Council okays trust fund for retiree medical costs

Council okays trust fund for retiree medical costs

Michele Ellson

City Council members narrowly approved four-year contract extensions for police and firefighters on Wednesday that include a trust to help cover Alameda’s ballooning retiree medical bills.

After five hours of heated debate punctuated at some times by the burble of a fire radio from one of the many safety workers who packed council chambers Wednesday and another by a shouting match in the hallway outside, council members voted 3-2 to amend the contracts to establish and fund a trust and extend them until December 18, 2021.

The city will pay $7.5 million into the trust fund over the next decade, while safety workers will contribute up to 4 percent of their pay – contributions which city officials expect will fund $47 million of the $188 million in retiree medical costs they estimate the city would have paid if it just paid what it owed for each of the next 30 years. The contracts also provide annual raises of between 2 percent and 5 percent each year except 2019.

Council members who voted in favor of extending the contracts acknowledged that the new trust fund won’t fully address the city’s unfunded pension and retiree medical liabilities. But they said the deal – which has safety employees here paying more for their benefits than any other East Bay city, City Manager John Russo said – lays the foundation for additional fixes.

“This is a limited time offer in the real world,” said Vice Mayor Frank Matarrese, who called the employee contributions to the trust fund a “valuable concession.”

Councilman Jim Oddie said the council should start addressing its retiree benefit liabilities while it has the money; after years of tough budget times, the city is set to end this fiscal year with a multi-million-dollar surplus. And he said it would be bad faith for the council to back away from the contract extensions after voting unanimously in a closed-door session to move forward on the trust fund deal.

“I think it sets a bad tone, and sets back a lot of the progress that we’ve made,” Oddie said.

Councilwoman Marilyn Ezzy Ashcraft also voted for the contracts, saying it wasn’t prudent to allow the retiree medical debt to keep growing when the city has an opportunity to reduce it.

Councilman Tony Daysog voted against the contracts, saying he didn’t think the trust – which is forecast to run out of money by 2035, before many of the workers paying into it will retire – is being funded properly. He wanted other funding sources explored.

“I think what the city manager has put forward is a yeoman’s effort working with the bargaining groups. But it’s not enough,” Daysog said.

Other council members said that additional funding solutions can be worked on independent of the contract deals; in addition to approving the contracts, they directed city staff to establish a standing labor-management committee to discuss solutions.

Mayor Trish Spencer also voted against the contracts, saying she didn’t think it was appropriate to okay the agreements ahead of discussions about the city’s budget for the next two years – which shows the city spending $1.1 million more than it’s earning in 2016-17 and forecasts reserve reductions over five years. Spencer didn’t elaborate or provide an alternative solution to address the retiree health liabilities.

“This has to be addressed, in my opinion,” she said of the projected budget shortfalls. “That’s where we are.”

The contract deals capped eight years’ worth of efforts to address the city’s growing retiree benefit costs – costs that are bedeviling many California municipalities, driving a handful so far into bankruptcy.

Under the state’s 2013 pension reform act, newer workers will retire later with smaller pensions than their predecessors, and Alameda safety workers hired after June 2011 will receive fewer medical benefits and pay more to fund them. The city’s current safety employees hired before those dates will continue to receive the richer benefits, but will pay more for them than workers who have already retired did.

For Russo, the deals punctuated a four-year reign that saw Alameda win deeds to much of the Alameda Naval Air Station, expand its business base and bolster existing efforts to make City Hall more accessible to the public. Russo said the trust fund deal will both help the city cover retiree medical costs it’s obligated to pay while buying city officials time to cope with rising pension costs.

But it came with a series of testy exchanges between residents who are frustrated about the rising cost of public safety benefits and Russo, who has said the city can’t unilaterally slash pay and benefits.

Early in the meeting, Russo traded barbs with Treasurer Kevin Kennedy and Auditor Kevin Kearney, both of whom accused city officials of shutting them out of the process, a charge Russo denied. Some accused the pair of overstepping their authority, while others among the 40-plus speakers Wednesday defended them.

Kennedy argued the city should seek to negotiate with the unions to reduce its retiree medical liability, while Kearney questioned whether the raises – which will increase the city’s pension costs and unknown amount – could somehow not be included in future pension calculations.

The new contracts, which will go into effect in November, will cost the city between $6.25 million and $9.8 million over five years, plus the $6.25 million it will put into the trust fund. The number depends on what kind of tax revenues the city brings in, since raises for three of the years are based on those figures. Raises in the final year of the contract will be based on a salary survey of nearby public safety departments.

The trust fund would open to retirees in 2019. Plans for a second trust fund the city already set up aren’t yet clear.

Current and former county and state legislators lined up with local police, firefighters and union chiefs to voice their support for the contracts. Former state Assemblyman Sandre Swanson called the proposal “an incredible solution” and said that it’s “unique” for workers to contribute.

"Do not turn back on the momentum that you have today," Swanson said.

Related: Proposed safety contracts establish trust fund for retiree care

City reaches tentative contract accords with public safety

Comments

Submitted by MJ (not verified) on Thu, Apr 30, 2015

The solution couldn't possibly be promising less in the first place.

Submitted by Kurt Peterson (not verified) on Thu, Apr 30, 2015

What is not spelled out in the article is that the $91 million (which is the current estimated liability for the the Safety Employees' retirement health plans), will only be reduced by approximately $5 million. This reduction will cost the city between the $12.5 -15.05 million (the numbers listed in the article). In other words, the City is spending $7.5-10.05 million in funding to stretch this problem out to the year 2034. Is this a good plan for the City? I'm not sure. I attended the meeting last night to ask the City Council to postpone the vote on the contracts, so that they could be at least further investigated. The City Treasurer and City Auditor (both elected City Officials) have stated that briefly delaying action on this issue would not affect the liability in any degree. I must also point out that Mayor Spencer actually stated that she had difficulties with approving such a lengthy contract (six years) before the budget was finalized (should be approved in the next few weeks). The Mayor went on to say that these extended contracts we're concerning due to the fact that City Staff has suggested to the Council (in the budget presentation) that the City make 1.5% cuts in all City departments. Why is the public always given the bare minimum time, under the Sunshine Ordnance, to investigate such important matters. Our City's future depends on key decisions like this. I ask our City Council to please not rush their votes. Remember the old saying, Haste Makes Waste!

Thank you Michele for the article. You have listed far more facts in your piece than Peter Hegarty's reporting in the Alameda Journal.

Submitted by FollowAllTheMoney (not verified) on Fri, May 1, 2015

"Councilman Tony Daysog voted against the contracts, saying he didn’t think the trust – which is forecast to run out of money by 2035, before many of the workers paying into it will retire – is being funded properly. He wanted other funding sources explored."

That's called a Ponzi scheme. In fact the entire retirement system already is. Nothing but a bailout can save the lotto retirees from cashing in for the next 30 years.

And don't let police and fire unions bully the city, that's how every city got into this mess. Caving in to GREED.

Submitted by Voter (not verified) on Sun, May 3, 2015

Here's one thing that the city of Alameda should reconsider: allowing a limited number of medical marijuana dispensaries in the Harbor Bay business park. The income from taxing medical marijuana could be used to fund the trust. Already tens of thousands of dollars, if not hundreds of thousands of dollars are going to Oakland's coffers from Alameda's medical marijuana patients. Medical marijuana patients use legal means to obtain a drug that voters in our state have already deemed effective relief from many ailments. While I understand that the city was concerned with issues around dispensaries, we have thrown the baby out with the bathwater and lost a substantial revenue stream for the city that should be reconsidered, that could address these income shortages. Keeping the dispensaries in the Harbor Bay business park would keep them away from most of Alameda's schools.