The proposed contract, which the city made public Wednesday afternoon, would apply to the 580 full-time employees represented by the Service Employees International Union, Local 521 — about half the city's workforce. These employees were the first to accept benefit cuts in 2009, when the council first started making structural changes to employee contracts.
The changes are meant to address the steeply rising costs of pension and health care benefits — obligations that have helped lead Vallejo, Stockton and, most recently, San Bernadino into bankruptcy. In Palo Alto, the council plans to hold a broad public discussion in September to consider ways to reduce these costs.
According to a new report from the Human Services Department, the city's medical costs have more than doubled and pension costs have tripled in the last decade, exceeding the city's revenue growth.
"The City cannot continue to absorb all increases in future years and has been negotiating with all bargaining units since 2009 to make permanent, on-going structural change to put in place cost sharing programs instituting employee contributions to medical and pension plans," the report from Kathryn Shen, the city's Human Resources Director, states. "This contract makes progress toward meeting the City's goals in both areas."
The new contract, which the SEIU voted to ratify on July 17, increases the employees' share of health care costs from the current level of about 6 percent to 10 percent of total premium costs. The city's recent contracts with police and firefighter unions resulted in similar concessions from public-safety employees. At the same time, the city will drastically reduce the monthly allowance it gives to employees who don't participate in the city's medical plan. The allowance would drop from $820 to $284.
The SEIU workers will also now be required to pick up the full employee portion of the city's contribution to the California Public Employees' Retirement System (CalPERS), which administers pension plans for the city. The city had traditionally picked up the full employee share, though that changed in 2009, when the workers began paying 5.75 percent of the pension contribution. With the new contract, employees will have to pay the full share of CalPERS' "employee contribution" — which ranges between 7 percent and 8 percent of salary.
At the same time, the pension formula for employees in the second pension tier (those who have been hired after the 2009 contract and who receive less lucrative pension benefits) would be based on the three highest-paid years as opposed to the current system, which bases payments on the single highest year. The city's firefighters and police unions accepted similar conditions in their new agreements.
In exchange for the union's agreement to raise its contributions toward pensions, the city has agreed to give all SEIU employees a cost-of-living increase of 1.68 percent. Workers, however, will no longer receive three floating holidays (they are currently the only labor group to have such holidays). They will also see the probation period for new employees increase from six months to a year.
The recent negotiations bore little resemblance to those in 2009, when the SEIU protested the city's proposed benefit reductions and staged a one-day strike. The council ultimately imposed these reductions unilaterally.
Shen described the most recent round of negotiations between the union and the city as "very professional, even collegial," with both sides doing their homework and contributing data to back up their stances.
"I think both the SEIU and the city were very sober about the current economic situation, and both sides know that we need to be good stewards of finances, especially as other cities are going belly up," Shen told the Weekly.
The new contract also addresses the problem of employee turnover and the challenge retaining employees in light of the recent benefit adjustments. Before the council's June 25 meeting, several SEIU employees talked about the heavy turnover in various departments, especially the Utilities Department, and argued that the loss of experience is threatening to reduce the quality of service.
In the new agreement, the city offers to adjust some base salaries for employees in highly specialized fields. City officials also identified several areas in which the city invests substantial resources in training employees. In exchange for the training, the employees must agree to stay in the city for at least three years after they receive their certification (which Shen said has a value of close to $100,000). Those who choose to leave the organization after getting their certification must pay back $30,000 or a pro-rated portion of the training costs.
The new contract is expected to provide net savings of $545,569 in the current fiscal year, according to the new report. It would be effective from July 1 of this year to Dec. 31, 2013.
The City Council meeting will begin at 4:30 p.m. Monday afternoon, July 23.
READ MORE ONLINE
Reporter Gennady Sheyner's analysis of the financial impact of city workers' pensions, with charts showing the trend over the past 10 years, is posted on Palo Alto Online. Search for "Palo Alto's ticking time bomb."