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January 20, 2006

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Palo Alto Online

Publication Date: Friday, January 20, 2006

Negotiations likely to hinge on benefits Negotiations likely to hinge on benefits (January 20, 2006)

Future city budgets predicted to be hit hard by employee costs

by Bill D'Agostino

Contract negotiations will begin soon for nearly all of the City of Palo Alto's employees, and benefits are likely to be the critical issue.

The two sides may not immediately see eye to eye. City Council members worry about the increasing cost of salaries and benefits, especially health care, while union leaders see Palo Alto as behind other cities in pension payouts.

Administrative Services Director Carl Yeats said city leaders were working on "strategies that will hopefully be agreeable" to the employee groups while also making sure "the cost doesn't become so prohibitive that we can't continue" to afford the benefits.

Nationwide, municipalities and private companies are cutting back on benefits because of rising costs. IBM, for example, announced earlier this month it was freezing pension contributions.

"It's really becoming an immense problem," Yeats said.

Locally, Stanford hospitals have been having extremely tense and unproductive labor negotiations with its largest union. Unless there's an unexpected breakthrough, hospital workers will hold a 48-hour strike next week, starting on Jan. 24.

A first step for the city's negotiations will occur Saturday morning during the City Council's annual retreat. The first two-and-a-half hours of the meeting, starting at 8:30 a.m. at the Cubberley Community Center, will be public and dedicated to deciding upon the council's priorities for the year and reviewing its protocols.

But starting at 11 a.m., council members will adjourn into a private closed session where they are expected to give instructions to the city's labor negotiator. Contracts with all of the city's organized employees, except for the police officers, expire this year. (The police officers association's contract expires in 2007.)

Since salaries and benefits account for 66 percent of the city's $124 million general-fund budget, Saturday's meeting is arguably one of the most important council meetings of the year. By law, council members cannot make public what is said in closed session. But this past Tuesday's council meeting, during which officials publicly discussed the city's long-range finances, offered a glimpse into council members' thinking on the eve of those negotiations.

The council learned Tuesday that salaries and benefits are projected to grow to 69 percent of the general fund budget by 2015.

"I just hope we take this report as a sign that we need to do course correction before we get anywhere near 69 percent," Vice Mayor Yoriko Kishimoto said, "because obviously that crowds out both services and infrastructure spending."

Much of that increased cost would come from benefits. During the next decade, salaries are expected to grow 2.9 percent per year while benefits are expected to grow 4.7 percent annually, according to the "Long Range Financial Plan," a 10-year financial planning document the council reviewed.

The cost of health care alone is expected to balloon from around $9 million in 2005-2006 to approximately $20 million in 2015-2016. The city completely funds health-care plans and a retiree medical plan for its employees and is one of the few jurisdictions that does so, according to the document.

On the workers' side, Phillip Plymale, the chapter chair of the city's largest union, the Service Employees International Union, Local 715, argued the city needed to bring its pension benefits up to other cities' level.

For instance, he noted that the city's retirement package for SEIU gives workers 2 percent of their salary into retirement, at age 55, for every year of service with the city. But other cities are offering 2.7 percent, Plymale said. (Both packages also reward workers who retire past age 55 with a higher percentage of their salaries per year of service into retirement.)

"We are concerned about attracting co-workers (who) want to work here and not have people go away or not be attracted here because of better benefits somewhere else," Plymale said Wednesday.

The contract negotiations come as Palo Alto regains its financial footing. Since the dot-com bust, the city has faced ongoing deficits that forced it to raise fees, trim services and eliminate around 70 positions through attrition and a few layoffs. Because of those cuts and the modestly rebounding local economy, city financial experts are now projecting modest surpluses for the next few years.

However, the city does not have enough funding set aside for major and minor improvements to its infrastructure, such as rebuilding its libraries, police headquarters and other public buildings, according to the financial report.

"If in fact this is the plan that we execute over the next few years, then I think this council will have massively failed the community," Councilman Bern Beecham said Tuesday night.

Despite the projected surpluses, "we are unable to fund our infrastructure as it needs to be," Beecham added. "If we allow this to continue, then this council is spending down our capital."

Staff Writer Bill D'Agostino can be e-mailed at

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