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RESOLUTION APPROVING THE MEMORANDUM OF UNDERSTANDING WITH THE FIRE UNIT AND MODIFICATIONS TO THE UNREPRESENTED MANAGEMENT/CONFIDENTIAL AND LAW EMPLOYEES’ COMPENSATION PLAN
recommended action
RECOMMENDATION
It is recommended that the City Council adopt a resolution:
1. Authorizing the approval of the Fire Unit Memorandum of Understanding effective July 1, 2016 through June 30, 2019;
2. Authorizing the approval of the amended Unrepresented Management/Confidential and Law Employees’ Compensation Plan (Unrepresented Compensation Plan); and
3. Authorizing the City Manager to take all appropriate and necessary actions to carry out the purpose and intent of the resolution, including implementation and funding of the successor Fire Unit MOU and amended Unrepresented Compensation Plan.
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Summary
In February 2016, representatives of the City began meeting with representatives of the Fire Unit to discuss a successor Memorandum of Understanding (MOU). The Fire Unit MOU was set to expire June 30, 2016, and both parties desired to negotiate a successor MOU effective after that expiration.
The successor Fire Unit MOU presented herein includes a contract term of three (3) years; a 6% cost of living increase adjustment (COLA) to base pay effective July 1, 2016, with no additional COLA’s in the following two years of the contract; base pay salary adjustments for positions significantly below market; additional City health contribution increases in years 2 and 3 of the contract; a vacation cash out option in years 2 and 3 of the contract; elimination of Health Reimbursement Account; and a $250 annual increase to uniform allowance. The amended Unrepresented Compensation Plan presented herein also includes a $225 annual increase to uniform allowance for the Fire Chief and Deputy Fire Chief positions to ensure parity with all fire safety personnel uniform allowance amounts.
Although COLA increases have been restructured to address market conditions, the overall level of increase is consistent with the City’s Long-Range Financial Plan (L-RFP). All compensation increases have been included in an updated L-RFP as described below, and long-term sustainability remains viable. The ability to address market pressures and maintain fiscal sustainability is due to City Council action to set aside funds for Employee Compensation on December 8, 2015, as well as adoption of a new Reserve and Available Fund Balance Policy on March 29, 2016.
The City reached a tentative agreement with the Fire Unit on July 1, 2016. The City has received notification that the Fire Unit membership ratified the successor MOU. The successor Fire Unit MOU and modified Unrepresented Compensation Plan are attached in redlined format as Attachments A and B respectively.
DISCUSSION
Background
The City has had substantial fiscal shortfalls over the past several years culminating in the bankruptcy filing in June of 2012. From 2008 through 2013, employee compensation was impacted through salary and benefit concessions, including base pay reductions due to work furlough. On June 26, 2012, the City Council adopted a final budget for FY 2012-13 under the Pendency Plan filed for the bankruptcy proceedings. It also adopted as part of its Pendency Plan changes in compensation and benefits. Subsequently after bankruptcy, on August 28, 2012, Council adopted a successor MOU for the Fire Unit with a term of one year, expiring June 30, 2013. The Fire Unit then agreed to a one year “contract rollover” MOU Amendment for FY 2013-14, expiring June 30, 2014. On July 15, 2014, Council approved a successor MOU for the Fire Unit with a term of one year, expiring June 30, 2015. On July 21, 2015, Council approved another one-year MOU term for the Fire Unit covering July 1, 2015 through June 30, 2016. The Fire Unit received a 2% COLA in FY 2015-16, and an increase to the City’s health insurance premium contribution.
Because employee compensation had been reduced or stagnant for several years prior to FY 2015-16, the City’s labor market competitiveness was negatively affected. The lack of competitiveness manifested in recruitment difficulty, increased turnover and retention problems. In June 2015, the City hired a compensation consultant who surveyed City positions and other comparable agencies with regards to base salary and total compensation. Numerous positions City-wide and across all bargaining units were identified as being significantly under market (i.e., more than 6% under market) with regards to base salary. The compensation study also identified that the City was significantly under market with regards to the employer paid health insurance premium contribution. City Council took action on April 12, 2016, to improve and increase the options for health care available to employees. The proposed changes for Fire Unit include increases to salary and the City’s contribution for health care and other compensation items to improve market competitiveness. These changes are consistent with the MOU’s approved by City Council on June 7, 2016, June 21, 2016, and July 12, 2016 for SCEA, T&M, O&M, Water Supervisory Unit, B&C, SPMA, amended Unrepresented Compensation Plan, SPOA and Fire Management Unit.
While City representatives continued to negotiate with the Fire Unit on a successor MOU, on June 21, 2016, Council approved an amendment to the then existing Fire Unit MOU, which increased the City’s capped health insurance premium contribution to be reset at 90% of the lowest cost Kaiser Plan premiums, effective July 1, 2016, to ensure parity amongst the employee groups.
Previously, the City Council identified retention and recruitment of employees as a high priority and took action to set aside funds to address market conditions through the adoption of the General Fund Reserve policy on March 29, 2016 and approval of one-time funding for Employee Compensation on December 8, 2015, Resolution No. 2015-12-08-1502.
Present Situation
The relevant amendments under the Fire Unit successor MOU are summarized as follows:
1. MOU contract term for three (3) years - July 1, 2016 through June 30, 2019;
2. 6% COLA and Market base salary adjustments implemented over contract term effective July 1, 2016 (MOU Section 15.9 and Appendix B);
3. Overtime - Sick leave, jury duty, and bereavement leave will count as time worked for Fair Labor Standards Act (FLSA) overtime calculation purposes (MOU Section 11.1 (e));
4. Health Insurance - Agreement to a reopener clause to meet and confer upon City’s request regarding proposals related to City sponsored medical plans and implementation of the Affordable Care Act (ACA) (MOU Section 14.0);
5. City contribution towards health insurance in FY 2017-18 and FY 2018-19 - the dollar value of the City’s health insurance premium contribution will increase by 2% each year respectively, consistent with the City’s L-RFP (MOU Section 14.1(c));
6. Elimination of the 1% City contribution towards Health Reimbursement Arrangement (HRA) (eliminated MOU Section 14.3);
7. The City agrees to continue the Tier Two longevity pay for the eligible members at the 8.75% rate, rather than the previously negotiated rate of four and three-quarters (4.75%) based on the association’s agreement in prior MOU’s to redirect City HRA contributions to buy back this benefit (MOU Section 13.15 (b) (Note: this was done as part of the HRA elimination discussed above. There are only 2 employees eligible for this benefit);
8. Vacation Sellback Option - Allow vacation cash payment option/sell-back during the last two fiscal years of the contract term, of up to 40 hours of vacation each year in FY 2017-18 and FY 2018-19 (MOU Section 9.1 (f));
9. Bi-Weekly Pay Period - Agreement that the City may move to a bi-weekly pay as soon as administratively possible (MOU Section 15.10);
10. Elimination of obsolete language and other language cleanup changes; and
Fire Unit and Amended Unrepresented Employee Compensation Plan:
11. Increase annual uniform allowance from $700 per year to $950 per year for Fire Unit members, and increase annual uniform allowance from $725 per year to $950 per year for the Unrepresented Fire Chief and Deputy Fire Chief positions (Fire Unit MOU Section 13.8; Unrep Comp Plan Section 13.9).
FINANCIAL SUMMARY
Base Pay Increase
The total three-year cost for the pay increase for the 6% COLA is $5.1 million, of which the General Fund portion is $4.4 million. The total three-year cost for the market adjustment increases is $3.0 million, of which the General Fund portion is $2.1 million. The table below shows the base wage increase cost for the 3 years. Funding for an annual 2% COLA was planned in the L-RFP. The additional cost in the first and second years of front-loading a 6% COLA is offset by costs in year three and beyond due to the elimination of the annual compounding of COLA and there is not a negative effect on the L-RFP. The additional cost to front load the COLA in the first year will be funded using one-time savings from prior years. The market adjustments were not included in previous L-RFP projections.
Fair Labor Standards Act (FLSA) Overtime Changes
Counting sick leave, bereavement leave and jury duty leave hours as time worked for FLSA overtime calculation purposes for the three-year contract period will be a total cost of approximately $331,000, of which $281,000 is a General Fund cost.
Health Insurance Contribution
The health contribution cost increases for FY 2017-18 and FY 2018-19 will each be an annual 2% increase, as planned in the L-RFP, from the FY 2016-17 approved contribution. The health contribution increases effective July 1, 2016 for the Fire Unit was approved by Council on June 21, 2016. The cost for the 2% health contribution increases beginning July 1, 2017 is an additional $55,000 annually, 85% of which is a General Fund cost.
Elimination of HRA Contribution
Eliminating the 1% City contribution towards an HRA for Fire Unit members will be an annual cost savings of approximately $138,000
Tier Two Longevity Add Pay continuance
The cost for continuing the longevity add pay for grandfathered individuals at the Tier Two level of 8.75% is a three-year total cost of $50,000.
Vacation Sell-Back
The City previously allowed the option to sell-back vacation time, or take cash in lieu of time off, prior to February 2012. Discontinuing or eliminating the sell-back option was necessary to preserve cash during the fiscal crisis. The annual cost of restoring this benefit for the Fire Unit could be as much as $264,000. These one-time costs will also be funded from prior year savings and will be made part of the FY 2017-18 and FY 2018-19 annual budgets. However, there could be an offsetting increase in productivity if staff take cash in lieu of time off as the hours worked could increase.
Uniform Allowance Increase
Amending the uniform allowance from $700 to $950 per year will be a total cost of approximately $71,000 for Fire Unit members, and an additional total cost of $1,100 for the Unrepresented Fire Chief and Deputy Fire Chief positions.
Prior year savings has enabled the City to direct more funds than previously anticipated toward employee compensation in the near term, and will accelerate the City’s effort to provide compensation consistent with median market levels. To fund the market adjustments in the successor MOUs, some expenditure assumptions in the L-RFP had to be revised to maintain long-term fiscal sustainability. Vacancy savings previously estimated at 3% of total salary and benefits were increased to 5% and the labor litigation budget previously budgeted at $2 million was reduced to an amount in line with post-bankruptcy legal costs. Expenditure savings from early payments of the City’s annual CalPERS costs have also been built into the L-RFP to fund increased labor costs. The Fire Unit is the final employee group that has reached agreement on a successor MOU, and after Council adoption of this successor MOU, all employee groups will be under contract through 2019; these MOU terms should improve recruitment and retention efforts, and ultimately reduce costs associated with staff turnover. Most of these compensation changes are ongoing costs to the City and have to be sustainable in the long-term. With the approval of these MOU terms, the General Fund available balance will be diminished. The General Fund available balance is projected to drop close to the 5% minimum reserve level in FY 2026-27 as shown in the L-RFP chart below. However, Council adopted a new Reserve and Available Fund Balance Policy in March, 2016 and it is estimated that an additional $15 million would be set aside in reserves for economic uncertainties and unforeseen events. Approval of the all the successor MOUs for all bargaining units prioritizes a fiscal commitment to fill vacancies and meet existing expectations for service. The City’s ability to direct funds toward other priorities and expand City services will continue to be constrained.
The above MOU terms were not included in the FY 2016-17 Adopted Budget as approved on June 21, 2016 because confidential labor negotiations were still underway.
The recommended action includes amending the FY 2016-17 Annual Budget to incorporate the cost of these labor changes into the budget in the amounts shown below and in Exhibit 3:
Increase various Salary & Benefit accounts $ 2,586,975
(Detail by fund provided in Exhibit 3 to the resolution)
Attachment A - Fire Unit MOU - redlined
Attachment B - Unrepresented Compensation Plan - redlined