Title
Adoption of Resolution Approving a Memorandum of Understanding between the Alameda Fire Chiefs Association (AFCA) and the City of Alameda for the period of November 1, 2015 through December 18, 2021. (Human Resources 2510)
Body
To: Honorable Mayor and Members of the City Council
From: John A. Russo, City Manager
Re: Adopt a Resolution Approving a Memorandum of Understanding between the Alameda Fire Chiefs Association and the City of Alameda for the period of November 1, 2015 through December 18, 2021
BACKGROUND
Other Post-Employment Benefits (OPEB), also known as lifetime medical benefits for public safety employees are one of the two most critical financial issues facing the City. In 2012, in an effort to address this looming and growing financial liability, the City Manager appointed a Task Force to study the issue and develop recommendations for consideration by the City Council. The Task Force included individuals with a wide range of publicly held positions including the City Treasurer and Auditor, several community members, both the Police and Fire Chiefs, the Presidents of the Police and Fire Unions, the Human Resources Director and the Assistant City Manager. After many meetings, the Task Force submitted its recommendations to the City Council, though no formal direction was given to staff at the time. A copy of the Task Force report is attached as Exhibit 1.
In July 2013, staff again provided the City Council with an update to the OPEB situation and recommended that at a minimum, a financial Trust be set up to begin pre-funding the benefit. A copy of this staff report is attached as Exhibit 2. The Trust was created in early 2014 with an initial deposit of $300,000. The City Council also provided direction to the City Manager to begin informal discussions with the Public Safety Associations to develop shared solutions to the problem. Those discussions began in earnest shortly thereafter.
On September 2, 2014, staff met with the City Council in closed session to discuss the formation of a deal that had been developed in concert with the Safety members that would require both the City and the employees to contribute toward an OPEB Trust. The City Council provided direction to the City Manager to continue discussions with the Public Safety Associations and return as progress was made.
On March 17, 2015 staff returned to the City Council in closed session to brief the Council on the discussions and to outline potential deal points that would partially address the OPEB issue. Unanimous direction was given to staff to continue discussions. Finally, on April 7, 2015, Council provided final direction to staff to return with a set of recommendations including a new or amended MOU, for their consideration in open session.
Accordingly, the proposed Memorandum of Understanding (MOU) attached as Exhibit 3, is the culmination of several years of effort by staff, the City Council, and each Association.
DISCUSSION
The proposed Memorandum of Understanding (MOU) between the City of Alameda and the Alameda Fire Chiefs Association (AFCA) is for the period of November 1, 2015 through December 18, 2017. The MOU may be subject to administrative correction for clerical purposes if warranted.
The City and the AFCA have reached a tentative agreement based on the terms negotiated. It is expected that the MOU will be ratified by the AFCA membership prior to the meeting of April 29th.
The MOU being approved is similar to the MOU approved in December 2012, which was due to expire in June 2017. Major changes include:
· The establishment of an OPEB Trust to assist in the payment of OPEB obligations for those contributing to the Trust;
· Funding of the Trust by the City;
· Funding of the Trust by member contributions based on date of hire;
· Wage increases similar to those in the current contract, based on the City's performance of the largest five revenue categories for each year except for one;
· The calculation of retiree pay based on "single highest year" for Classic Employees (generally those hired prior to January 2013) rather than a three year average as required by the Public Employee Pension Reform Act (PEPRA) of 2013;
· An additional non-monetary change that requires all members hired after June 2011 to contribute 2% of pay to the supplemental retirement plan that is currently required of IAFF through their MOU; and
· Administrative changes intended only to ease the functionality of the MOU, resulting in little or no financial impacts.
OPEB Contributions and Establishment of OPEB Trust Account
The City will create a new OPEB Trust (Trust) for the purpose of setting aside and accumulating funds to be used toward the payment of OPEB benefits for those sworn employees in the City's Fire and Police Departments who pay into the Trust and retire after January 1, 2019. The January 2019 date was established to ensure at least 3 years of contributions were made before benefits could be drawn upon. It also allows the Trust to earn interest for an additional 3 years.
In January 2016, the City will make an initial deposit of $5 million dollars into the Trust and will deposit an additional $250,000 each year for ten years starting in 2016. The contributions to the Trust are made on behalf of all public safety members retiring after January 1, 2019, not just one group.
Employee contributions to the Trust are based on date of hire. Those firefighters and managers hired prior to June 2011 who continue to have spousal health coverage will contribute 4% of the top step of a firefighter's base salary into the Trust for the term of the agreement. Those employees that are hired after June 2011 and who no longer have spousal health coverage once they retire, will be required to contribute 2% of their salary to a supplemental retirement plan, which includes a health care savings plan, and 2% toward the Trust, for a total contribution of 4% of base salary.
At the end of the term of the proposed MOU, both the City and the Associations will evaluate the performance of the Trust to determine future contributions, if any.
Wage Increases
In recognition of these contributions, the City is proposing to continue the method of determining pay increases outlined in the current contract, based on how well the General Fund performs, also known as the Balanced Revenue Index (BRI). The BRI is comprised of Property Tax, Sales Tax, Utility Users Tax, Transient Occupancy Tax and Property Transfer Tax.
Wage increases effective the first full pay period in 2016, 2017, 2018 and 2020 will be based upon 50% of the rate of growth during the previous fiscal year in the Balanced Revenue Index (BRI), with a minimum increase of 2% and a maximum increase of 5%, and minimum increases of 3% and maximum increases of 5% in 2020. There will be no wage increases in 2019. Wage increases effective the first full pay period in 2021 will be based on the results of a total compensation survey of firefighters, which includes all forms of pay, to be conducted in June of the previous year. Salaries will be adjusted to the average of the selected five cities, but will be at least 2% and no more than 5%.
Employee Contributions to OPEB and Wage Increases
Date |
Wage Increase |
Employee Contribution Toward OPEB (hired prior to June 2011) |
Employee Contribution Toward OPEB (hired after June 20111) |
1/1/2016 |
2-5% |
2% |
1% |
1/1/2017 |
2-5% |
3% |
2% |
1/1/2018 |
2-5% |
4% |
2% |
1/1/2019 |
Zero |
4% |
2% |
1/1/2020 |
3-5% |
4% |
2% |
1/1/2021 |
Based on survey but no less than 2% and no more than 5% |
4% |
2% |
1 These employees will be required to contribute an additional 2% to a Supplemental Retirement Plan
PERS Cost Share Continues Unchanged
As part of this MOU, the AFCA has agreed to continue participation in the PERS Variable Employee Cost Sharing in that AFCA members hired before January 1, 2013 (Classic PERS members) will continue to pay 15% to their pension premium. Employees hired after January 1, 2013, will make contributions consistent with PEPRA.
Health Premium Cost Share
In addition, pursuant to the previous MOU, AFCA has agreed to participate in employee cost sharing of health premiums at a rate of 25% of the increase of Kaiser premiums beginning January 1, 2016 and 50% of the increase beginning January 1, 2017 and continuing through the duration of this MOU. Notably, as negotiated through the previous MOU, the City's base contribution will drop from the Blue Shield premium to the Kaiser premium beginning January 1, 2016, which is expected to significantly reduce the City's contribution to the health premium. Also pursuant to the last MOU, the City has also agreed to contribute 50% of the cost of vision premiums beginning January 1, 2016.
Other changes:
· Clean-up of language in special pays language to ensure that pay is calculated to correspond to pay periods, to ease administrative burden on the Finance and Human Resources Departments
· Clean-up language regarding Acting Pay to more accurately reflect the appointment into a Deputy Chief Assignment and on-going discussions regarding other office assignments.
FINANCIAL IMPACT
There is no financial impact of the adoption of this MOU for Fiscal Year 2014-15. The financial impact of this MOU will be incorporated in the Fiscal Year 2015-16 and 2016-17 Budget to be presented to City Council for adoption on June 2, 2015. With the approval of all four safety MOUs, the overall financial impact would bring the General Fund available fund balance to $16.9 million or 19% by Fiscal Year 2019-20 from the 20% reflected in the April 16, 2015 proposed budget. This change is a result of a combination of several factors described below.
The General Fund 5-year projection to be presented to the City Council at the April 16th meeting assumes salary increases at 2% each year during the forecast. With the approval of the four safety MOUs, the estimated increase in labor cost as a result of revised salary adjustments will be approximately $115,000 in FY 2015-16 and $268,000 in FY 2016-17. Cumulative salary and related benefits increases over a five-year period is estimated at approximately $1.2 million for all safety groups. This increase is based on the current revenue assumptions and may be greater if the City's revenues used in the BRI calculation will come in higher than the current estimate.
As described in the four agreements, all safety members will begin contributions into the Trust effective 1/1/2016. These contributions will not be used to offset the City's OPEB Pay-As-You-Go costs until 1/1/2019. Staff estimates employee contributions to the Trust from four bargaining groups made between 1/1/16 and 1/1/19 will be $3.0 million. Of this amount, approximately $272,000 will be used toward the reduction of City's OPEB cost in FY 2018-19 and FY 2019-20.
The City contracted with Bartel & Associates (Bartel), an actuarial firm, to project the impact of the OPEB agreement over the next 30 years assuming the employee contributions continue at 4% of the top step of firefighter classification into the future. Bartel projects the City's cumulative savings from setting up and contributing to the OPEB Trust for all safety groups to be $47.3 million. Nonetheless, even with the proposed City one-time lump sum contribution of $5 million and annual contributions of $250,000 for the first ten years coupled with the employee contributions of 4%, the Trust is expected to run out of funds by year 2035, as the City draws upon it to pay for retirement benefits. (Exhibit 5)
Although this agreement is not a total solution to the City's OPEB problem, it makes a significant dent in the City's obligation to fund this benefit and allows the City to get through the California Public Employee Retirement System (PERS) smoothing hurdle. As discussed in the past, PERS has revised many of their assumptions and is attempting to make up for losses experienced during the recession. As a result, they will be increasing their rates drastically over a very short period of time.
Staff and the Associations agree that both must return to the negotiating table to find additional solutions to OPEB. At that time, there will be a better understanding of the impact and future of the PERS smoothing policy, Affordable Care Act, and the economy.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
There is no impact to the Alameda Municipal Code from the adoption of this resolution.
ENVIRONMENTAL REVIEW
This action is exempt from the California Environmental Quality Act (CEQA) because it is not a project which has a potential for resulting in either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment, pursuant to CEQA Guideline section 15378.
RECOMMENDATION
Adopt a Resolution approving the Memorandum of Understanding between the Alameda Fire Chiefs Association and the City of Alameda, for the period of November 1, 2015 through December 18, 2021.
Respectfully submitted,
Elizabeth D. Warmerdam, Assistant City Manager
By: Stephanie Garrabrant-Sierra, Administrative Services Director
Financial Impact section reviewed,
Elena Adair, Finance Director
Exhibits:
1. OPEB Task Force Report to City Council
2. Update to City Council July 2013
3. Memorandum of Understanding between the City of Alameda and the Alameda Fire Chiefs Association
4. Redlined version of Memorandum of Understanding between the City of Alameda and the Alameda Fire Chiefs Association
5. Bartel & Associates OPEB Safety Alternative Actuarial Study Report