CommentsLA WATCHDOG--The new, four year labor agreement covering the City’s civilian workforce is a huge success according to Paul Krekorian, the Chair of the Budget and Finance Committee, and Paul Koretz, the Chair of the Personnel Committee.
The contract provides for no salary increases for the three year period ending June 25, 2017 and then only a 2% increase in the last year of the contract. Of course, this is after a budget busting 25% increase that was agreed to by Mayor Villaraigosa and the Eric Garcetti led City Council in 2007.
The City was also able to modify the automatic salary hikes under the step increase program, resulting in major savings over the next thirty years.
The City also agreed to establish a Strategic Workforce Development Task Force with the goal of hiring 5,000 new employees by the end of the contract on June 30, 2018. This would include replacing retiring employees, resulting in a net increase of an estimated 3,000 workers.
The City also agreed to establish a pension plan (Tier 3) for new civilian employees to replace the previous pension plan (Tier 2) that was unilaterally imposed by the City in 2012. While the savings related to the new Tier 3 plan are $1.7 billion less over the next thirty years compared to Tier 2, the Tier 3 savings over thirty years compared to the current Tier 1 plan amounts to $5.2 billion.
[Note: The present value of the $5.2 billion in savings is $1.2 billion. This is equal to 15% of the unfunded pension liability for the City’s two pension plans of $8 billion assuming a 7.5% investment rate assumption, but only 9% of the $13.5 billion unfunded liability assuming a Warren Buffett’s recommended 6.5% investment rate assumption.]
The new labor agreement also provides for a settlement agreement between the City and the unions over the acrimonious Tier 2 pension squabble.
Unfortunately, the City was unable to achieve its goal of having City employees contribute 10% of the cost of their Cadillac healthcare plan.
While Krekorian and Koretz were bubbling over about the new contract, the lower salary schedule, and the massive savings associated with the new pension tier for newly hired employees, they failed to consider the impact of this labor agreement on the City’s annual budget and its Structural Deficit.
According to the City Administrative Officer’s budget outlook, the City was projecting a surplus of $36 million for the fiscal year ending June 30, 2019. But this new contract will eliminate that surplus.
Over the next four years (Fiscal Years 2017-2020), the CAO was projecting a budget gap of $37 million. As a result of the new labor agreement, this deficit is estimated to balloon to between $300 and $400 million. This also assumes the unlikely outcome that there will be no raises or increased benefits for sworn and civilian workers when their contracts expire on June 30, 2018.
And this does not take into consideration the recent revelation that this year’s City budget is about $100 million in the hole because of larger than expected legal settlements and judgements.
With these projected deficits, how will the City be able to afford to hire 3,000 new employees? And this also raises the question whether the City has the management resources and information systems to effectively utilize its work force. This concern is justified given Controller Ron Galperin’s damning audits of Street Services, Transportation, and Recreation and Parks.
The City Council is expected to approve this new labor agreement on January 12, 2016. In the meantime, the Herb Wesson led City Council and Mayor Eric Garcetti need to address the impact of this new agreement on the City’s budget and its Structural Deficit.
The City should also consider implementing two recommendations of the LA 2020 Commission that was established at the urging of Herb Wesson.
The first is to establish an Office of Transparency and Accountability to oversee the City’s finances.
The second is to form a Commission for Retirement Security to analyze the City’s pension plans and make “concrete recommendations on how to achieve equilibrium on retirement costs by 2020.” This would help justify the claims of $16 billion in savings over the next thirty years from this new agreement (an average of over $500 million a year!) as well as shed light on the impact of reducing the investment rate assumption to 6.5% as recommended by Warren Buffett.
Angelenos deserve to know what the hell is going on with the City’s budget and whether we can afford this new labor contract. And without transparency, the City’s (and the County’s) efforts to increase our taxes will be met with a resounding NO WAY.
(Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee and a member of the Greater Wilshire Neighborhood Council. Humphreville is the publisher of the Recycler Classifieds -- www.recycler.com. He can be reached at: [email protected])
-cw
CityWatch
Vol 13 Issue 100
Pub: Dec 11, 2015
LA Can’t Afford Its Workforce
