Wednesday, May 12, 2010

Shocker: Unions Miss Point

Zack Scrivner is a local City Councilman who is running for County Supervisor. He has an uphill battle before him because, as a taxpayer advocate and fiscal conservative, he chose to take on the Police and Fire Unions. Recently, the Fire Union began an attack website and will soon be airing an attack commercial, in an attempt to prevent Scrivner from being elected. Here is my take on the situation and some facts which are not being reported by the local malfeasance media. It's a chunk to read, but you'd be doing me a favor if you could read through it, and point out any areas which are not clear, or difficult to understand. It's been a while since I took a writing course, so thoughts in my head just spill out. If you think that paragraphs should be rearranged, feel free to let me know.
Lois Henry posted an opinion piece this weekend discussing Zack Scrivner’s fight with the local Fire and Police Unions, a fight which has gotten really ugly. Let’s wipe away the mud for a moment to determine what caused this battle and who’s right, if in fact either side is?

Before we dive too far into this issue, can we acknowledge that each party within this dispute is self interested? Zack Scrivner, who is running for Kern County Supervisor, is interested in preserving his fiscally conservative record, in an effort to convince voters that he is the best candidate for the position. Zack will fight to act in a fiscally conservative manner to improve his chances in June and again in November, as he should. The Bakersfield City Police and Firefighters are interested in securing the best employment compensation and retirement package that they can. They will lobby and fight to get the best deal that they can, as they should.

Now, let’s take a little trip through history to discover how we got to where we are today.
In the early 2000s under the leadership of a Democratic Legislature and a Democratic Governor, California State approved a change in the pension formula for employees of local governments:
"In 2002, the state’s Democratic-led Legislature authorized local government entities — such as cities, counties and school districts — to change their pension formula from 2 percent-at-50 to 3 percent-at-50, meaning that public employees at least 50-years-old can get retirement pay equal to 3 percent of their best year’s salary for every year they worked, to a maximum of 90 percent."
The maximum benefit which a retiring employee could receive each year was bumped from 60% prior to the Legislature’s action to the 90% reported here, which is actually 98%, but I will explain that further below. While a change of a single percentage point 2% to 3% may not seem like a lot of money, to local government entities this represents a 50% increase in retirement benefits to be paid out. That 50% increase in retirement benefits coupled with the jump in the maximum, 98% of highest pay earned while working, had the potential to create a massive unfunded liability.

When financial circumstances were much better, the Bakersfield City Council, under lobbying pressure from the local employees unions, locally approved the change in retirement benefits which the state had amended previously. The change in benefits was enacted retroactively, which entitled all employees to a 50% increase in retirement benefits, as soon as the legislation was enacted.

It should be noted that there are three major unions which lobby on behalf of city employees: the Bakersfield Police Officers Association which represents the police officers; the International Association of Fire Fighters Local 246 which represents the fire fighters; finally the Service Employees International Union Local 521 which represents most of the non emergency city personnel.

Starting three years ago in 2007, during their annual negotiations for city employee contracts, the City proposed a contract which would provide each employee a 4% raise in 2008, 2009 and 2010 (for a total of 12%), but in return requested retirement reform. The SEIU accepted the contract; however, the Police and Fire Unions rejected it and the retirement reform that it required. Since that time, the SEIU has been operating with a contract, and their employees have received a total of 8% in wage increases. Due to the economic downturn in Kern County, the City has asked and the SEIU has agreed to defer the 2010 wage increase until the end of 2011. Again, the SEIU has complied and continues to operate under a contract. The police and fire bargaining groups, however, are another story.

There exists this mentality that because the BPOA and IAFF unions are made up of local cops and firefighters, that they are immune from being wrong on this issue. I’m not insinuating that they are wrong in seeking the best possible deal for themselves, but to be objective in judging this dispute, you must at a minimum acknowledge the possibility that the Police and Fire Unions are fallible. I have the utmost respect for our first responders. We ask them to do things that a great many of us are unwilling or incapable of doing ourselves. Justifiably, they should be compensated for what it is that we ask them to do. However, when you allow personnel who are otherwise completely healthy and capable of performing functions related to their jobs to retire at the age of 50 with 98% of their maximum salary, you’re creating the potential for a massive unfunded liability. Unfortunately for the taxpayers of Bakersfield, that potential has been realized as a result of our current economic downturn.

Now, just how exactly did the 90% reported earlier in the article turn into 98%? Employees pay into what is called an Employee Paid Member Contribution, which is a percentage of pay for which the employee is responsible (9% for safety personnel and 8% for non-safety). However, after 5 years of service the contribution is paid in full by the city. The EPMC then gets calculated as pay when the pension tabulated, which essentially provides the employee with the 90% reported above of the 9% contribution they/the city was making. Therefore, in actuality, the 90% turns out to be more like 98%.

The important thing to remember is that the retirement reform which Scrivner is proposing would not affect current members of the police or fire unions. The reforms Scrivner is working for would only affect future hires. Police and Fire Unions are fighting hard to maintain a retirement benefit which they, themselves will not lose. Specific details are not available, but TBC is reporting that Fire has offered to take the previous deal resulting in 8% raises and some manner of retirement reform. However, the Police Union has refused to make any concessions on the retirement package and demands the raises as proposed in the original contract. Unfortunately, since 2007 the City’s financial situation has changed dramatically.

The Police and Fire Departments are paid for out of what is known as the General Fund. General Fund Revenues are generated primarily from Sales and Property taxes as well as development, building and several other fees. It doesn’t take a rocket scientist to determine what has happened to Sales and Property Tax revenues over the last three years. According to City Manger Alan Tandy:
"General Fund Revenues are projected at $165,296,100 (including $17,328,650 in beginning fund balance and transfers). This is a decrease of $15,878,555, or 8.8%, as compared to the FY 2008-09 Adopted Budget revenues and reflects the economic slowdown. Items contributing to General Fund revenues include: $55,030,300 in sales and use taxes (down from $62.2 million from the FY 2008-09 Adopted Budget budget [sic])…"

"Other General Fund revenues, such as charges for services, reflect decreases due to the slowdown in building and construction activity and reduced services provided by the City with those user fees…"

"Sales tax receipts are down, reflecting the general economic downturn. Revised revenue projections for FY 2008-09 are about 7.0 percent lower than prior year actuals [sic]…"

"Property taxes also reflect the slowdown in development activity. Property tax revenues are expected to decline by 11.0 percent for FY 2009-10 based on information from the Kern County Assessor…"
The Police and Fire Unions have argued that the 3 at 50 retirement benefit is necessary to attract new recruits to the Bakersfield area. What attracted people to be firefighters and cops before the 3 at 50 deal? They also insist that Bakersfield has some of the lowest paid officers and firemen in the state. However, it’s important to remember that the Bakersfield median income is lower than the State's, $50,409 versus $61,021. Bakersfield median home values are 47% lower than the State's, and city and county taxes are also lower than most other metro and county areas in the state.

I believe that the City Council is acting in a fiscally responsible manner, and that they are requesting that the Police and Fire Unions recognize the economic situation which we are in. Police and Fire Unions had the opportunity to accept a contract which would have provided them with guaranteed 12% in raises, but rejected the deal. Now they want a second shot at that deal, and Bakersfield just doesn’t have the financial ability to extend that deal. Fire and Police unions claim that Scrivner was out to get them before the economy turned sour, back when Bakersfield was flush with money. Unfortunately for the Police and Fire Unions argument, it was they who walked away from the negotiating table, not the city. Further, the Police and Fire Unions miss the point. This was never about 'screwing' the public servants, but reforming a system which created a massive entitlement which would cause massive deficits or huge increases in taxes. How easy will it be to attract new recruits when the city is completely broke, or tax rates are 25%?

BPOA and IAFF, the best possible deal for your employees is 2 at 50 with a maximum of 60% and with deferred raises. Take the deal and run for the hills! Besides, you’ll be back in front of the City Council in a matter of months renegotiating for a new deal, anyway.
In the private sector, many have had their base salaries cut, benefits reduced, and retirement contributions slashed. Granted, in the private sector, most of us do not often place our lives in danger while performing our job duties. I have yet, however, to locate a private company which offers it’s employees the option to retire at the age of 50 with 3% of their highest annual salary for each year they served the company as annual compensation until they die. Did I mention that each retiree receive a 3% cost of living increase each year to offset inflation? Sounds like a sweet deal, if you can get it.

What do you think? Should this, as Scrivner has suggested, be placed on a ballot for voters to decide?
  • PS, Did you see that the Firefighters have started an attack campaign TV commercial and website against Scrivner? Money must not be that tight if they can buy a website and a TV commercial.
  • As a side note- An officer who entered the force at 22, retiring this year as a Sergeant from the force at age 52 with an $80,000 annual salary, will receive a total of $78,400 annually in retirement benefits. If that man lives to 67 (the life expectancy of a man born in 1958) he will receive more than $1.17 million dollars in retirement from the city, not counting the 3% bump for inflation each year.

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