Scores of Morgan Hill employees have long enjoyed a benefit recently coined “the pension pickup” by a local news outlet, but the City Council is at work on a long-term strategy to ease taxpayers’ burden of public personnel benefits by requiring its staff members to pick up more of their own share of retirement costs.
Demanding that public employees pay for more of their state pension is one aspect of California’s recent attempt at pension reform, forcing public employees to share the burden for their retirement costs. While cities, counties and special districts are obligated to pay the employers’ share (which varies from 15 to 36 percent of salaries in Morgan Hill) for each employee’s annual contributions to the California Public Employees’ Retirement System, or CalPERS, individual employees also pay a portion of their own salaries (typically 8 to 10 percent) into the state pension benefits system.
However, a story published Sunday in the San Jose Mercury News reported that 68 cities in the region, including Morgan Hill, Gilroy and Hollister, last year offered a pickup of some of their employees’ share of CalPERS contributions.
In Morgan Hill, taxpayers have picked up at least a portion of half or more of the City’s employees’ shares of CalPERS costs for the last few years, when the number of City staffers has dropped from about 189 to about 170.
But in recent months, City officials have begun responding to the demands and recommendations of the state and the voters, as well as the reality of what now appears to be an unsustainable perk lavished on public employees in rosier economic times, according to Mayor Steve Tate.
“It’s very important we find a way to reward our employees to the maximum we can, but we can’t do it beyond our means,” Tate said. “That’s what we’re seeing with some cities going bankrupt and so forth. If it’s not funded, you get into real trouble.”
A new contract was inked recently with one of the City’s local public safety unions – the Police Officers Association – requiring those employees for the first time to pick up some of the City’s share of their pension costs. Council members hope City Hall can convince Morgan Hill’s two other unions – the American Federation of State, County and Municipal Employees (AFSCME) and the Community Service Officers Association (CSOA) to do the same.
The current two-year contract with AFSCME ends June 30, and requires the 80 AFSCME-represented employees to pay only 1 percent of their 8 percent employee’s share of CalPERS contributions, according to Morgan Hill Human Resources Director Michelle Katsuyoshi. The City picks up the other 7 percent of the AFSCME employees’ share, but Tate and Carr hope to see that change with the new contract. As of Wednesday, City staff were still negotiating a new contract with AFSCME for the fiscal year that starts July 1.
AFSCME represents about 47 percent of the City’s 169-person staff. It costs the City about $435,000 annually – from all funds and not just the taxpayer-financed general fund – to pay the AFSCME employees’ 7 percent CalPERS share, Morgan Hill Finance Director Kevin Riper said.
“We’re trying to share in that cost a little bit more, between the taxpayers and employees themselves,” Councilman Larry Carr said.
Tate and the Council “set a precedent” of requiring employees to pay more of their own way to retirement with City Manager Steve Rymer’s contract, which the elected officials approved in January. That contract requires Rymer to pay his designated 8-percent share of his salary, which comes out to about $16,000, into CalPERS. Before hiring Rymer to its top staff position, the City agreed to pay for previous City Manager Ed Tewes’ entire 8-percent share of his salary, which was about $203,000 in 2012.
The City will continue to pay its own share of CalPERS benefits for the city manager, which is about 16 percent of his salary, or about $32,000.
The Council made a similar contract change when it hired City Attorney Renee Gurza, who was hired in March to replace former City Attorney Danny Wan.
And just last week, the Council approved contracts with two of its employee groups that require staff to pay more of their own retirement costs. A two-year contract with the local POA that starts July 1 requires officers to split the cost of each annual increase in the employer’s share of CalPERS payments (which is expected to jump from about 34.5 percent this year to 36.5 percent of salaries in 2014).
For example, starting July 1, the City and association members will split the annual rate increase in half, with each paying about .96 percent.
The two-year agreement with the POA also gives the 30 or so unionized officers a 2 percent pay raise each year.
Local police already pay their employee’s share of 9 percent of salaries to CalPERS, and will continue to do so under the new contract. The CSOA members pay 8 percent of their salaries to CalPERS.
Also last week, the Council approved a contract with its non-unionized employees that requires all of them to start paying their full employee share of CalPERS starting July 1.
Most of the 30 or so employees in the “management, confidential and professional” group (including department directors and mid-management level staff) pay 8 percent. The police chief and captains pay 9 percent of their salaries to CalPERS.
A key wild card in keeping this trend going in Morgan Hill lies with the imminent agreement with the AFSCME union.
The taxpayers’ burden of public employees’ retirement costs is only expected to grow. In Morgan Hill, the employers’ share (which the City is legally bound to pay unless the employees agree otherwise) of CalPERS costs for police is expected to jump to about 44 percent of salaries in 2017.
For AFSCME and other employees – including the city manager, public works, planning and recreation services staff – Morgan Hill taxpayers (and service users) will be on the hook for about 21 percent of their salaries going to CalPERS by 2017.
In 2018, these costs will add up to about $4.7 million worth of retirement benefits for its employees the City will be responsible for, according to staff projections in the City’s 2013/2014 fiscal year budget.
• $3.2 million: Projected cost, in 2013, of City’s burden for employees’ pension benefits
• $4.7 million: Projected cost, by 2018, of City’s burden for employees’ pension benefits
• 44: Percent of police officers’ salaries the City will owe to CalPERS by 2017
• 21: Percent of all other City employees the City will owe CalPERS by 2017
