The City budget took a series of hits in the past three years due to the recession. 

Deficits ranging from $5.8 million in 2008-2009 to $2.4 million in 2011-2012 were closed only by a combination of spending cuts, staff reductions, outsourcing and renegotiating of labor contracts.

Last year, City Manager James Keene imposed a change in pensions for non-safety employees hired after July of 2011 that increased the retirement age and calculated pensions as 2 percent of the last three years' salary multiplied by the number of one's years of service, instead of the previous 2.7 percent. 

Negotiations with the police union and several management unions are continuing, but those agreements should reduce future pension liability also. Those pension changes will reduce expenses in the long-term, but will have little impact in the near future.

Pension benefit increases started in 2004 when then-City Manager Frank Benest proposed lowering the retirement age from 60 to 55 and basing pensions on 2.7 percent of one's pay in his or her final year multipled by the number of years employed by the City. For example, a 30-year employee’s pension would be 81 percent of final pay at 55.  Police and firefighters can retire at 50 with full pensions. Considering mortality expectations, that person could collect the pension for anywhere from 26 to 30 years. Pensions for retirees and current employees can’t be changed unless the employees agree, which, of course, is extremely unlikely.

Pension and benefits will continue growing for years.  More employees than expected retired in 2009-2011, taking advantage of the pensions and health care benefits, and thereby adding $2.7 million to unfunded pension liabilities. There are currently 860 retirees of an average age of 67, and 923 employees of an average age of 44.7.  Considering staffing limits and retirements there will be more retirees than active workers by 2014.

A huge problem is the rapid increase in health care costs.  In 2009, the cost of health care for retirees was predicted to reach $9.8 million - yet a recent study says the actual cost will be $13.6 million. 

Unfunded health care liability was predicted to increase from $104 million to $134.7 million.  Some of this added cost is due to retirees switching from lower-cost plans like Kaiser, with 34 percent of active workers and 24 percent of retirees over 65, to the more expensive PERSCare with no active workers but 36 percent of retirees over 65 enrolled. 

City Manager Keene reported that last year, one health plan increased premiums for family health insurance by a whopping $300 per month.  These benefit and health insurance costs will require either significant reductions in staffing and services, or major revenue increases, which is extremely unlikely.

Interestingly, there is a proposed contract to spend $225,000 for a consultant to review utilities staffing and workloads and recommend ways to make operations more efficient, predict how future trends and technology may impact service provision, and consider what services may be outsourced or discontinued, and adequacy of staffing for internal versus external service delivery.  The report is due by June, 2012.  It would be interesting to see if the results of studying utilities seem promising enough to commission a similar report on general fund staffing, workloads, and operations to see if improved efficiency can readily be obtained. 

A by-product of these studies could be that they will demonstrate to the community the need for added revenues to retain valued functions and services.  At the very least, they should provide data so that people can evaluate City costs and benefits intelligently.