 4 out of the 9 Council Members to discuss fiscal issues
prior to items being presented to the full Cmmci!. Meetings and reports on budget issues occur
throughout the year. This includcs a presentation on the LRFF; quarterly, midyear, and year-end
reports on the City's financial condition; preparatory information and staff plans for addressing
budget issues prior to Finance Committee and full Council budget deliberations.
In calendar year 2009 staff and Council Members met in 11 closed sessions to discuss
negotiations on labor contracts. In calendar year 20 I 0 to-date, there have already been 11 closed
session meetings on union contracts.
Recommendation 12b
City councils and mayors should direct city administrators to (re)negotiate collective bargaining
agreements that reverse the escalation of employee costs through concessions, cost sharing, and a
second tier for new employees .
. RESPONSE: This recommendation has been implemented and will continue to be followed to
ensure a sustainable budget. As stated in Finding 5, the City imposed terms and conditions on
SEHJ that has. contained costs and initiated a second retirement tier for new employees. This
new tier will apply to management employees as well. Furthermore, the City will purslle two tier
retirement plans with its public safety employees as well as concessions to reduce medical and
other costs.
Recommendation 12c
City councils and mayors should meet with the bargaining units to clearly outline the cities'
financial health and show how employee costs are impacting the budget.
RESPONSE: Implemented annually during budget process. Palo Alto has a Council-City
Manager (CM) form of govermnent whereby the Council directs the CM to implement its policy
goals. During the past several years, the City'S CMs have held outreach meetings with
employees and labor groups to explain the City's financial condition and the rationale for
proposed expense reductions. Power Point presentations replete with revenue and expense trend
analyses are provided. The CM has met with union employees and the public to explain City
finances prior to the budget process and negotiations.
Recommendation 12d
City councils and mayors should inform citizens of their plans for controlling unsustainable
employee costs and remove politics from the equation.
RESPONSE: Implemented. All budget meetings are held in publie sessions. The City
Manager's proposed budget is reviewed by the Finance Committee (subset of full Council) in
public and public comment is always solicited. During these meetings, Council Members can
13
discuss any proposal or mechanism for controlling costs including reductions in force and
lowering labor costs through wage and benefit reductions. In addition, the City Manager and
Dircctor of Administrative Services (includes Finance), held a plethora of community meetings
on the proposals to balance the FY 20 II budget.
Finding 13
Binding arbitration is not open to the public and results in an adversarial process between the city
and employee groups. Binding arbitration limits the ability of city leaders to craft solutions that
work for the city's budget. The process has resulted in wage and benefit decisions that have been
greater that the growth in basic revenue sources.
RESPONSE: In Palo Alto, all guidance on labor negotiations is provided by the Council with
staff implementing Council policy direction. As representatives of the public and through
numerous mediums (Council and neighborhood meetings, e-mail, letters, newspapers, blogs), the
Council is informed of public sentiment on labor negotiations.
The City of Palo Alto is bound by a section in its Charter requiring binding arbitration for public
safety negotiations that reach impasse. Also, it must follow all legal, regulatory and contractual
requirements regarding labor negotiations. There has, however, been recent discussion by the
Council about submitting a ballot measure to voters on repeal the Charter's binding arbitration
requirement. Further analysis and discussion is likely to be required by Council in the future.
Recommendation 13a
San Jose City Council should make binding arbitration open to the public.
RESPONSE: This recommendation is not applicable to the City of Palo Alto, however, please
refer to the response under Finding 13.
Recommendation 13b
San Jose City Council should prepare a ballot measure asking voters to repeal Section 1111 of
the City Charter that addresses binding arbitration.
RESPONSE: This recommendation is not applicable to the City of Palo Alto.
14
W AIS Document Retrieval
ATTACHMENT B
933.05. (a) For purposes of subdivision (b) of Section 933, as to
each grand jury finding l the responding person or entity shall
indicate one of the followlng:
(1) The respondent agrees with the finding.
(2) The respondent disagrees wholly or partially with the finding,
in which case the response shall specify the portion of the finding
that is disputed and shall include an explanation of the reasons
therefor.
(b) For purposes of subdivision (b) of Section 933, as to each
grand jury recommendation, the responding person or entity shall
report one of the following actions:
(1) The recommendation has been implemented, with a summary
regarding the implemented action.
(2) The recommendation has not yet been implemented, but will be
implemented in the future, with a timeframe for implementation.
(3) The recommendation requires further analysis, with an
explanation and the scope and parameters of an analysis or study, and
a timefrarne for the matter to be prepared for discussion by the
officer or head of the agency or department being investigated or
reviewed, including the governing body of the public agency when
applicable. This timeframe shall not exceed six months from the date
of publication of the grand jury report.
(4) The recommendation will not be implemented because it is not
warranted or is not reasonable, with an explanation therefor.
(c) However, if a finding or recommendation of the grand jury
addresses budgetary or personnel matters of a county agency or
department headed by an elected officer, both the agency or
department head and the board of supervisors shall respond if
requested by the grand jury, but the response of the board of
supervisors shall address only those budgetary or personnel matters
over which it has some decisionmaking authority. The response of the
elected agency or department head shall address all aspects of the
findings or recommendations affecting his or her agency or
department.
(d) A grand jury may request a subject person or entity to corne
before the grand jury for the purpose of reading and discussing the
findings of the grand jury report that relates to that person or
entity in order to verify the accuracy of the findings prior to their
release.
(e) During an investigation, the grand jury shall meet with the
subject of that investigation regarding the investigation, unless the
court, either on its own determination or upon request of the
foreperson of the grand jury, determines that such a meeting would be
detrimental.
(f) A grand jury shall provide to the affected agency a copy of
the portion of the grand jury report relating to that person or
entity two working days prior to its public release and after the
approval of the presiding judge. No officer, agency, department, or
governing body of a public agency shall disclose any contents of the
report prior to the public release of the final report.
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