City workers represented by Palo Alto's largest labor union will contribute more towards their pension and health care costs under a labor contract the City Council approved Monday night.
The contract between the city and the 580 employees represented by Service Employees International Union (SEIU), Local 521, is the latest step in the city's four-year effort to control rapidly rising pension and health care costs that are consuming a greater part of the city budget. The drive to curb these costs has been contentious in the past, particularly in 2009 when the city unilaterally imposed on the SEIU a contract that established a second pension tier for new employees, one based on a less generous formula.
The new contract, which the council voted 8-0 to adopt (Vice Mayor Greg Scharff was absent) includes further reforms, including a requirement that workers pay the entire "employee share" of their contribution to the California Public Employees' Retirement System. The "employee" contribution, which ranges between 7 percent and 8 percent of the salary, was formerly picked up entirely by the city. In exchange for the increased contributions, the city granted SEIU employees a cost-of-living increase of 1.65 percent. Also, pensions will also now be calculated based on the worker's three highest years of salary rather than on the single highest year, as has been the practice.
The new contract also requires the SEIU employees to contribute 10 percent toward health care costs, with the city paying the remaining 90 percent. In the past, the city absorbed the entire cost. It also eliminates one of the SEIU members' three floating holidays.
The contract was reached after 14 meetings between March and July 5. The union voted to ratify the tentative agreement on July 17, according to a report from the Human Services Department. In the report, staff commended the union and its bargaining team "for their focus and efforts in reaching an agreement on a successor Memorandum of Agreement with additional structural changes to employee compensation as the City continues to face budgetary challenges in this challenging economic environment." The report notes that the city's pension costs have tripled in the past decade and that its medical costs have more than doubled.
Mayor Yiaway Yeh praised the negotiation process, saying it "highlighted the ability of negotiations to unfold on a constructive timeframe."
"It shows that there was a lot of really good-faith discussions that occurred," Yeh said.
The agreement was particularly significant, Yeh said, because the SEIU is the city's largest labor group. The concessions in the new contract thus have a sizable impact on the city's budget.
The SEIU's acceptance of the city's proposed pension and health care reforms follows similar moves by Palo Alto's fire and police unions. Each labor group has signed new contracts in recent months that raises the employees' share of pension and health care contributions.
The city had less luck with the city's Police Managers Association, which is made up of two police captains and five lieutenants. The group agreed to most of the city's proposals, including its implementation of a second pension tier for new employees. Employees in this tier would fall under the "3 percent at 55" formula (3 percent of salary for every year served, with retirement at age 55) and the pension amount would be based on the average of three highest year. Current employees would keep the existing "3 percent at 50" formula, and their pensions would continue to be based on the single highest year. Police managers also agreed to have active employees contribute 10 percent toward health care costs.
But the sides hit an impasse when it came to health care contributions for retirees. Much like the Palo Alto Police Officers Association, which represents most of the officers in the department, the managers rejected the city's attempt to have retirees pay 10 percent of their medical costs. Unlike the larger police union, the managers group did not request that the city proceed with a fact-finding procedure to resolve the issue in dispute.
With the managers union not moving on the issue of retirees' health care contributions, the City Council on Monday voted 8-0, with Scharff absent, to impose these conditions unilaterally. Employee Relations Manager Marcie Scott said the contract will impose the same types of reforms that other unions, including the SEIU and the firefighters, had recently accepted. Officials noted in the report that the police managers group issued several proposals but that none of these proposals required retirees to pay for health care.
"The City rejected those proposals on the basis that the City seeks a consistent and equitable approach to structural change in the retiree medical benefit and exempting one unit of highly paid managers from modest cost share does not meet the City's philosophical or economic goals," Human Resources Director Kathryn Shen's report stated.
Though Councilman Greg Schmid called it "unfortunate" that the city wasn't able to agree on every issue with the police managers group, he agreed that the city should go forward with imposing the conditions. The city and the union have already met 28 times but could not reach an agreement.