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Most of the savings come from reducing the pension benefit offered to employees prior to the passage of Measure B. Since Measure B’s passage in 2012, new employees have seen a much lower pension benefit. The settlement strikes a balance between two extremes, but will solidify the savings from the elimination of the SRBR through Measure B while achieving significant long-term savings through revisions to the retiree healthcare plans and Tier 2 pension.
Importantly, the agreement ensures that we can offer benefits that are competitive with other California cities’ police and fire departments. The standard benefit in California, known as “PEPRA,” provides police officers and firefighters with a benefit that pays 2.7% of total final salary for every year worked for that agency. The City’s benefit mirrors the PEPRA formula, but costs taxpayers less money in two key ways: by setting an 80% cap on the total pension and by back-loading the 2.7% accrual rate in the latter years of the employee’s service. This way, San Jose taxpayers can save money while long-serving police and firefighters receive a benefit competitive with that of other cities.
A full description of the benefits of this settlement agreement can be viewed in this op-ed authored by Mayor Sam Liccardo and Former Mayor Chuck Reed.
Retiree medical liabilities: This agreement sharply reduces the likelihood of saddling future generations with additional unfunded debt by halting any future commitment of defined retiree medical benefits. That is, the agreement “closes the plan,” meaning that it forecloses the creation of new liabilities by ensuring that new employees will not enter the plan. Instead, new employees will pay 4% of their pay into a tax-favored defined-contribution account. That account, similar to an IRA, will accrue with investment savings to pay for retiree healthcare in their retirement, until the employee qualifies for Medicare at 65. The City and its taxpayers will have no obligation to contribute to that benefit. Current employees can dramatically reduce their costs by opting into that same defined-contribution account, but still take their past contributions with them into the account. By making that choice, employees waive the City’s obligation to pay.
Pensions: The agreement also reduces the risk and magnitude of long-term liabilities in a couple of ways. First, the deal prohibits retroactive enhancement of benefits. Second, it commits both police and firefighter union support a Charter measure that will require voter approval for any future increases in pension benefits and that the pension plan be actuarially sound. Third, it requires that future liabilities that are “unfunded” (i.e., not covered by City and employee contributions) be split 50/50 between employees and the City, creating a disincentive for irresponsible behavior as seen in the past.
By restoring the language from the pre-Measure B law, the settlement agreement’s disability benefits will assure public safety officers financial security without breaking the bank. At the same time, the agreement will protect taxpayers from abuse by creating an independent panel of medical experts to evaluate whether an employee’s injury suffices in severity to qualifies for disability benefits, and by limiting double-payments for workers’ compensation.
Salaries also constitute a key focus of concern for many departing officers. Prior to this agreement, the median take-home pay of comparably-sized Bay Area police departments exceeded San Jose’s by about 14%.
With an 8% pay increase, our current officers will take a significant step toward pay parity. Half of that pay increase is given in a “non-pensionable” form, meaning that it is not used for calculating the employee’s retirement benefits. That detail is important because it saves the City about $3.6 million and enables officers to keep more of their take-home-pay in their pockets. Finally, the deal also calls for a one-time 5% retention bonus, which contains a “clawback” provision if any recipient leaves before the expiration of the contract.
Furthermore, police wages and benefits did not appear sufficiently competitive to attract full classes of qualified applicants in our police academies; classes with a capacity of 45 recruits have averaged less than 20 academy graduates per class over the past couple of years. Obviously, 8% pay increases help improve the pay profile of SJPD significantly.
The 5% one-time bonus plays a role here as well, because the contract explicitly calls for the City to expand eligibility to any former SJPD officer returning from another city’s police force. By offering officers interested in “returning home” this bonus, City residents will benefit enormously with the service of an experienced, SJPD-trained veteran. In purely financial terms, the agreement grants our community the service of a veteran returning officer for about $5,000, compared to a rookie officer bearing some $170,000 in recruiting, educating, and training costs.
How so? In the June 2015 budget, the Council explicitly authorized $11.4 million in a Police Department Staffing/Operations Reserve for SJPD to use for retention and attraction of officers. This agreement will commit about $9 million of those funds in 2015-2016. The pay increases require another $14 million in ongoing funding for future annual budgets, this exceeds the amounts set aside in reserves and the assumed General Fund Forecast by about $3.3 million. We anticipate that savings generated from sworn Police staff entering the Tier 2 retirement system will close most, if not all, of this funding gap. Any remaining costs can be covered by eliminating vacant positions in the SJPD, positions not likely fill in two years of rapid hiring anyway. In short, the budget will cover the increased costs, and we won’t miss a beat as a result.
First, for the first time in decades, patrol officers in 18 of the highest-crime neighborhoods will remain in place for an entire year, rather than rotating their shift every 6 months. Many community leaders have blamed short shift rotations on officers’ inability to develop meaningful working relationships with key neighborhood leaders, teachers, business owners, and parents. Those relationships form the core of the “community policing” model.
Second, a boost in what’s known as “bilingual pay” will provide a meaningful enticement for more diverse, bilingual officers to work in San Jose. It will also reward those officers who work to improve their fluency in Spanish, Vietnamese, or other frequently-spoken languages.
Finally, the agreement assures the Chief of Police much-needed flexibility to effectively deploy officers on overtime shifts during this period of serious shortfalls in staffing, ensuring better response to fast-shifting circumstances in neighborhoods.
In the meantime, the agreement calls for the parties to collectively seek a judicial ruling that will invalidate Measure B. Assuming that all of the unions and retirees agree to do so, the settlement would rely upon a court process known as “quo warranto” which assures employees will receive the benefit of their bargain with certainty and immediacy, rather than waiting for the uncertain outcome at the ballot box a year from now. Given the uncertainty of the outcome of that court process, or any other, a ballot measure will be supported by all parties to finally lay Measure B to rest.