New Police Contract Costs City $800,000 in Upcoming Fiscal Year

By Elizabeth Schneider

June 12 --A new police contract will cost the cash-strapped City about $800,000 more in the upcoming fiscal year, contributing to a looming $16.1 million deficit, The Lookout has learned.

Under the contract, the City will be contributing an additional $1.1 million into the police retirement fund at a time when such contributions are largely responsible for increasing the City’s widening budget deficit.

In return, police took a 3.1 percent cut to base salaries, amounting to about $322,500, according to an analysis of 2001 salaries by The Lookout. Under the contract approved by the City Council in July 2002, police will continue to receive their cost of living increase each year.

The $1.1 million contribution is expected to increase slightly in the 2004/05 fiscal year, according to City Finance Director Mike Dennis.

The contract -- which boosts the City’s contribution rate from 14.1 percent to 20.5 percent in the upcoming fiscal year -- lowers from 55 to 50 the age at which an officer can receive full retirement benefits.

The move is intended to encourage early retirement, said Human Resources Director Karen Bancroft, who negotiates all City contracts.

“It’s cost effective for the city,” Bancroft said. “We can hire newer, lower-paid employees and attract people with a good retirement plan.”

In hindsight, some City officials acknowledge that the agreement may not have been such a good deal due to the investment losses suffered by the California Public Employees’ Retirement System (CalPERS) that are forcing municipalities across the state to boost their retirement contributions.

Contract negotiations would not have included the new retirement formula if the City had been able to foresee the future, Bancroft suggested.

The negotiations, which took place in 2002, went on “before there was an indication of what the financial situation was going to be,” Bancroft said.

City staff, said Councilman Richard Bloom, was relying on what turned out to be optimistic projections by CalPERS, which administers the state’s retirement fund for public employees.

“They relied on what turned out to be very poor projections from PERS,” Bloom said. “This does not reflect on our negotiating skills. The projections turned out to be way too optimistic.”

According to Councilman Bob Holbrook, “the depth of the cost hit us later in the year. I think the police are the big hit right now.”

During negotiations there were “no warnings” of the upcoming fiscal crisis, Holbrook said.

“It felt appropriate at the time,” he said. “It was recommended by staff and the city manager’s office. I don’t recall it being controversial. My understanding is that it’s costing and will cost us a lot of money.

“We have to be careful with future negotiations when it comes to salaries and benefits,” Holbrook said. “We’re doing whatever we can to hold the line.”

While the extent of the stock market’s blow to the state’s retirement fund may not have been crystal clear during contract negotiations, there were signs that cities throughout the state would soon be seeing an increase in contributions on behalf of their employees.

According to the March 2001 edition of the TexPers Federal Report, on February 21, 2001 CalPERS announced that “it had taken its worst annual loss on record in 2000 due to a drop in its stock investments.”

The report also stated that CalPERS “recorded a 1.38 percent loss in the past year, the worst showing for the massive public fund since it began keeping cumulative annual records in 1984.”

Councilman Herb Katz said the City knew “PERS was down” when the contract was negotiated and that the PERS contributions would have an effect on the budget over the long term.

“But we looked at it (decrease in retirement age) and it needed to be done,” Katz said. “You look at why you’re doing it… With police and fire personnel it was essential and well worth it.”

Bloom agreed. “It’s hard to argue that police and firefighters and other workers in the City don’t deserve good benefits.”

Santa Monica isn’t the only City grappling with the budget impacts of increasing PERS contributions. According to Darin Hall, a spokesperson for CalPERS, the downturn in the market has been “hitting a lot of cities throughout the state.”

During 2001 and 2002 CalPERS began to warn its clients of the market’s decline, he said.

“We informed our employers,” said Hall. “We try to give them a heads up to what the following years will be, but we can only guess what is going to happen in the market. Was there writing on the wall? Yes.”

“CalPERS had 10 plus years of positive returns. A lot of cities weren’t even paying anything into the system,” said Hall. “Now we’re getting back to a normal situation, but agencies are taking this as abnormal. It’s been so long that they haven’t been paying anything.”

CalPERS was experiencing a “great ride,” he said. “Then the market took a dip.”

As a result, employers have had to boost their contributions.

“As CalPERS investments fluctuate the employers contribution fluctuates,” said Brad Pacheco, spokesperson for CalPERS. “Regionally in California because the market is down and investment earnings are down, employers, like cities, municipalities and the state have had to increase their contributions.”

Over 240 agencies in the state of California use the three percent at age 50 formula, said Kip Ringem, vice president of the Police Officers Research Association of California.

“But since the budget crisis over the past year or so, there’s been a change to the figures on what cities and counties pay into retirement funds,” said Ringem.

To figure the total amount of money an officer will receive at the age of retirement, CalPERS takes the number of years the officer has been on the force and multiplies it by 3 percent. The result is the amount of final compensation.

For example, if an officer spends 25 years on the force and retires at age 50, the officer will receive 75 percent of his or her highest yearly salary for life.

“[The officer] picks a 12-month period to do the [retirement] calculation,” said Bancroft. “It’s usually the last year on the job.”

In addition to the pay cut, the new police contract eliminated officers pay bonuses for specialized detail work, such as canine and motorcycle duty, though officers who perform these duties received a 5 percent increase to their base salaries.

The new contract also continues perks provided in the past, including compensation for security during film shoots, with an officer receiving a minimum of eight hours of overtime, plus a bonus of $50 per day. (The cost is reimbursed by the film company.)

Employees who require a beeper for their assignment are paid a “beeper bonus”-- $75 for a 72-hour period.

If an officer is called at home while off duty and the “regular sleep pattern is interrupted,” that officer will receive two hours of the base pay.

An officer who has not used sick leave during the course of the year receives a bonus of $250, and an officer who quits smoking for six months receives a one-time bonus of $250.

Employees with bilingual skills receive $100 a month, and those who qualify for bilingual pay will be paid an additional $5 a month if that language is Spanish.

Jorge Casuso contributed to this report.