The city of Lodi recently inked new contracts with eight of its nine labor unions, and for the first time created a two-tier pension system for public safety employees.
New hires for police officers and firefighters will now have a pension formula of 3 percent at 55 based on the average of the three highest years of pay. Currently, public safety employees use a 3 percent at 50 formula based on the highest single year of pay.
Altogether the city will save $3.6 million over generally a two-year period. Six of the eight contracts go from Jan. 1, 2012 to Dec. 31, 2013, with the exception of the Lodi Professional Firefighters, which ends Nov. 30, 2013, and the Lodi Police Dispatchers Association, which didn't start until May 1.
Also new: City workers will pay the entire employee share of their pensions — 9 percent for public safety and 7 percent for all other employees — by the end of 2013.
The agreements also include various caps on medical costs, which have spiked in recent years.
Most city officials say the negotiations were a success, ensuring the city has a balanced budget and limiting increasingly rising employee costs.
"At first, it looked like, 'Wow, we might not reach an agreement,' but as time went on, reasonable heads prevailed and we were able to reach agreements," Councilman Larry Hansen said. "We are the only city in the county that has 'labor peace' with all of our bargaining unions."
But at least one councilman and one council watchdog worry the contracts did not go far enough to contain employee pension costs.
Councilman Bob Johnson voted against all of the city contracts. Even though he is grateful for the employees' concessions, Johnson said the city needs to find more effective ways to control pension costs.
"I know that's a very difficult nut to crack, but just because it is a hard issue to solve doesn't mean we shouldn't be looking for it, so that's where my frustration comes from," he said.
Ed Miller, a member of Citizens in Action, which is Lodi's version of the Tea Party, said he also worries about the unfunded liabilities of the state's California Public Employees' Retirement System. He said the city needs to take drastic action not only to protect its future financial stability but also to ensure there is money in the retirement accounts for current and retired city employees.
"The city feels like they have their hands tied because the state controls this, but I have to agree with Bob Johnson," Miller said. "Something more needs to be done, because this house of cards is going to come down, and it's going to be horrific."
For more than a year, city staff has negotiated continuously with eight of the city's nine unions, which had contracts expiring either on or shortly after Jan. 1, as well as employees not represented by a union. The International Brotherhood of Electrical Workers contract does not expire until Dec. 31, 2013.
City staff timed the other eight contracts to expire around the same time so that they could negotiate with all of the union groups using all of the same information, City Manager Rad Bartlam said.
Even though it creates more of a workload for city staff to negotiate with eight groups, it helps prevent inequities over time, Bartlam said.
"Six months later, our financial outlook could be dramatically different, so it's not fair to each of the groups," he said. "Someone ends up being a winner, someone ends up being a loser, and I want to make sure everyone is treated equally."
Compared with other cities in the area, the city of Lodi has been "extremely fortunate" in having good relations with the unions, Bartlam said. He thanks city workers for understanding the city's need to cut costs.
"We can do all the education we want, but if they do not understand or buy in then it doesn't matter, because this is real money coming out of real people's pockets," he said.
Bartlam and several council members said it is an accomplishment that the union and the city could come to terms without any service disruptions, strikes or lawsuits.
"All of our groups have reluctantly agreed to a reduction of benefits," Bartlam said. "I'm not saying everybody is singing 'Kumbaya,' but I think everyone has realized this is what is not only necessary but good for the community."
Without the employee concessions, Mayor JoAnne Mounce said there would have been service cuts throughout the city to balance the budget. She commended the employees for working with the city.
"The process was very, very painful, I know, for the city council, and I can't imagine what it was like for the employees to give up so much," she said.
So what were the employee concessions?
Employees agreed to continue or increase furlough days or hours, cap the city's cost for medical and make changes to incentive pay.
One of the main areas of concern throughout the negotiations has been changes to the city's pension plans for employees.
For the first time, the city will have all of its union groups besides the IBEW paying the entire employee share of pensions by the end of 2013.
In the past, the city has traditionally paid the employer and employee share of pension costs for all workers.
Now, the employees will pay their full share — 9 percent for public safety and 7 percent for non-public safety employees — by the end of 2013.
State law caps how much cities and counties can make their employees pay toward their pensions. Sworn firefighters and police officers can contribute a maximum of 9 percent while all other employees are capped at 7 percent.
The city's public safety employees have also agreed to a two-tier system.
All of the city's public safety unions — Lodi Professional Firefighters, Police Officers Association of Lodi, Lodi Fire Mid-Management and Lodi Police Mid-Management — have all agreed to a second-tier pension system for new hires.
Currently, public safety uses a 3 percent at 50 formula based on the highest year of pay.
Here is how it works: If a police officer has worked for the city for 30 years and reaches age 50, then the pension is calculated by multiplying 30 by 3 percent. So the retiree will receive 90 percent of their highest year of pay. Public safety is capped at 90 percent. The new tier will be a 3 percent at 55 formula that will be based on the average highest three years of pay as opposed to one, Bartlam said.
The city will also create a second tier with miscellaneous unions, but state rules require all unions in the miscellaneous category to agree to a second tier. Because the IBEW contract does not expire until the end of 2013, the city cannot create the second tier for all of the non-public safety employees until then, Bartlam said.
Miscellaneous employees currently get 2 percent at 55, and the new second tier will be 2 percent at 60.
Did the cuts go far enough?
While he appreciates what employees have agreed to give up, Johnson said he cannot approve contracts he feels do not go far enough to fix the pension issue.
"I have a hang-up in the city not taking additional steps to find a way to resolve the bigger issue, which is the question of pensions," he said.
He said many of the changes, while needed, will not immediately help the city, like creating a two-tier system.
"That's not going to save us a dime until 10 or 15 years from now. What can we do now to create some leveling of the pension costs in the contracts?" he said.
Miller said he would also like to see more discussion of what the city could do to go even further in reducing the unfunded portion of the pensions.
He suggested the city consider changing its formula for current employees or privatizing the pension system, although he admits he is not sure if either of those things could be accomplished.
"We have this huge mess and they are sweeping it under the rug hoping the morons in Sacramento will figure it out," he said.
Bartlam understands Johnson's concerns, but said pension reform needs to come from the state. Asking employees to pay more than 7 percent for miscellaneous or 9 percent for public safety is difficult because the Legislature has created those limits, Bartlam said.
"Until that happens, I think it will be difficult for Lodi or any other city to make that argument with employees that they need to contribute more, because we don't have state statute on our side," he said.
Still, Lodi's new contracts have gone further than the city ever has historically, Bartlam said.
"You have to take steps. We have, I think, been able to show that we have asked for concessions from employees to create a more sustainable financial future. If I couldn't say that, we probably would be asking for more," Bartlam said.
In this round of contract concessions, Mounce said the city did make significant changes employees are going to have to adjust to that are going to change the amount of their paycheck.
"There's two ways to approach it," she said. "You approach it in a manner that is respectful and kind and gives people time to adjust to the financial challenges, which will be grave for their households, and do it in a compassionate manner, or we can shove it at them all at once."
The city has already asked enough of its employees, especially when it comes to pensions, Mounce said.
"Attacking our employees any further would not be fair, compassionate or balanced. We needed to get to a certain point and we achieved that, and any further than that I don't think is right or fair," she said.
Councilman Alan Nakanishi said the contracts will get the city through 2013, and then it can evaluate its financial situation. He is thankful Lodi staff can work amicably when cities nearby, like Stockton, are having contentious labor relations.
"I'm hoping the economy picks up so we do not have to make cuts like we did this year," he said.
For now, Hansen said the concessions went far enough to balance the city's budget and protect the city's reserves.
"Where are we going to be two years from now? We don't know. We got the concessions we needed today to balance our budget today," he said.
Still, the city will have to watch what changes the state makes to its budget, Hansen said, which always leads to uncertainty.
"The bad news is there are still unknowns out there that can affect us, and we won't know until it's right in front of us," he said.