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What goes up must come down

Skyrocketing public sector pay returning to earth

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POSTED October 6, 2009 3:53 a.m.

A commitment to helping municipal employees have competitive pay with comparable jurisdictions when the job market and economy was hot was one of the major factors setting up Manteca’s $14 million deficit.

City Manager Steve Pinkerton told a gathering of 30 people attending Monday’s meeting of the city’s largest employers at the Kaiser Permanente Medical Center campus that the majority of that budget gap was due to double digit annual increases in labor costs that included rapidly rising retirement and health benefits as well as compensation. Driving labor costs in part was the increasing need to keep pace with population growth, as well as labor contracts using comparisons with other cities’ pay scales that put upward pressure on overall compensation.

Retirement became burdensome especially for public safety employees who have a reduced timetable to be eligible to retire. The city is now paying the equivalent of 33 percent of salary per public safety worker into retirement benefits each year.

During the past 15 years, compensation data gleaned by the Eberhardt Business Forecast Center at the University of the Pacific shows that private sector compensation in San Joaquin jumped 60 percent while public sector compensation increased 100 percent. A public safety employee who retired in 1994 and received $24,000 a year in retirement back then would receive $80,000 a year if they retired today.

Rising pay and benefit costs when combined with the property tax shrinkage triggered by the foreclosure meltdown that also boomeranged into retail sales were the ingredients for the financial malady sweeping California’s public sector. More than half of the city’s general fund consists of property tax and sales tax receipts.

The solutions as outlined by Pinkerton Monday include:
•basing public sector salaries on local conditions instead of comparing to other cities.
•realizing that the existing job market with 13.8 percent unemployment in Manteca shouldn’t impact recruiting and retaining good employees over the next few years.
•understanding with dropping revenues, compensation has to drop as well.
•working to maintain services which means you can’t make all cuts through layoffs and therefore need salary reductions as well.

Deficit whittled
down to $2.5 million

Manteca about 15 months ago – just shortly after Pinkerton took over – started keeping positions vacant while they scrutinized the budget for ways to reorganize and rethink how services were delivered to cut costs. The city was able to shed positions without layoffs and made other moves in how they did business to whittle the deficit down to $2.5 million.

Part of that was a four percent across-the-board cutback in compensation that went into effect July 1 and effectively negated the 2009 calendar year raises. The end result are furlough days that will take place Thanksgiving week and between Christmas and New Year’s when all non-essential municipal services will be shut down.

Another $1.7 million in savings was projected to come from employee groups forgoing negotiated raises for 2010 and 2011 – each year at 4 percent – giving up or reducing delayed compensation, pay more into their own retirement, and forfeit uniform allowance for two years. Six of the seven city bargaining groups have agreed to the reductions in compensation in exchange for avoiding layoffs for now. The only holdout is the Manteca Police Officers Association.

The remaining $700,000 is expected to come from additional one-time savings.

Manteca has been working to enhance salaries of city employees for the past decade.

When revenues started exceeding expenses in 2006, Manteca leaders felt comfortable entering into a four-year contract that gave all municipal employees four consecutive years of raises through 2012.  That year per capita revenue was at $495 compared to $484 per capita for expenses.

The positive gap jumped to $17 per capita in 2007. Revenues nosedived in 2008 creating a $59 per capita deficit that forced the city to cover shortfalls with bonus bucks paid by developers in exchange for residential sewer allocation. This year that negative gap reached $94 per capita creating the $14 million deficit.

The gap between revenue and expense is expected to widen even more in the next two years if expenses and revenue trends continue as they are.

Since almost 85 percent of all general fund expenditures are wrapped up in compensation, the only option the city had was to go back to the people who benefitted from good economic times – the municipal employees.

Mayor Willie Weatherford noted that the city has effectively had a deficit since the early 1990s after the city for years relied almost exclusively on property taxes. That is when the city started crafting a policy of pursuing retail and major employers that generated municipal taxes. That strategy resulted in Spreckels Park, the Stadium Retail Center, Bass Pro Shops, and Big League Dreams.

The structural deficit talked about during the past nine years came about when the city made their accounting more transparent and leadership noted retirement costs were artificially low because investments by the Public Employee Retirement System  were paying off with double digit returns every year.

Once those high returns started evaporating, cities up and down the state that belonged to PERS became responsible for filling the gap.

To contact Dennis Wyatt, e-mail dwyatt@mantecabulletin.com

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