1. 1 So You Need to Reduce Retirement Costs: Contracting for Reduced Retirement Benefits CSMFO Annual Conference February 29, 2012 Lalo Perez, ASD Director/CFO lalo.perez@cityofpaloalto.org lalo.perez@cityofpaloalto.org 1

2. 2 Discussion About Palo Alto What caused the problem? What mitigating actions has the City taken? What resulted from the changes? Lessons learned Resources

3. City of Palo Alto Data 1,016 FTE 7 Labor Groups – Including 4 safety groups Binding arbitration for safety Salary and benefits account for 64 percent of general fund budget Enterprise Funds include: electric, gas, water, wastewater collection, wastewater treatment, refuse, storm drain, fiber and airport 9 Council Members elected at large

4. 4 Citywide Pension Expense

5. 5 Pension Contributions Miscellaneous PlanPublic Safety Plan Fiscal YearEmployer Employee (City Paid)Employer Employee (City Paid) 200917.005%SEIU, MGT - 6%24.512%All groups - 9% 201017.063%SEIU, MGT - 6%23.938%IAFF - 0%* FCA, PMA, PAPOA - 9% 201117.555%MGT - 6%24.695%IAFF - 0% SEIU - 2.25% FCA, PMA, PAPOA - 9% 201221.725%MGT - 6%30.125%IAFF - 0%** SEIU - 2.25% FCA, PMA, PAPOA - 9% 201322.970%MGT - 6%31.050%IAFF - 0% SEIU - 2.25% FCA, PMA, PAPOA - 9% 201423.300%MGT - 6%31.500%IAFF - 0% SEIU - 2.25% FCA, PMA, PAPOA - 9% * IAFF members began picking up 9% of these costs in exchange for a 9.9% salary increase. ** Employee pays

6. Citywide Health Care Expenses Growth based on CPI

7. 7 Compensation Changes New miscellaneous employees 2%@60 – July 2010 Increased non-management employee share pension contribution to 5.75% of 8% Eliminated bonus plan for Managers Switched from 100% paid medical premiums to 90% 3%@55 for Safety Labor groups along with 3 year average salary – Firefighters agreed Proposing Safety Labor groups pay 9% employee pension contribution share – Firefighters agreed

8. 8 Impacts Experienced large number of retirements due to medical premium contribution requirement Limited impact to attracting new employees Problems in re-hiring former employees: PERS Plan will allow only two active formulas New pension formula and 3 year average final compensation only for new employees Adjusted salary for some key positions Some candidate pools have sufficient qualified candidates but not many laterals with experience

9. 9 Positions Recruited Hired City Attorney, Library Director, CIO, Accounting Manager, and Wastewater Quality Control Plant Operator Hired Planners, Asst. to City Manager, Sr. Financial Analyst and other positions from higher pension formula agencies Difficult recruits: Dispatchers, Lineperson and Power Engineers Challenging hires: Asst. Planning Director, Budget Manager and Sr. Technologist

10. 10 Conclusion Required increased communication and explanations with all involved Prepare a Long Range Financial Forecast and recognize that savings are long-term Compensation plans need flexibility for unique needs Ensure transparency throughout process: 2%@60 becomes 2.418%@63 – impacts are mostly to new employees Impacts of two-tier pension and medical premium cost sharing can be mitigated

11. 11 Resources Link to Palo Alto website re: Labor Negotiations Update http://www.cityofpaloalto.org/knowzone/labor_negoti ations/default.asp http://www.cityofpaloalto.org/knowzone/labor_negoti ations/default.asp Power Point Presentation to Council on Last, Best, and Final Offer http://www.cityofpaloalto.org/civica/filebank/blobdloa d.asp?BlobID=17507 http://www.cityofpaloalto.org/civica/filebank/blobdloa d.asp?BlobID=17507 Staff Report to Council Requesting Adoption of Imposition of Terms http://www.cityofpaloalto.org/civica/filebank/blobdloa d.asp?BlobID=17511 http://www.cityofpaloalto.org/civica/filebank/blobdloa d.asp?BlobID=17511