Palo Alto braces for turnover at City Hall

City looks for new ways to recruit and retain employees

With work habits shifting and employee benefits under fire, Palo Alto is bracing for an exodus of workers from City Hall over the next five years and scrambling to find new ways to attract and retain young employees.

The city expects to lose most of its workforce over the next decade as more Baby Boomers retire and as snowballing employee benefits are reined in by the City Council. The council discussed the trend Monday night, Oct. 15, the first meeting in a series aimed at finding ways to reduce costs while leaving employee morale intact.

Kathryn Shen, director of the city's Human Resources Department, told the council Monday that about half of the city's workforce will be eligible for retirement within five years. And while she said she doesn't expect all these workers to leave at once, the number is significant enough to warrant preparation by the city.

"Even if half of those (employees) retire, we'll still be in a world of hurt if we don't plan for that," Shen said.

The average age of the current workforce is 45, she said. In 10 years, she noted, the city will "have a turnover of almost the entire workforce."

To deal with the looming changes, Human Resources has just established a task force that over the next few months will be meeting with labor leaders and rank-and-file staff and considering the best ways to recruit and retain talent despite the benefit reductions.

Palo Alto has been experiencing a brain drain since 2009, when the city began to renegotiate the benefit packages for city workers. Recent reforms include a second pension tier for new employees, elimination of a bonus program for managers, elimination of the minimum-staffing provision from the firefighters' contract and a requirement that workers in each of the city's major labor unions contribute up to 10 percent for their medical costs (the city had previously footed the entire bill). These reductions prompted a wave of retirements over the past two years and turnover in senior managers and department heads at just about every level of City Hall.

According to a report from Human Resources, between 2007 and today, half of the city's employees have retired and been replaced.

Even with the recent reforms, the city's financial outlook is far from rosy. Its pension obligations have been rising at an astronomical clip, going from $6.9 million in 2004 to $25.9 million in the current fiscal year. They are projected to reach $35.9 million in 2017, an increase of more than 500 percent in 13 years.

Health care costs have also been climbing at a brisk pace. While the city spent $10 million on medical costs in 2002 and $15.4 million in 2006, the number is projected to climb to $27.3 million in the current fiscal year.

With pension and medical costs spiking, the city's benefit expenditures are now taking a greater share of overall employee costs. In 2002, benefits comprised about 23 percent of salaries. Today, they make up 63 percent, and by 2022 they are projected to equal salaries, a prospect that Shen called "pretty frightening."

Faced with these grim projections, the council is trying to balance the need for reducing expenses while stemming the City Hall exodus, which isn't expected to abate any time soon. In addition to demographics and economics, the wave of employees heading toward the exit is also a reflection of changing work habits, Shen told the council. Before, employees often stayed with one company their entire careers. That is no longer the case, she said.

"My generation and my children's generation really look at moving around between private, public and nonprofit (employers) and contributing where they can contribute and growing their skills," Shen said.

To cope with the changes, the city is trying to inject more flexibility to its employee policies and to create more opportunities for employees to advance their careers. Shen pointed to a recent study by the International Public Management Association for Human Resources, which polled more than 2,200 public-sector workers. When employees were asked to name one thing that would improve their job satisfactions, the top responses were: more opportunities to do what they do best; more career-development opportunities and more flexlbility and control over how work is done.

According to the new report, staff plans to use these studies to "develop a recruitment and retention strategy that focuses on a high-performing workforce and combines appropriate levels of training, education, job flexibility, and at-will employment to build a 21st century employment program in Palo Alto during a time of changes to traditional benefits.

"Staff intends to continue open dialogue with employees about the factors that promote engagement and retention, including surveys, focus groups and interviews," the Human Resources report states.

At Monday's meeting, the council voiced support for Shen's proposal to engage city workers. Mayor Yiaway Yeh said that "given the potential loss of the institutional knowledge in such a concentrated amount of time," it's essential for everyone at City Hall to start thinking about the changing workplace culture.

Council members also had plenty of questions about the city's power to further cut pension and health care costs. The former, in particular, is a thorny subject given the many restrictions faced by local jurisdictions, whose pension plans are administered by CalPERS (California Public Employees Retirement System). The process was made even more complicated last month, when Gov. Jerry Brown and the state Legislature agreed on a plan that includes new pension tiers and other pension reforms.

Staff plans to conduct more research about the changes in California's pension laws in preparation for the council's next discussion on employee benefits, which is scheduled for next month and which will focus exclusively on pensions. Future meetings will center on medical costs and other benefits.

City Manager James Keene said the city's trend of rising employee costs began long before the Great Recession. But the economic collapse added a sense of urgency to the Palo Alto's reform efforts.

"Our City Council really moved swiftly and strategically to begin focusing on the structural issues that surfaced right away when suddenly some of the supports were removed," Keene said. "That being said, even despite the actions that have been taken, when you look at the trend lines in pension costs and the way CalPERS actually allocates the costs to the cities we will still see rising trajectories in the future."


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Posted by citizen
a resident of Barron Park
on Oct 17, 2012 at 1:25 pm

Thorough article. Nice work.

Like this comment
Posted by Jan H.
a resident of Old Palo Alto
on Oct 17, 2012 at 1:36 pm

I am so glad to read that they are considering these issues ahead of time, ot as they come up.

Like this comment
Posted by bill
a resident of Barron Park
on Oct 17, 2012 at 3:14 pm

"...create more opportunities for employees to advance their careers." This sounds good, but so far the way employees have advanced their careers, i.e. make more money, was to be promoted to a "managerial" position at a higher salary level. This whether or not they did different work or supervised other employees.

To truly deserve a promotion almost always should mean learning new skills and moving to another department. This is very difficult if the other department did not have an opening. With so many employees projected to be leaving, this should be easy in the short run. In the long run there should be less turnover and hence less opportunity to "advance their careers." Quite a bucket of worms. I predict that Mr. Keene will leave before he is faced with this problem.

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Posted by David Pepperdine
a resident of Another Palo Alto neighborhood
on Oct 17, 2012 at 3:26 pm

Here's an idea:
Let them retire and then (with City Hall whining about lost experience, etc.), hire them back as overpriced consultants while we're paying their pensions. How cool is that!

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Posted by Resident
a resident of Another Palo Alto neighborhood
on Oct 17, 2012 at 3:37 pm

The good news is that all those who are going to retire within 5 years and are at the management level, should not be replaced. We have too many administrators and not enough people doing the real work.

To save money, whittling down the number of chiefs and increasing the number of indians makes sense to me.

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Posted by Wayne Martin
a resident of Fairmeadow
on Oct 17, 2012 at 3:49 pm

This is a prime time to restructure the whole government services delivery model. Palo Alto doesn’t need hundreds and hundreds of $100+K employees on staff, it needs to deliver certain services to the residents/businesses in the most cost-effective way possible. Merging some of the unessential services, such as HR/IT and Parks/Recreation with other local governmental agencies would help to reduce headcount/costs. Outsourcing some of the other staffing—such as police patrolling, ambulance services, and some of the facilities to private contractors would further reduce headcount and costs.

There is no reason that this City could not be run with as many as 50% employees, at less money than is being spent now. The difference in labor costs could be applied to infrastructure needs. Reducing the labor costs by just $20M a year would save over $400M in just 20 years (even more if the money were invested prudently). If the labor costs were reduced by $30M a year—then we would save $600+M after 20 years.

This is not a difficult concept. It just takes a little deft management. We are paying James Keene and his many Assistant City Mangers about $2M a year in salary and benefits. For that kind of money—they should be able to figure out how to downsize the current staffing levels. If they can’t—maybe it’s time to find real managers who can.

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Posted by the_punnisher
a resident of Mountain View
on Oct 17, 2012 at 7:00 pm

the_punnisher is a registered user.

Just a thought:

Think about COMPUTERIZING and CONNECTING the different parts that makeup the infrastructure that is City Government!

That takes quite a bit of power and empire building away from people who shouldn't have it in the first place.

The good news; the power brokers who are smart will bail early ( called " grab & go " ) and the people who remain can actively sabotage the system. ( I WON'T CHANGE AND YOU CAN'T MAKE ME! )

If the taxpayer is able TO USE THEIR COMPUTER to make contacts with city government departments it turns the whole idea of access to city government departments on it's playing the " delay games " by departments, no " resubmit paperwork because we lost your copy " or the lie " we have no record of you submitting that ".

No more Tenure, no more " it's not what you know, it's WHO you know .

You don't pay ( and commit graft ) with a computer...

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Posted by alternate solution
a resident of Community Center
on Oct 17, 2012 at 8:34 pm

Hope to see some creative thinking and restructuring of positions to allow for a greater number of and wider range of part-time opportunities.

This is a community with a wealth of well educated, highly experienced (in both the corporate and non-profit sectors) potential employees who would consider fulfilling part-time employment. Many have young children or aging parents or are pursuing some other interests--but are open to part-time positions that require advanced skills.

Not only would the city benefit from the backgrounds and experiences of these employees, but they are already invested in the local community and familiar with what is working and what needs significant improvement. Most people open to part-time employement are willing to accept fewer benefits in exchange for greater scheduling flexibility. Win-win for the city.

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Posted by Clean Out
a resident of Another Palo Alto neighborhood
on Oct 17, 2012 at 10:58 pm

The turnover has been good for Palo Alto. There has been too much deadwood, too many scandals, and too much gameplaying at City Hall for too long. Jim Keene has partially cleaned house. The expedited turnover in HR, Public Works, the City Attorney's Office, the City Manager's Office, and Administrative Services in the last several years has all been for the good. Let the rest of the old crew leave as expeditiously as possible to complete the job for Jim. Clean 'em out!

Like this comment
Posted by M-Bee-A
a resident of Evergreen Park
on Oct 17, 2012 at 11:19 pm

And so it goes, in this once-land of milk and honey and invention - where all the bees who lived in the land stopped looking for pollen, deciding they'd rather just hear themselves buzz, instead.

Like this comment
Posted by slow torture
a resident of Community Center
on Oct 18, 2012 at 9:54 pm

"Palo Alto has been experiencing a brain drain since 2009, when the city began to renegotiate the benefit packages for city workers."

I would agree that brains have not been in supply for city affairs, and it's getting dumber by the day with the issue of the city desperately selling to developers.

No need to have a brain to sell out.

Sorry, but further commenting on this topic has been closed.

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