News - July 6, 2011
Atherton: Bids to outsource services suggest 'substantial' cost savings for town
by Renee Batti
As 12 town employees watch the clock tick forward toward the July 15 elimination of their jobs, union representatives, town negotiators, and a state mediator plan to meet on July 5 to discuss proposed employee concessions and private companies' bids to take over Atherton's building and public works services — bids the town's manager has called "really good and very aggressive."
Interim City Manager John Danielson said the town is still evaluating cost savings and other factors represented in the 18 bids the town received by contractors offering building inspection, plan checking, street and park maintenance, and arborist services. But even though the analysis is incomplete, he said, it's clear that, under some of the bids submitted, "the cost savings (to the town) would be substantial."
Teamsters union representatives continue the fight to save the staff jobs by offering cost-cutting plans of their own. Beginning with a proposal that would save the town an estimated $167,000 in employee costs, the union put forward a second offer of concessions that it estimates will save the town at least $300,000.
That proposal includes incentives for early retirements; 10 days of employee furloughs; and employee payment of their entire contribution to the retirement system (PERS), plus a portion of the town's contribution. (The town now pays the employee contributions in addition to its own.)
In late May, 13 employees were given pink slips, to be effective June 30. But the town in early June agreed to postpone the layoff date until July 15 while talks with the union continued.
The town faces a structural deficit of about $856,000 this fiscal year if the current employee structure is retained. The deficit is due to falling property tax revenue and rising employee costs.
The number of employees who might be shown the door on July 15 dwindled to 12 last week with the retirement of public works supervisor Troy Henderson, who has worked for the town for 35 years. His last day on the job was June 30.
Reaction to the planned layoffs and outsourcing of services has been mixed. At the City Council's last meeting, on June 15, former Mayor Malcolm Dudley urged the council to survey residents to see if they're willing to pay a higher parcel tax to retain public services in-house.
According to his calculations, the current $750 annual parcel tax would have to be raised by $350 a year to eliminate the structural deficit in the budget, he said. "I don't agree there's a fiscal crisis," he told the council. "Any time you can solve the problem for $1 a day, it's not a crisis."
After the meeting, Mr. Dudley told the Almanac that if the council allows the layoffs and outsourcing to proceed without a resident survey, he and other citizens will launch a ballot initiative drive to assess support for paying higher parcel taxes.
Posted by Institutional Memory,
a resident of Atherton: other
on Jul 6, 2011 at 6:20 am
First, I accept the premise informed taxpayers believe public employees are overpaid. Private sector defined benefit pensions are rare, if not extinct. Nevertheless, public sector employees continue to have them. I also acknowledge public sector employees used to make less than their private sector counterparts in exchange for a secure job with that defined benefit. Over time, things have changed so that the public sector is competitive with the private sector.
Atherton's leaders are trying to correct the perceived inequity. Yet, Atherton does not operate in a microcosm. Atherton doesn't operate independently. It is part of the broader market for police officers. Though some residents individually might exert a great deal of influence, the Town government does not. Whatever policy the Town Council might adopt could place the Town at a disadvantage relative to their larger municipal peers.
In a perfect world, the market alone would dictate police salaries. The more cops looking for work, the less compensation they could demand as they compete for the available jobs. Today, there are plenty of well trained and qualified cops seeking work. San Jose PD, one of the region's best law enforcement agencies, laid off over 60 Officers last week. Oakland PD had their blood-letting last year. Labor laws and union contracts, however, interfere with pure market mechanisms.
A key differentiator between the private and public sectors is unions. Most government employees bargain collectively. Changing this situation will require more than the Atherton's Council's wishful thinking. Wisconsin leads the way, but the wave has yet to reach California. Given California's traditionally liberal politics, elimination of collective bargaining faces very high hurdles.
Clearly, the Atherton Council is frustrated. They are locked into what they perceive are above market compensation levels. Public pressure leads them to seek solutions to realign total compensation to below private sector levels, including contribution based retirement plans. But, unless Atherton colludes with every other Bay Area municipality, they risk acting alone and to their disadvantage.
The Atherton Town Council has alternatives. At one extreme, they could do what is widely suggested on these forums -- outsource the Police Department. At the other extreme, they could do nothing. Somewhere in between, they can reduce the number of cops on the street (layoffs) or request concessions.
It's helpful to understand the Town's contractual position with the Atherton POA.
The contract is called a "Memorandum of Understanding" (MOU). It is available on the Internet, as it was bundled into a council packet when it was approved in 2009. Scroll down to item #25 in this document: Web Link
The Town Council publicly stated (by way of their recently published FY2011-12 budget) they wish $200,000 in concessions from the Atherton POA achieved through a meet and confer process.
The Town's leverage to bring the Atherton POA to the table is the threat of layoffs or outsourcing. Interestingly, the MOU between the Town and the Atherton POA codifies a process to re-open negotiations. First, the Town Council must declare a fiscal emergency (they haven't). Additionally, there must be less than 2% growth in the property taxes (it's 3+%). The re-opener clause is, therefore, closed. Atherton POA members will need to approve re-opening negotiations.
Typically, when negotiating an MOU with a POA or a Deputy Sheriff Association (DSA), an employer agrees to percentage increases each year the MOU is in effect. For at least the past decade, Atherton has chosen a different methodology.
Atherton pays at the 70th percentile of a "market basket" of local agencies. The measurement is made upon total compensation (wages and benefits). The group of agencies is listed in the MOU.
One point of view is that concessions are already built into Atherton's MOU. If other POAs in that pool have made concessions, those adjustments will be reflected in the annual compensation survey. This decrease will "trickle down" to Atherton.
Another view is Atherton's 70th percentile basis is already "below average". In educational grading standards, 70% equates to a "C-". Taking compensation down to "D" or "F" levels isn't going to help Atherton compete for the caliber Officer they need to provide great service or mitigate liability.
From a long term perspective, paying below market compensation is bad policy.
When an Officer moves from one agency to another, they are called a "lateral hire". Hiring pre-trained, qualified cops reduces expenses and gives the hiring employer a known entity. The prospective employer can look in the personnel file, performance appraisals, commendations, etc. Because laterals cost less to field than someone who has yet to graduate from the police academy, the demand for laterals is certain increase. They are a relatively inexpensive alternative to paying for a rookie. It takes weeks to get them on the street, instead of the year required for someone who needs to go to the academy.
SFPD announced they will focus on lateral hires as a way to reduce their expenses. In doing so, they save the approximate $150,000 (per Oakland's POA) cost of recruiting, back-grounding, training, and fielding a new officer. They also point out a new Officer has a 40% chance of failing to make it to the field, despite the sizeable investment.
Assuming the Oakland POA's estimate is correct, the Town risks having to spend $150,000 (with just 60% possibility their investment will pay off) for each Officer who leaves because of the reduction to D or F level compensation.
It's already started; SFPD hired an Atherton Officer earlier this year into one of their lateral academies! With close to 300 SFPD retirements in the next two years (courtesy of their DROP program), there will be plenty of lateral hiring at SFPD alone. While Atherton cops may not lateral to SFPD, it will be a disruptive factor in the local police labor market.
More importantly, when an agency pays below market rates, they become the de facto training agency for other law enforcement organizations. They install a revolving door, paying for training Officers who leave for other municipalities.
Beyond the estimated $150,000 cost of fielding a new Officer, it costs thousands annually to keep an Officer trained. There are state mandates regarding continuing training. Officers must have a certain number of hours of Continuous Professional Training (CPT) each year. There are also recurring training mandates ranging from first aid to driving schools. Specialty positions require even more state mandated training.
East Palo Alto Police is an example of an agency which paid below market for years. Sure, they found Officers willing to settle for lower wages. Many of them used EPA PD as a training ground and then moved to other agencies. EPA PD has now fixed their revolving door problem, paying market competitive rates.
Atherton has also experienced this problem. They paid below market in the early 2000's and lost several Officers in quick succession to the Sheriff's Office. In response, the Town quickly became competitive with the police labor market by offering today's much maligned industry standard pension plan (3% at 50) and C- compensation. That change stemmed the bleeding.
Returning to below market levels would be a mistake. Institutional memory, however, appears to be short and we're headed toward repeating the failed policy of last decade.
In summary, reducing wages and benefits to "D" or "F" grade level would give the Town a short run gain. It might also satisfy some political pressure placed on the Council. But, ultimately the savings could convert to deep losses from recruitment and training.
Further, below market compensation will introduce the risk of liability, as these new Officers will be inexperienced or be comprised of Officers who had to settle for less than market compensation for other reasons.
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