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SH Council requires employee contributions to retirement and healthcare costs

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By Nick Diamantides
Staff Writer

On Tuesday night, with uncharacteristically somber faces, the five members of the Signal Hill City Council voted unanimously to unilaterally impose a contract on city employees that freezes salaries and requires them to pay a portion of their retirement pension and retirement healthcare costs. About 30 city employees attended the meeting.
Prior to the vote, Robin Nahin, spokesperson for the Signal Hill Employees Association (SHEA), warned the council that imposing the contract would lead to costly litigation. Nevertheless, the councilmembers took turns explaining that the cost-saving measure was necessary and was the best way to avoid having to lay off employees.
The approximately hour-and-45-minute discussion began with presentations made by City Manager Ken Farfsing and Deputy City Manager Charlie Honeycutt.
Farfsing noted that the city’s financial woes stem from the ongoing international economic recession, which economists have called “the worst financial crisis since the Great Depression of the 1930s.” He noted that the recession has impacted Signal Hill in many ways, but most dramatically in the decline of the city’s sales tax revenues during the past two years.
“Sales tax revenues peaked in Fiscal Year 2007-08 at $12.5 million,” he said. “Our current sales tax revenue estimates will total $8.8 million for a drop of 29 percent, or 3.66 million over two fiscal years.” He added that sales tax revenues account for 67 percent of the city’s General Fund, and the loss equates to approximately 21 percent of the General Fund expenditures budget.
Farfsing also pointed out that since 2007, the national economy has lost more than 8.6 million jobs, and economists believe it could take up to five years to replace those jobs. “Local unemployment in the area surrounding Signal Hill is significantly higher than the national, state and county averages,” Farfsing added, explaining that the high unemployment rate translates into less buying. Thus, the city can expect several more years of reduced sales tax revenues.
Additionally, according to Farfsing, the state’s ongoing budget crisis is adversely affecting every city and county in California as state legislators continue to adopt measures that transfer local government revenues into the state’s coffers.
Farfsing added that the economic recession has also caused a dramatic decline in the California Public Employee Retirement System (PERS) portfolio. He explained that the system has lost more than a billion dollars in real-estate investments and is facing decades of unsustainable pension costs. “Employers (state agencies and local governments) are facing steep rate increases to make up for losses in the investment portfolio,” Farfsing said. “PERS has estimated an increase in 26.9 percent for our safety (police) employees and 23.6 percent for our miscellaneous employees in the next three years.” Farfsing added that by June 2015 the city would have to pay $168,160 more into PERS each year from its General Fund for miscellaneous employees.
Farfsing explained that city staff continues to search for budget savings, efficiencies and new revenues. He noted that department heads are succeeding in reducing their budgets by two to three percent annually and, as a result, the city’s annual General Fund budget has been reduced by approximately $487,000. He warned, however, that budget reductions were becoming increasingly more difficult to accomplish and once the PERS rate increases take effect, the city will either have to find a way to pay for them or lay off employees and reduce services to the public.
Further exacerbating the city’s dilemma, according to Farfsing, is the fact that the city currently pays its retirees up to $885 per month for healthcare coverage for the retiree and his or her family. He explained that in 2004 the State Government Accounting Board established new accounting standards for state and local governments. Because of those standards, in order for a city to maintain a high credit rating (necessary for the issuance of bonds) a city must have a reserve fund to prefund retiree healthcare benefits.
The city council established the fund in 2005. By the 2009-10 fiscal year that fund had peaked to $2,433,833, but the city’s declining revenues are making it more difficult to adequately maintain that fund.
To help pay for the PERS rate increase, to maintain the retiree healthcare fund and to meet other budgetary challenges outlined by Farfsing, during the past several months city officials have conducted meetings with SHEA representatives in hopes of obtaining some concessions, including a salary freeze, from the employee union. The negotiations pertain to the contract known as a memorandum of understanding (MOU) that the city has with the union.
“Seven negotiation sessions have been held to negotiate a successor MOU,” Honeycutt said. “However, SHEA’s objections to the city’s proposal for employees to contribute to the PERS rate increases, to assist in the prefunding of retiree medical benefits, and to the salary freeze has led to the city declaring an impasse.”
Honeycutt added that the city offered state mediation in an effort to break the impasse, but SHEA rejected that offer. “Therefore staff recommends that the city council adopt a resolution imposing a successor MOU between the city and SHEA,” Honeycutt said. “This MOU would be in place until December 31, 2010.”
After Honeycutt’s presentation, Nahin, who represents SHEA under a contract with her company, City Employee Associates, stepped up to the microphone. She urged the council to not impose an MOU on SHEA, and to instead direct city staff to return to the negotiating table. Nahin complained that SHEA was willing to make concessions to the city and had offered other cost-reducing measures that would have resulted in bigger savings to the city, but city officials rejected those measures without seriously considering them.
Nahin also argued that the proposed MOU would result in economic hardship for most city employees, and the city lacked the legal authority to impose it on SHEA. She also warned that imposing it would result in a legal challenge that would cost the city more than the money it was hoping to save by imposing it.
As the discussion drew to a close, Councilwoman Tina Hansen explained that, although it pained her to have to impose the MOU, as an elected official her primary responsibility was to the residents of Signal Hill, and due to all the reasons outlined by Farfsing and Honeycutt, imposing the MOU was the only viable option. “I know this is hard, and for many of you this appears devastating,” she told the city employees in the council chambers, but she explained that many city governments are taking much more severe measures.
The other council members echoed Hansen’s comments. Councilman Mike Noll added that city officials had carefully looked at all of SHEA’s offers but determined that the measures spelled out in the MOU were the most efficient and reliable way for the city to meet its obligations.
Mayor Ed Wilson noted that it was only after much study that he decided to
support the staff’s recommendation. “You guys do an outstanding job,” he
told the employees, adding that he understood the council decision would
temporarily damage employee morale. “But morale is worse when there are
layoffs,” he added. “We have to plan three years out.” He explained that by
planning in advance for economic contingencies the city is able to avoid
layoffs and the employees can depend on getting regular paychecks. Wilson also stressed that, due to the city’s precarious economic condition, time is of the essence and cost savings have to be implemented immediately. “It’s
important for us to move forward and everyone at the table knew or should have known what the city’s financial situation is,” he said. The imposed contract requires city employees to contribute the equivalent of 40 hours of pay per year to the PERS program and one percent of their salary per year to the retiree healthcare fund.
After the vote, Councilman Larry Forester said, “I have been 11 years on this council, and this is the hardest meeting I have ever had.”
Later, on the steps of City Hall, Nahin said she would be filing a complaint with the California Public Employees Relations Board. “This wasn’t about money,” she said. “This was about the city not taking the proposals of the employee association seriously.”
The next meeting of the city council is scheduled for 7pm, April 20 in the council chambers of Signal Hill City Hall.

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SH Council requires employee contributions to retirement and healthcare costs