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HomeMy WebLinkAboutID-3034 City of Palo Alto (ID # 3034) City Council Staff Report Report Type: Action ItemsMeeting Date: 7/23/2012 Summary Title: Implementation of Terms for Police Managers' Association Title: Adoption of A Resolution Implementing Terms for Police Managers’ Association Pursuant to Government Code Section 3505 From: City Manager Lead Department: Human Resources Recommendation Staff recommends that the Council hold a public hearing and adopt the attached resolution implementing the changes described in this report to certain terms and conditions of employment for employees in the Police Managers’ Association. Background The Police Managers’ Association (PMA) petitioned to form a bargaining unit in September 2009, which was accepted by the City on October 29, 2009. Previously they had been members of the unrepresented Management/Professional Unit. This group consists of two (2) Police Captains and five (5) Police Lieutenants, all sworn officers. The current average salary for PMA members is $165,000. The City and PMA began negotiations over two years ago, in January 2010, The parties have held 28 formal meetings and numerous informal discussions and exchanges, including a 6- month period in FY 11 during which the City had in-depth discussions with all labor groups about retiree medical benefits and the PMA president took the lead on the labor side of those discussions. The Meyers Milias Brown Act (“MMBA”) requires the City to bargain in good faith, and prohibits it from changing terms and conditions of employment for represented employees without completing good faith negotiations and legally mandated impasse procedures. Thus, when the Police Managers formed a union in 2009 the City was generally required to maintain the status quo on benefits until changes could be negotiated through collective bargaining. After negotiating in good faith to impasse, California Government Code Section 3505.7 allows the City to implement the terms of its last, best, and final offer after completing applicable impasse procedures and holding a public hearing. Although implementation does not establish a Memorandum of Agreement, the implemented terms will change the status quo on items implemented until the parties can reach agreement. Following implementation, the City is still required to negotiate matters within the scope of representation and, at a minimum, must meet and confer prior to adoption of the budget for the next fiscal year. On May 23, 2012 the City declared impasse in the PMA negotiations. A new state law effective January 1, 2012 allows a union to request fact-finding as an impasse procedure within 30 days of the declaration of impasse. If fact-finding is requested, the City must complete that process prior to implementing terms. However, the PMA did not submit a request for fact-finding. Therefore, section 3505.7 allows the City to implement terms after holding a public hearing. Given the extensive period of time the parties have been bargaining, the detailed discussions and exchange of ideas without final agreement, and that the PMA’s proposals on retiree medical have not met the City’s fundamental objectives of cost and risk sharing, staff believes that continued discussions would be futile. Further, the lack of overall agreement has prevented the City from establishing a second pension tier for police officers and police managers which is a high priority structural change for the City and one that has already been completed for miscellaneous employees and fire fighters and fire managers. Discussion The parties have been bargaining for an initial MOA for more than two years. During these PMA negotiations the City also negotiated and reached significant concessionary agreements with the fire union and fire chiefs, as well as the police union. The City has focused on negotiating three key concessions consistent with those established with the Management/Professional unit and Fire Chiefs’ Association: (1) an employee cost share for medical premiums of 10% for active employees, (2) a contribution toward medical by future retirees and (3) creation of a reduced second pension tier. SEIU and IAFF have also agreed to contracts with these three concessions. The PMA and the City have drafted and signed tentative agreements on all subjects except a contribution to medical premiums for future retirees, an issue on which the parties remain fundamentally at odds and substantially protracted the negotiations. The City proposed the same language for PMA that SEIU, IAFF, FCA, and Management now have, which provides that the City will pay the same amount for future retirees that it pays for active employees. The result of this language is that since active employees pay a portion of the medical premium costs, future retirees will also share in that cost. Although the PMA proposed several alternatives to the City’s proposal, the City rejected those alternatives because none involved contributions from employees in retirement. Although the PMA argued that some alternatives could save the City more money than the City proposal, the City does not believe that it is appropriate to exchange potential short term monetary savings for a long term structural change that requires employees to share in the cost and the risk of this benefit. The City strongly believes all employees should share in the sacrifices made to find solutions to our problems of escalating pension and medical costs, and has been negotiating similar language to establish modest employee cost sharing for pension and medical benefits across all units. Sharing the risk of future increases invests everyone in focusing to keep future costs down. The City not only faces economic pressures in the current budget, but also has concerns about projections for the next 10 years that indicate steep increases in medical and pension costs will continue. The structural change of employee and future retiree contributions to medical premiums recently established for miscellaneous employees and managers as well as all fire employees has had a positive impact, reducing the City’s OPEB liability by approximately $15 million. Alternatives put forth by the PMA such as requiring current employees to contribute more as active employees in lieu of medical contributions as retirees or substantially reducing the benefit for new hires in lieu of not requiring a retiree medical contribution, would mean that a group of current employees would not have to share in the costs and the risks. The City does not believe it is fair or in the best interest of the City’s long term financial health to exempt PMA from having to make contributions as future retirees. To help provide perspective on the magnitude of the problem, an April 2010 CalPERS study found lifetime expectancy to be slightly higher than age 80 for both men and women, including those in public safety. Recent history shows 3 of the 7 members of PMA recently retired on their 50th birthday. There could be in excess of 30 years of medical coverage after retirement for each of these former employees. Right now the City carries the full burden to fund medical coverage for retirees and their families and carries all of the risk for all future premium increases. In just the past two years the City's accrued unfunded actuarial liability for retiree medical benefits has grown from $105 million to over $130 million. With this year's average PERS medical premium increase of nearly ten percent, there is little reason to feel optimistic that this number will stop growing, making the need for everyone to contribute even more critical. Therefore staff recommends implementing the following terms for this unit, all of which were tentatively agreed to by both parties prior to the City’s declaration of impasse, except the provision on addressing retiree medical: 1. Second pension tier with the formula of 3%@55 and final salary calculation based on an average of the 3 highest years rather than the single highest year. The parties reached a tentative agreement to modify the City’s contract with CalPERS to establish a new tier of pension with a reduced formula of 3%@55 and to change the way final salary is calculated for purposes of determining the monthly pension amount. Current employees use the single highest year of salary, future new employees will use an average of the highest 3 years instead. These changes to pension may only be applied to future new hires pursuant to CalPERS rules and will apply to future new hires in the Police Officers’ Association (POA) and members of PMA. The POA agreed to this change in their new contract adopted 5/14/12, but the City has not been able to move forward to establish the second tier until it is approved for PMA due to PERS rules. 2. Medical cost share of 10% for active employees. Until 2009, the City paid the entire cost of an employee medical plan up to the family level. Since that time the City has bargained for employee contributions to medical premiums of 10% across all bargaining units and the unrepresented Management/Professional employees. The City believes that employees should share in the cost of this benefit, the risk of future premium increases, and that employees are better consumers of medical services when they are responsible for some of the cost. The parties reached a tentative agreement on this issue but have not been able to put it in place without approval of the package agreement by PMA. 3. Medical cost share by future retirees The City has bargained for and put in place pattern language across all bargaining units plus the unrepresented Management/Professional group providing that the City will make the same contribution toward medical premiums for future retirees that it makes for active employees. The exception is the Police Officer’s Association and Police Managers’ Association. The Police Officers’ Association and the City are at Impasse on this issue and are in the process of completing Fact-finding procedures on this issue. The City proposed the same pattern language for PMA and PAPOA. The City and PMA exchanged numerous proposals on this topic. All of the PMA proposals were designed to exempt current employees from making a contribution as future retirees. The City rejected those proposals on the basis that the City seeks a consistent and equitable approach to structural change in the retiree medical benefit and exempting one unit of highly paid managers from modest cost share does not meet the City’s philosophical or economic goals. Given that the parties were not able to agree after significant discussion and exchange of ideas and proposals, staff recommends the Council implement the City proposal The City’s contribution to retiree medical for future retirees will be the same City contribution as it makes for active City employees. By implementing the active employee contribution discussed above, the level of contributions will be 90% (City) and 10% (employee) unless and until the parties negotiate something different. 4. Establish a Retirement Health Savings Plan The City and PMA reached a tentative agreement to establish a Retirement Health Savings Plan to provide for a pre-tax mechanism for employees to set aside their own money in an account to be used post retirement for healthcare costs subject to IRS rules and Plan guidelines. The City supports this as a proactive approach to assist and encourage employees to plan for their future. 5. Modify Vacation Cash Out Procedure to Comply with IRS Guidelines The parties reached tentative agreement on this issue. The City met with all bargaining units last fall to update the City’s process for cashing out accrued vacation to ensure compliance with IRS requirements. 6. Management Annual Leave Accrual Timing This provision changes the Management Annual Leave accrual from a fiscal year basis to a calendar year basis to coordinate better with the cash out procedure described above. The parties also reached tentative agreement on this issue. The City believes that implementing these terms at this time is reasonable given the extensive period of negotiations, the fact that all (or in the case of the retiree medical provision, nearly all) employees are already subject to the same provisions, and that the parties have reached tentative agreements on all but one of these issues. Staff regrets that a negotiated deal could not be reached, but given the PMA’s continuing refusal to respond to the City’s key goals for retiree medical, believes that further discussion of that topic at this time will be futile and only serve to further delay the other important changes proposed for implementation. Resource Impact Implementation of the above terms with PMA will have expense savings and cost avoidances. Annual Savings 10% contribution toward medical costs for Active employees $11,000 Savings or cost avoidance from the second tier pension formula of 3%@55 and 3 year average will not be realized for approximately two years after the second tier is implemented. Policy Implications This recommendation is consistent with City Council direction to achieve structural changes in employee compensation for short-term and long-term savings. Environmental Review Implementation of terms is not a project subject to review under the California Environmental Quality Act (CEQA). Attachments: Reso Imposing Terms of Last Best Final Offer PMA (PDF) Prepared By: Elizabeth Egli, Administrative Assistant Department Head: Kathryn Shen, Director, Human Resources City Manager Approval: ____________________________________ James Keene, City Manager