The agreement, which the City Council is scheduled to approve on March 17, continues a trend in rising worker compensation, which has rebounded since the Great Recession.
The contract applies to the 570 employees represented by the Service Employees International Union, Local 521 — about half of the city's work force. The city's proposal includes a 4.5 percent raise for every employee over two years. This includes a 2 percent cost-of-living adjustment upon adoption of the contract and another 2.5 percent in the second year of the contract.
In addition to the 4.5 percent raise, more than half of the SEIU workforce will see salary increases as part of the city's effort to align local salaries with those in comparable jurisdictions. As part of the realignment, 89 job classifications representing about 315 workers will see pay adjustments, according to the city.
The agreement will also shift some of the risk in rising medical costs from the city to the workers. While the city currently pays 90 percent of the employees' health care benefits (an amount that can go up significantly as medical premiums rise), the new agreement would require the city to provide flat fixed-rate contributions.
The new agreement will add about $7.6 million in expenses to the city over the two-year period, which is roughly a 6.3 percent increase in total compensation. About $2.7 million of that will come from the city's General Fund, with the rest drawing from various enterprise funds relating to utilities and public works.
According to the city, bringing employee salaries in line with the market median will cost the city roughly as much as providing the cost-of-living adjustments. The agreement also allows several positions to receive "additional adjustments to address unique recruitment and retention challenges," according to the city.
The city's prior contract with SEIU expired in early December, and two sides had been negotiating since last fall.
The union initially balked at the city's proposals to realign salaries and shift the medical formula. At a January meeting, the city declared an impasse in negotiations, prompting dozens of union workers to voice concerns about the proposed contract at a City Council meeting. Several utilities and public works employees argued that the city is no longer able to attract and retain workers due to insufficient pay.
Since then, the two sides held more meetings and negotiated the deal that was ratified by workers Tuesday, according to the union's announcement. The union described the agreement in a statement as one that "provides workers with some relief after years of cuts." The SEIU was the first worker group to undergo benefit cuts in 2009, which included employee contributions for pensions and health care. Since then, the city has reached similar deals with other employee groups.
"The contract provides city workers with some immediate relief, but I doubt the wage requirements and cost-of-living adjustments will be enough to reverse Palo Alto's current staffing and retention crisis," Margaret Adkins, chair of SEIU, Local 521, said in a statement. "But, it is a step in the right direction."
City Manager James Keene said in a statement: "We are pleased that the SEIU membership has voted to accept this proposal, which offers a fair and balanced deal that seeks to ensure we can retain our excellent employees, where we are seeing heightened marketplace competition, especially in the utilities and enterprise sector, while also controlling health care costs in the future."