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Monday, May 11, 2009

Self-Filling Paychecks Crashing Local Budgets

The vast majority of California cities are doomed to financial failure in the near future because of the mandatory raises in salary given to the bulk of their employees and subsequent increase in pension payments. Imagine if you were guaranteed a raise in your salary every year and corresponding raise in your retirement pension with no regard to how well you do your job, all because your employer is worried you will go to work for your competition.

That is what happens with most of the municipal employees across the State of California. Here in Long Beach we hear the same refrains when contracts with various sectors of city employees are being negotiated: 1) We have to pay them more or they will go work for City "X" and 2) We have dedicated employees in the City who deserve our support.

Which is it? Are they dedicated to their jobs or are they mercenaries ready to bolt to Vernon or Bellflower or Santa Ana because the same position there is paying 3% more in base salary? They cannot be both, either they are loyal or they are in it for the bucks. Because almost none of our members of City Council over the years have any business experience, especially management and/or ownership experience, they believe the arguments. As a result our city employees have guaranteed raises in their contracts and when it comes time to renegotiate they are given raises framed in such a way at to appease only the most intellectually vapid among us: our employees are within 5%, 3%, 1% of the median for the sector in the region/state. Of course the employees in the municipalities against whom our employees' contracts are based are represented by the same union and of course have the same language in their contracts. As a result the unions, across several different city governments, have contracts guaranteeing perpetual raises for their members since the median income will always be going up.

Essentially every raise that occurs in any municipality in the state trickles through the system to enact raises for every other city due to a rising median salary and benefit package. If Alameda pays their General Maintenance Worker II's more money then when Richmond's contract renews their workers will get a raise to "stay competitive" and so it trickles down the state, Fresno, San Louis Obispo, Glendale, Bell, Long Beach. And by then when Long Beach gets their raises it will trickle back up to Alameda in time for them to get their new raises.
Keeping in mind how difficult, damn near impossible, it is to fire any employee with union representation, these employees are guaranteed the salaries regardless of productivity, efficiency or any standard of job performance. Further, it includes payments into their pension plan--which is the real budget killer.

As residents we are subject to attempts at blackmail by management telling us, if we do not give these raises and "stay competitive" we will lose our best and brightest to a neighboring city who is paying their employees more. Really? In this economic environment Carson, El Monte or Aracadia are going to bring in new employees to replace existing employees who are what retiring? Being fired? Because they have money in their budgets to hire more General Maintenance Worker II's or Division Budget Analyst Managers?

If anyone decides to leave the guaranteed employment, guaranteed salary--which is quite generous given the lack of performance requirements that can lead to dismissal--and guaranteed pension for a few bucks more, I say let them. Let them go. Here in the private sector we often do, sure go to the suppossed greener pasture, leave stability and venture into the unknown. Employees know this is the case and because of that do not play chicken for pay raises. There is a bottom line to company profit and sustainability, if giving you a raise just to keep you jeopardizes that then good luck at your next place of work if you choose to go. Further, if you cannot justify your raise with corresponding increases in profit, decrease in other expenses, productivity or other measurable output then you will not get one. Try that with a city job.

So if employees in negotiations say, "We can go to ______ (fill in city of choice here) for more pay, I say let them try it. For one we can use the job loss on the city income statement. But more importantly it is a bluff. If we do not give our cops a big pay increase, or our firefighters or our City Hall employees, we will not be seeing any job exodus. When city management uses this argument it is tatamount to me telling my children to go to bed or the Bogeyman will get them.

Currently the City of Long Beach has ninety-four former employees drawing over $100,000 per year in pensions from CalPers for a total of over $11.25 million per year. Guess where that money came from? Not the employees but from the tax payers. Instead of building a new library City Councils past handed out pay raises. Instead of fixing streets or sewers City Councils handed out retirement benefits based on last salary. Instead of protecting the city infrastructure our elected officials and city managers padded salaries, particularly for those groups most active in campaign donations for local and state elections. With each new series of raises comes a series of pension contributions that are that much higher, that drain that much more from city coffers, that creates that many more retirees in the $100k club. Meanwhile the rest of us pay into our own 401(k) with limited company contributions--mainly due to federal tax limitations--and keep pushing back how long we will have to work before retiring.

The City of Long Beach, and other city governments across the state, must stop the spiralling salary increases that feed off each other. Call the employees' bluffs that they will leave their current jobs in search of more pay elsewhere, I say good luck matching what you have now. There is a reason employees in the private sector stay with the same companies for decades: loyalty, steady employment and fairness by both sides.

Finally regarding the pensions Long Beach and other cities need to renegotiate with every group and individual. Retirement benefits should not be set on an employee's last year, or six months, of employment but rather be based on the median income of the last five or seven years. Each employee must pay into his or her retirement account as we do in the private sector. Finally, if an employee leaves before five years they only carry a portion of the city contributions with them.

It is time for our elected officials and senior city management to quit playing us for fools, and time for the electorate to quit being played. Take control of the spending which is 80% of the budget: salaries and benefits. Quit worrying about losing employees and start worrying about saving money for today and into the future. Start acting like employers who care about the long term survival of our city and not like politicians worried about your next campaign donations.

1 comment:

Rick Berry said...

You got it so right, Dennis.