- Editor's Note: Novato City Manager Michael Frank shared the notes he was to read before the Novato City Council on July 17 regarding the tentative agreements reached with the city's bargaining units on new employee contracts. The council unanimously approved the agreements Tuesday. For another story about the agreements, click .
I would like to clarify a couple of things regarding the tentative agreements with our unions this evening at Council.
At this time, the City has done absolutely everything legally possible with regard to pension reform. To restate, there is nothing additional that the City could legally implement with regard to pension reform right now. The only remaining change is to reduce the benefit formulas for new employees below the current 2 percent @ age 55 for miscellaneous employees and 3 percent @ 55 for safety employees. However, this change needs to be considered carefully and strategically since there are implications and impacts. The City Council chose not to pursue this change at this time for the following three reasons.
* 3-Year Window for PERS Contract Changes Closed for Novato until September 2014. PERS only allows a public agency to change their contract with PERS every three years. Based on the prior pension reforms that the City implemented with the last set of negotiations, the earliest that the City can modify the current contract and consider a reduction in the benefit formula is September 2014. The proposed two-year agreements that Council will consider tonight will end in June 2014 which allows Council to consider a benefit formula change at that time. So, at this time, the City Council cannot legally change the benefit formula and must wait until September 2014.
* Negligible Immediate Savings. While a reduction in benefit formula is an important long term reform consideration, it provides only minor savings until there has been sufficient staff turnover, which is generally 10 years from the point of adoption. The projected savings are outlined below.
- Year 1 = $7K savings
- Year 5 = $36K savings
- Year 10 = $72K savings
* Hiring of Talented Employees. The City needs to be cautious about moving forward with lower benefit formula ahead of our neighboring cities and the region overall, since we believe that it will limit our ability to hire talented employees. If Novato’s PERS benefit formula is lower, packaged with lower salaries and a more modest benefit package, then prospective employees (especially technical, professional, and management employees) will not come here. Other communities that have moved to 2 percent @ 60 for miscellaneous are already finding this scenario to impact them.
Council worked diligently in these contracts to shift EPMC to employees and eliminate the reporting of EPMC as reportable compensation. This is significant pension reform that creates short terms and long term cost savings. These contracts partially backfill an employee’s salary which attempts to mitigate some of the impact on employees with the shift of EPMC but not completely.
The take-home pay of a City employee paying full family health care is the same at the end of this contract as it was seven years prior. If one’s goal is a reduction in compensation for City employees, then one could argue that there should have been additional concessions. There are consequences, however, to such actions both short term and long term.
These contracts produce ongoing savings to the City. Using the February forecast as the starting point for labor negotiations, the City has reduced the projected deficit by $800,000 per year and $1.6 million over the two year term of the agreements. In year 5 of the Forecast, this savings increases to just over $1 million.
Novato has historically been fiscally prudent and taken deliberate cautious actions to protect the tax base of this community. Novato entered this recession with lower PERS benefits, lower salaries, minor legally mandated post retirement benefits, and a lower benefit package.
With this context, Council’s goal is to reduce expenses, complete pension reform and yet build an excellent organization with talented employees. We believe this contract meets Council’s goals.